Share prices suffered steep losses for a second straight day on Tuesday, as oil plummeted yet again.
By Peter Martin
Wednesday, January 7, 2015
Though cheaper oil means cheaper gas prices at the pumps, something that should be a positive for consumer spending, it also promises headwinds for the energy sector and acts as a drag on already-low inflation. The speed and extent of oil’s decline — US light crude has plunged from over $100 a barrel last July to under $50 today — is serving to unnerve investors and depress risk appetite, but there have been other factors at play today.
Macroeconomic data has been a little disappointing, raising some concerns over how overall growth might look for the final quarter of 2014, while there is still the nagging issue of Greece’s imminent election and whether that has the potential to destabilize the eurozone.
By early afternoon in New York, the Dow Jones was down by 175 points or 1.0% at 17,327, while the S&P 500 fell 1.1% to 1997.9, ducking below the 2000 mark for the first time since mid-December.
Data raises growth concerns
We had two major reports on the non-manufacturing side of the economy released today: Markit’s services PMI fell to 53.3 in the final reading for December, down from 56.2 in November and little-changed from the mid-month flash of 53.2. Momentum appears to be bleeding away, with a third successive easing in new business and now stands at its lowest level in over two years, while employment growth is also soft.
Slower growth was also the indication from the ISM’s non-manufacturing index, which slipped from (a very strong) 59.3 in November to 56.2 for last month, showing similar areas of softness to Markit’s report, most noticeably the prices paid component, which fell below 50 for the first time in more than five years. Though the value of the index missed by some margin the consensus estimate of 58.0, it remains elevated well into expansionary levels and contains no great reasons for pessimism.
Going back to the manufacturing sector, early anecdotal evidence has pointed to weakness in December, hitting some heavy going after the 1.1% growth detailed in November’s industrial production report. Today’s release of factory orders for that month, which shows a 0.7% decline, raises further worries about whether manufacturing growth is running out of steam. The durable goods component was revised down to -0.9% from the -0.7% that was reported in the advance report on 23 December and overall the data looks weak. If there is a consolation, it is that growth in unfilled orders has held fairly constant, suggesting underlying demand remains robust.
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