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Boeing, 48,000 due to production cuts; Exxon-Mobil about 9,000 due to the merger; Kellogg Co.-765 due to cost cutting; ITT Industries up to 1,200 due to restructuring; Smurfit-Stone Container 1,660 restructuring, Courtaults Textiles 1,125 restructuring, United Dominion Indus 600 due to cost cutting; Volvo 5,300 due to weak sales; Deutsche Bank/Bankers Trust 5,500 due to merger; Amway 542 due to declining sales; health care giant Johnson & Johnson is eliminating 4,100 jobs, or 4% of its work force, in a bid to better compete in the drug business and free up dollars to spend on research and development. (SOURCE: MSNBC news services.)

From airplanes to corn flakes, banks to oil-drillers, companies slashed workers at a pace not seen since the early 1990’s. The trend has workers worried and economists wondering whether the upswing in downsizing will continue to deflate consumer confidence and jeopardize the economys growth rate.  The Asian financial crisis is still weighing on the U.S. economy as 1998 comes to a close. Business planners are becoming more attuned to the fact that problems are going to be longer lasting than originally thought. A wave of layoff announcements has made for a grim holiday season for tens of thousands of workers.

When the World Bank said that it sees the global economy continuing to slow down this put more pressure on the market. It’s becoming apparent once again that the recent wave of global economic turmoil will continue to squeeze growth in Latin American countries as they work to shake off the lingering symptoms of the Asian contagion. Worldwide recession in 1999 is possible, but not likely. The report does say that the Asian economic crisis will slow down growth in Gross Domestic Product worldwide to about 1.5% for 1999. In the U.S., GDP growth is forecast at 2%, down from near 4% last year.

They expect the global slump to last for several years, with developing countries returning to higher growth rates around 2001. When our Federal Reserve cuts interest rates 3 times in 16 days, and the Bundesbank cuts rates only one week after disavowing a cut, it’s obvious they have concerns about the future.

For these reasons and the fact that we have already had two earnings warnings from Boeing and Sears which dragged down many other transportation and retail stocks, we could be headed for a recession next year due to over-capacity and excess speculation. The market again decided to ignore the possibilities of this happening but all these factors are definentely pulling steam out of the market. The coming week looks interesting as this weekend Venezuela is having elections and it appears they may be moving back toward stricter government control which investors over here don’t like very much. Also, Brazil may be forced this week to devalue their currency. If they do, their market will fall dramatically. In the past, when Brazil has fallen the U.S market has followed suit.

The purchasing manager’s survey is closely watched as it is good evidence of how the economy fared the previous month. The Leading Indicators are widely viewed as a forecast of how the economy will fare six to nine months in the future.

In the purchasing managers’ report, the rate of decline was faster than economists had expected. Exports failed to grow for the 11th straight month, while imports fell for the first time since July, 1998. New orders, a key indicator of demand for industrial goods, also fell in November, signaling a decline in production in the coming months. Although the Leading Indicators report rose in October, it was slightly below economists’ expectations. Six of the index’s 10 components rose in October, led by money supply. Four components, led by unemployment insurance claims, posted decreases. The stronger report was attributed to the rebounding stock market and the Fed’s decisions to trim interest rates three times this fall. The board’s index of coincident indicators for October, which looks at the economy’s current condition, rose 0.1% from September. The lagging indicators index, which looks at the past, decreased 0.1%. The leading index operates from a base of 100, set in 1992.

Construction spending rose 0.3% in October, while September's gain was revised higher. Construction has been one of the strongest sectors of the economy in the past year. All three reports were slightly weaker than forecast by economists, who were expecting the NAPM index to fall to 47.7%, construction spending to rise 0.4% and the leading indictors to rise 0.2%.

Wednesday

Sales of new homes rose in October as low mortgage rates and rebounding stock prices kept the housing market on course for a blockbuster year. Total sales of single-family homes increased 0.8% to a seasonally adjusted annual rate of 851,000. That was the 14th straight month that the annual pace has topped 800,000. The October rate was well above economists' forecasts for 844,000.

The pickup in October was entirely due to a large increase in the second-largest regional housing market, the West, the department said. Sales there rocketed 11.2 % to a rate of 248,000 last month. Other regions saw declines. In the South, sales fell 0.3%. They dropped 5.4% in the Midwest, and plummeted 11% in the Northeast. Despite the higher number of home sales, the median price for a home dipped 0.3 percent in October to $150,000, from $150,500 in September.

