Reports Expected on Jobs, Manufacturing

L.A. Times Archives

Oct. 3, 2005 12 AM PT

From Associated Press

Wall Street has been stewing in uncertainty over the economic effect of hurricanes Katrina and Rita, but a new batch of data due this week will help clarify the situation.

The market rallied Thursday as investors decided that stocks were oversold on concerns about the storms’ aftermath; there was no real news to support the advance. Nobody really knows the effect the hurricanes will ultimately have on the nation’s long-term economic prospects.

For the week ahead, that means an increased chance of high volatility as the various reports come out.

The Labor Department’s job creation report, due Friday, will be of particular interest given that more jobs usually translates into more disposable income, which helps our consumer-driven economy.

If the jobs number is lower than expected, that could cause the market to give up the gains from last week -- if stocks haven’t already moved lower because of high oil prices, other poor economic data or the expected raft of companies issuing reduced earnings forecasts.

Last week, stronger consumer sentiment led to modest gains. The Dow Jones industrial average added 1.4%, the Standard & Poor’s 500 gained 1.1% and the Nasdaq composite index rose 1.7%.

The Institute for Supply Management will give investors a glimpse of the post-Katrina economy with its September indexes. Today, the institute will release its manufacturing index, a measure of the nation’s industrial activity, which is expected to come in at 52, down from 53.6 in August.

And Wednesday, the institute will release its services index, which measures the health of the nation’s booming service sector. The index is expected to be 59 for September, off from 65 in August.

The market’s focus will fall squarely on the job creation report by week’s end. Economists estimate that the economy lost 172,000 jobs in September, all of which is attributable to the hurricanes along the Gulf Coast. A better number could give the markets a lift.

Only a handful of companies will release earnings reports this week, but those that do will be key barometers for their sectors.

Costco Wholesale Corp., the discount retailer, is expected Thursday to report earnings of 65 cents a share, up from 62 cents in the third quarter of 2004. The stock has held up better than many other retailers’ but has still dropped 14.6% from its 52-week high of $50.46 on Nov. 5, closing Friday at $43.09.

Fast-food company Yum Brands Inc., parent of Pizza Hut, Taco Bell, KFC and other restaurants, will release earnings results after Wednesday’s session. Yum has done well for the year despite a general falloff in consumer spending. It is up 20.9% from its 52-week low of $40.03 on Oct. 1, 2004, closing Friday at $48.41. The company is expected to report earnings of 70 cents a share, up from 61 cents in the year-earlier quarter.

The first week of the month is particularly busy for the auto and retail sectors. The nation’s automakers are expected to announce their September car and truck sales today, which could be slightly lower despite the deep discounts and incentives the Big Three have been offering.

In addition, the nation’s retailers will issue monthly sales reports throughout the week, with the bulk of the numbers coming out Thursday. Not only can a company’s sales figures affect its stock, they also can boost or lower competitors’ shares as investors bet on different retailers within the sector.

And finally, companies that experienced a disappointing third quarter will start issuing lower forecasts for their earnings reports. With earnings season starting mid-month, it’s corporate America’s last chance to reduce expectations and hopefully avoid a big drop in share price when the results are actually released.

The Week Ahead

Today

* Automakers report September vehicle sales.

* The Institute for Supply Management reports its manufacturing index for September.