The Purchasing Managers' releases for August rose and were better than expected, but the U.S. employment report was disappointing. The net affect of the mixed releases was expectations for a longer time-table for U.S. Fed tapering of its bond purchases. Also delayed was the expectation for the timetable for a U.S.-lead attack on Syria. As a result, equity markets rallied across the globe. Bond markets were not fooled; bond yields rose in expectations for less accommodation, however far down the road. Nor were oil prices fooled; they rose with the tension in the Middle East. The U.S. dollar was mixed on the week.

Perspective:

The Organization for Economic Cooperation and Development revised its forecast global 2013 growth in its Interim Economic Assessment: A moderate recovery in advanced economies, but global growth is sluggish and risks remain. Forecast for Germany, France and the UK were revised higher while those for the U.S., China and the economies were forecast lower. Germany is expected to grow +0.7%, thee ticks higher than previously forecast; France is expected to grow at +0.3 instead of contracting by a similar amount; the UK is expected to grow at 1.5%, almost twice the prior forecast. The U.S. is expected to grow at 1.7%, two ticks lower than previously expected; China is expected to grow at 7.4%, four ticks lower than previously forecast. Italy is still expected to contract at -1.8%, but, "the Euro area as a whole is no longer in recession. In many emerging economies, however, loss of domestic activity momentum together with the shift in expectations about the course of monetary policy in the US and the ensuing rise in global bond yields have led to significant market instability, rising financing costs, capital outflows and currency depreciations."

Last week one of my readers responded to my reference to the hope that our children have given us about their generation. She wrote that she listened to an NPR interview with David Gergen, who stated that he was so inspired by the new generation and thinks that they are the best since the "greatest generation" of World War II. Just when we are ready to put our baby-boomers out to pasture, this week along came Diana Nyad, a 64-year old woman who swam 110 miles between Cuba and Florida in shark and jelly-fish infested waters — unprotected by a shark cage. She failed in her first three attempts since turning 60, but managed to complete the swim in 53 hours this time. Developed economies as well as developed individuals can still contribute to growth, both personal and economic!

Economic Releases:

The August Employment Report for the U.S. was a disappointment. Non-Farm Payrolls (blue in the Chart 1) were near the low end of the range of expectations at 169,000; furthermore, net revisions for the prior two months cut 74,000 from the previously reported job gains. Private Payrolls (red in the Chart 1), at 152,000, were also on the low end of the range of expectations. Manufacturing jobs (green in the Chart 1) rebounded 14,000 from a similar loss in July. Not shown in the charts, the Unemployment Rate fell a tick to 7.3% partially due to a drop in the labor force participation rate. The ADP Employment Report for Private Payrolls increased 176,000, in line with expectations. Gallup's U.S. Payroll to Populations report (P2P) dropped a percent to 43.7 in August. The week of August 31st, Initial Jobless Claims dropped to 323,000, pulling the four-week average to 328,500; Continuing Claims also fell, to 2.951 million; the good news on the labor front is that Claims are near recovery lows.

Purchasing Managers in the U.S. had a more positive response to the ISM surveys. The Manufacturing Index (blue in Chart 2) rose to 55.7. Services surged beyond the range of expectations to 58.6. Both ISM Indices remained well into the expansion zone, above 50. The Markit PMI (not shown in the chart) for Manufacturing declined to 53.1 in August.

Other Economic Releases

In the second quarter, U.S. Non-farm Productivity rose 2.3% while Unit Labor Costs were unchanged; both reports are calculated at Seasonally Adjusted Annual Rates (SAAR). In July, Construction Spending rose +0.6% from the prior month and 5.2% from a year ago. Factory Orders, on the other hand, fell -2.4% in July.

This week the European Central Bank met and left rates unchanged at +0.5% as expected; the ECB's forecast for 2013 growth is a little better at -0.4%, but its forecast for 2014 was a tick less to +1.0%. Similarly, the Bank of England met and, as expected, kept its rate unchanged at +0.5% and Asset Purchase Level Unchanged at 375-billion Sterling. The Bank of Canada met and left rates unchanged, and kept its gentle tightening bias. The Bank of Japan also left its key interest rate and bond buying programs unchanged; and, the BOJ identified the risks to Japan's recovery as the debt problem in Europe, emerging market commodity pricing, and the pace of the U.S. recovery.

The Ivey PMI for Canada crossed into the expansion zone to 51.9.

