SLE Hillshire Brands Company

Thursday, May 3, 2012

Of today’s busy economic calendar, the Jobless Claims data lessened some of the anxieties that had started building up in recent weeks indicating that the labor market might be losing momentum. Wednesday’s disappointing ADP report appeared to be along the lines of the March jobs miss from the Bureau of Labor Statistics (BLS). We will know for sure tomorrow morning as the April BLS numbers come out whether it was Wednesday’s ADP report or this morning’s Jobless Claims reading that better reflected developments in the labor market.

In other economic reports, we got a better looking non-farm productivity report for the first quarter, with the fall in productivity and rise in unit labor costs coming in less the expected. The April non-manufacturing ISM report coming out a little later is expected to be essentially flat from the prior month’s level. The headlines out of Europe this morning also appear to be less troubling, with the European Central Bank (ECB) doing the expected of leaving interest rates unchanged and a couple of decent looking bond auctions in Spain and France.
 
But given the focus on the labor market ahead of Friday’s non-farm payroll report from the BLS, this morning’s better than expected initial Jobless Claims will be rightly considered as the best news of the day. Reversing the trend of recent of recent weeks, initial Jobless Claims dropped a bigger than expected 27K last week to 365K, while the 4-week average dropped by 750 to 383.5K.
 
This is the biggest drop in claims in months and will likely revive the claim that the recent softness in the labor market was likely due to seasonality issues. We will get a better measure of the labor market in tomorrow’s BLS report, but this Jobless Claims reading nevertheless goes some way to bring down the anxieties that rose after Wednesday’s ADP surprise.
 
On the earnings front, we got better than expected results from General Motors (GM) as North American strength offset European weakness, a trend that we have seen repeatedly this reporting cycle. Viacom (VIA.B) also came ahead of earnings expectations on in-line top-line results. Sara Lee (SLE), which is in the process of spinning off its coffee and tea business missed expectations, though the company appears on track to divest the business by the end of the current quarter.

Sheraz Mian
Director of Research

 
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