Mortgage rates have been hovering at their lowest levels in decades. In October, they averaged 6.71%, little changed from September, but down sharply from 7.29% a year ago.

Unit labor costs, a closely watched gauge of wage inflation, rose at a moderate 1.1% rate in the third quarter, slower than the previously reported 1.7% pace and down sharply from a 3.7% second quarter rise.

Leading the productivity gains in the third quarter was the manufacturing sector, particularly makers of long-lasting durable goods, whose productivity rose 8.3%, up from the previously reported 5.4% pace and a 6.6% rate of increase in the second quarter.

Rising productivity is key to the health of businesses and the overall economy. Producing more goods and services per hour helps grow profits, which allows businesses to keep a lid on prices and gives workers a greater potential for wage hikes without inflation.

Manufacturing output in the third quarter, during which a strike at GM halted output at the world's largest automaker for several weeks, rose only 0.7%, the smallest gain since the second quarter of 1995.

The hours of factory workers fell at an annualized 4.3% pace during the period, the biggest drop since the second quarter of 1995. Manufacturing hourly compensation rose at a 3.3% rate. But since manufacturing productivity rose faster than compensation, unit labor costs in that sector fell at a 1.8% rate.

Jobless claims rose 12,000 last week after a sharp drop the previous week. Initial claims rose to 313,000 in the week ended Nov. 28 from 301,000 the prior week, when new claims fell by 39,000. Economists had forecast new claims of 314,000 for the latest week. Claims may have been offset by the shortened Thanksgiving week, which meant fewer days in which applicants could file for benefits. The closely watched four-week moving average, a less volatile measure of claims trends, rose by just 250 last week to 319,250. Friday, the Labor Department will release its employment report for November, which will give a broad look at labor market conditions throughout various sectors of the economy. Economists predicted the unemployment rate would stay steady at 4.6%.

The nation’s biggest retailers had mixed sales results for November. Discounters and specialty clothing chains fared the best while department stores struggling through the month. But even the gains seen in November were tempered by the warmer-than-normal weather across much of the country. After sales figures were released Thursday, many analysts warned that the holiday shopping season might be disastrous for some stores if it doesn’t turn cold quickly. There were very strong expectations for this Christmas season, thanks to the rebounding stock market and rising consumer sentiment in recent months. Many analysts predicted sales gains of about 4% to 5% for the November-December season compared to the same period in 1997. Discount stores continue to flourish, attracting value-conscious consumers who want affordable prices and wide selection of merchandise. The best results in November came from Wal-Mart Stores Inc. and Dayton Hudson Corp. Target’s division. Clothing chains like the Gap, Inc., which owns Old Navy, Gap and Banana Republic stores, and The Limited Inc., with its Express and controlling interest in Victoria’s Secret, also wooed shoppers last month with their current fashions and well-known brand names. On the weak side were department stores chains, which continue to lose business to the discount and clothing stores that offer better service, prices and selection. May Department Store Co. and Federated Department Stores Inc. reported lower than expected November sales.

The Merrill Lynch retail index, the investment firm’s barometer of sales performance at department stores and discount chains, was up 3% in November. It rose 2.2% in October and was up 3.8 percent in November 1997. Wal-Mart, the nation’s largest retailer, reported sales from stores open at least a year were up 7.7% from a year earlier, while total sales were up 13.7%.

Employers added 267,000 jobs to their payrolls last month, the largest gain in three months. Both the unemployment rate and the number of jobs added were significantly better than anticipated by economists. In November, manufacturing employment declined by 47,000 jobs, bringing job losses there to 245,000 since March. The drops were sharpest at factories producing industrial machinery, apparel and textiles, electronic equipment, primary metals such as steel, transportation equipment and fabricated metals.  The slump in Asia has dried up demand for U.S. exports. This week, Boeing Co., the world’s largest aerospace company, said it planned 20,000 more layoffs, on top of 28,000 already announced and Johnson & Johnson said it’s eliminating 4,100 jobs, or 4% of its work force.

