Dollars and Sense: Markets drop on spotty economic news

Markets continue downward. The markets dropped all last week. In fact, Friday was the seventh straight day of declines for the Dow, down nearly 1,000 points from its high in mid-May. It’s also down for the year. We’re not officially into correction territory, but we’re getting close.

Gas prices down, too. The price of oil fell below $46 a barrel. The causes for the drop in oil prices are many, but most analysts think weak global demand is a key reason. It’s unusual for gas prices to fall so much during the summer driving season, but they’re below $2.50 in most parts of the country. Some analysts predict they could hit $2 a gallon. That’s great for most consumers, but the drop in crude prices is hitting the economies of some western states pretty hard.

Manufacturing slowdown. Speaking of weak demand, manufacturing both here and abroad is slowing down, too. The Institute for Supply Management said last week its manufacturing index fell to 52.7 in July. Any number above 50 indicates growth, but 52.7 represents very slow growth indeed.

Greek troubles continue. Last Monday I said I would watch the Athens Stock Exchange. It had been closed for five weeks because of the Greek financial crisis, but finally opened for business one week ago. It had a terrible performance, though that was not unexpected. On Monday, Tuesday, and Wednesday, the Athens Stock Exchange tanked, down more than 20 percent on a couple of those days. But it did stabilize later in the week, and panic didn’t seem to spread beyond Greece.

China checkered. China continues to have big problems. Second-quarter growth came in at an annual rate of about 7 percent. That’s high by global standards but represents a slow-down for China. Producer prices are down. Exports fell 8 percent in July, and imports fell for the 9th straight month. The country is having issues with its currency on the global markets. Those problems are affecting some U.S. companies. Apple, for example, views China as its biggest growth market. The problems in China have driven Apple’s share price down almost 15 percent from its high point earlier this year. But after some significant drops in the Shanghai Stock Market, it seems to have stabilized and rose about 5 percent on Monday, to a two-week high—though some analysts are calling the uptick a “dead cat bounce.”

Employment picture is steady-on. On Friday, the U.S. Bureau of Labor Statistics issued its monthly unemployment report. That’s normally pretty big news but not so much this month, as it offered no real surprises. The report said the economy created about 215,000 new jobs, and the unemployment rate stayed at 5.3 percent. The labor participation rate stayed the same, at 62.9 percent. That’s low, but at least it’s not getting any worse. The good news in the report is that transportation and logistics jobs are increasing. The transportation sector often is a leading indicator of economic growth, though not always.

The week ahead. Earnings season will be winding down. The numbers so far have come in just about at expectations. But those expectations have been very low. And revenue has been worse than expected. If that trend continues, and I’m guessing it will, August could be a mediocre month in the markets, which is pretty normal. August ranks last in monthly performance for the Dow in the past 20 years, posting an average loss of 1.1 percent. The market rose in August only 55 percent of the time.

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