The EU's PMI for Manufacturing rose further into the expansion zone to 51.4 in August; the Markit PMI's for the EU Composite rose to 51.5 and for the EU Services crossed into expansion to 50.7. The EU's second quarter GDP increased +0.3% over the previous quarter. Germany's PMI for Manufacturing rose a point to 51.8; the Markit PMI indices for the Composite and Services rose to 53.5 and 52.8 respectively. France's PMI for Manufacturing remained unchanged at 49.7; the Markit PMI's for the Composite and Services remained in the contraction zone at 48.8 and 48.9 respectively. The french Unemployment Rate ticked up to 10.5% in the second quarter. UK Markit CIPS/PMI for Manufacturing rose to 57.2; Services PMI rose to 60.5. UK's Industrial Production was flat in July.

China's HSBC Composite index crossed into the expansion zone to 51.8 while the Services component rose over a point to 52.8.

Equities Markets: (Chart 3)

Equity markets rose across the globe, responding to the slow down in the timetable for a U.S.-lead attack on Syria, stronger global PMI data, and weaker U.S. employment data. Equity investors believed that the mixed economic data will keep the Central Bankers on a slower track to taper monetary accommodation.

Bond Markets: (Chart 4)

Bond investors are more tied to economic data and expectations for Central Bankers. The bond markets were not fooled this week by the softer U.S. employment report. Interest rates rose across the globe. ML credit market indices and spread data is reported on a one day lag so that they do not reflect the impact of the softer U.S. employment report released on Friday.

Currencies & Commodities: (Chart 5)

Oil prices rose on Middle East geopolitical worries, but gold and natural gas prices were lower on the week. The U.S. dollar was mixed; it rose against the yen and euro, but fell against the pound and looney. Note: a trusted former portfolio manager friend suggested that I report the returns of the equity markets on the basis of a dollar investor. In lieu of creating more tables I invite investors to combine those of interest. The yen lends itself to such a comparison. The Nikkei has risen 33.3% YTD, but the yen has fallen -12.7%, compounding to a 16.4% return for a U.S.-dollar based investor. Note that the returns above do not reflect the additional positive contribution of dividends.

Who is John Davidson?

John W. Davidson, CFA, started writing these Comments more than a decade ago as a personal discipline when he was promoted to from portfolio manager to chief investment officer and CEO.

Most recently, he was the president of PartnerRe Asset Management Corporation, responsible for the management of PartnerRe's invested assets, which grew from $4 billion to $12 billion during his tenure. After joining PartnerRe in the fall of 2001, he hired the staff, built the trading floor and created the infrastructure to manage both fixed income and equity assets internally. He retired from PartnerRe at the end of 2008 and moved to Maine, where he focused on board work.

He has more than 35 years of industry experience, including positions with investment management responsibility for separate institutional accounts, mutual funds, trusts and insurance assets. Prior to joining PartnerRe, he served as president and chief executive officer of two other investment management companies. For various companies he has held positions as chief investment officer, chief economist, head of fixed income and portfolio manager. As a portfolio manager, Davidson managed and traded U.S. Government Securities as well as futures and options on fixed income instruments.

His real world experience is backed by a strong academic foundation, which includes earning a Master of Business Administration in finance and a Master of Arts in mathematics from Boston College, as well as a Bachelor of Arts, cum laude, in economics from Amherst College. He holds the professional designation of chartered financial analyst.

His experiences and credentials have brought him to the public as a television commentator and conference speaker. In addition to his frequent past appearances on CNBC, CNNfn, Bloomberg TV and Yahoo FinanceVision, he appeared as a special guest on Wall $treet Week with Louis Rukeyser. Reuters, Bloomberg and other business press services have quoted his views on the market. He has taught CFA preparation programs, as well as other courses offered by the Stamford and Boston CFA Societies, and the National Graduate Trust Officers' School.

Davidson is a natural leader in both his professional and personal life, having developed those skills early in his career as a naval officer. He spent three years on active duty, which included a year on the rivers of Vietnam, and 24 years in the Naval Reserve, from which he retired as a captain in 1994.

Davidson is treasurer and board member of the Camden Conference. He is also on the investment committee of the Pen Bay Health Foundation. He serves as an independent trustee for mutual funds.

In his leisure time, he is an active sailor, tennis player and skier. With his wife, Barbara, he renovated a 100+-year-old home in Camden, where they enjoy spending time with their two golden retrievers and having visits from their five children. He can be reached at jwdbond@me.com.