However, construction companies added 47,000 workers in November. Low mortgage rates have driven home sales to record levels, spurring a building boom. Also, employment in finance, insurance and real estate rose by 23,000, partly reflecting hiring by mortgage brokers. Other areas of strength include temporary-help firms, computer and data-processing services, engineering and management services and retail trade, which rose 65,000 on a seasonally adjusted basis.

Today’s stronger-than-average report probably will confirm views that the Fed will see little need to stimulate economic growth with an interest rate cut. Their next scheduled to meet Dec. 22. Worried about financial turmoil, the Fed has cut rates three times since late September.  The average workweek last month was unchanged at 34.6 hours. Within manufacturing, however, it fell a tenth of an hour to 41.6 hours. Factory overtime was unchanged at 4.5 hours. Average hourly earnings for nonsupervisory workers rose 3 cents for the second month in a row. At $12.93, the average is up 3.7% from a year ago.

New orders received by U.S. factories retreated in October for the first time in five months, pointing to weaker demand across the manufacturing sector. New orders for manufactured goods fell 1.6% to $335.08 billion in October on a seasonally adjusted basis, following a 0.8% gain in September. Analysts expected October factory orders to fall by only 0.6%. Shipments fell 0.1% in October to $340.09 billion, following a 1.2% rise in September. The value of unfilled orders fell 0.9% to $525.25 billion, after registering no change in September.

Shipments of durables, however, rose 0.3% in October to $193.42 billion, following a 2.1% increase in September. Inventories for durable goods, items like appliances, machinery and cars intended to last at least three years, also increased, by 0.7% in October to $298.9 billion.

U.S. manufacturing businesses have lost some steam as exports to struggling Asian and other overseas economies have faded, but domestic demand has remained vigorous, helping to offset the export drag.

Indicators revealed this problem during the week and even though the unemployment report was strong today with all of the lay off notices given this week, the weakness is sure to continue. In the coming months the market will probably react more and more to indicators as the market searches for direction within the economy and weakness becomes even more evident.

Next week’s Economic Indicators

Technically

In the last four weeks the indices have made new all-time record highs but the advances to declines have been negative on 12 of the 18 trading days. With the retreat in the market this week the advance/decline line has rolled over to the downside once again after making a high just before the all time high back in July. With the S&P 500 only a week off of its all-time record highs, the New York Stock Exchange had more stocks making new lows than it had six weeks ago, when the index was 10% lower. The appearance of new lows is usually the first sign of a problem creeping into the bulls camp. On the day that the S&P 500 made a new high there were only 60 stocks on the New York Stock Exchange able to join the index at the "new-high" celebration. That is not healthy at all.

Shorter term, the Mclellan Oscillator almost hit an oversold reading of –100 but was short by 12 points. More importantly, the summation index has rolled over again, looking to move lower in the near future.

The five-day Arms indicator is strongly oversold short term but the ten-day arms is still in overbought territory. Volatility has returned to the market will the Vix soaring this week due to the selloffs. The most important indicator of late has been momentum and that has been moving lower all week. It is important to note that if momentum picks up again it is likely that the market will follow.

Five day arms: 1.15 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .90    .80 and below, overbought 1.00 and above, oversold

Bulls: 56.9 previous week 57.9 50% plus overbought/bearish
Bears: 31.0 previous week 29.8 50% plus oversold /bullish
Correction: 12.  previous week 12.7

MARKET CLOSES

With the 1175/1200 Short call trade today it was reported that the 1175 call was bought back when the market was lower for an average $12.00 supplying us with a $6.00 profit and sold the 1200 call when the market started to move higher for an average $7.00 giving a loss from the original buy of $10.00 of $3.00. Since the original credit of $10.00 between the two was made, an overall profit of $3.00 or 14% ($3.00 divided by the $22.00 margin requirement)

The 1190/1200 futures call trade saw the 1190 bought back at the markets lows for an average $7.20 giving a profit of $3.80 and sold the 1200 futures call as the market rose off of its lows for an average $7.00 giving a loss of $1.00. The profit turned out to be $2.80 or 38%, ($2.80X250=$700 divided by $7.20X250=1850 margin requirement. The January 1200 futures call was bought back for an average price of $21.00 today giving a $14.00 profit or $14.00X250=$3500.00 divided by $12,000 margin = 29%.