ISM Contracts For 3 Straight Months As Investors Await ECB and August 2012 Unemployment Rate:

The Institute for Supply Management index reading today was more proof the economy is in slow recovery mode.  The ISM dropped to 49.6% in August from 49.8% in July.  This is the worst reading since July 2009 and the trend continues to deviate from what most economists would consider to be expansionary.  Although retail numbers for the last few months have been stellar and car sales rose, manufacturing has slowed in the U.S. significantly which suggests no significant job improvements should be expected..

Investors are awaiting the ECB meeting this Thursday (September 6, 2012) and the non-farm payroll number due out Friday.  Unemployment could rise to 8.4 percent right after the Democrats close this year’s convention in Charlotte, North Carolina which would be a clear signal the Fed Bank needs to move on QE3 and has allowed the economy to lose strength while ‘waiting for more data’.   Our estimate based on last month which ended with initial claims at 374,000 versus 370,000 from the prior week puts overall August 2012 jobs growth at 150,000 +-30,000.  Depending on the labor participation rate, the unemployment rate won’t fall below 8 percent before the election in November.  These days an increase of 150,000 jobs is unfortunately considered -decent even though it doesn’t however keep up with the rate of population growth.

Mario Draghi and the ECB as well as other central banks could help the U.S. Federal Reserve with strong statements this week.  The market didn’t tank after no clarity of quantitative easing from Ben Bernanke at Jackson Hole last week which makes us bullish in the short-run.  The NASDAQ made a decisive turnaround today while the small cap exchange traded fund IWM is close to $83 per share which also gives us more reasons to be positive on equities as more market participants return from vacation and chase performance.