The Market Ticker - The Federal Budget Mess, In Video Format
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World View & Market Commentary.
Forest first; Trees second.
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Economic growth for the second quarter ended up stronger than previously estimated but remained anemic. The Commerce Department's final estimate for second quarter GDP growth was bumped up to a rise of 1.3 percent annualized, compared to the prior estimate of 1.0 percent annualized and to first quarter growth of 0.4 percent. The median market forecast called for a 1.2 percent annualized gain.
Final sales of domestic product were revised to an annualized 1.6 percent from the previous estimate of 1.2 percent. Final sales to domestic purchasers were revised up to 1.3 percent from the second estimate of 1.1 percent annualized. By components, the most notable upward revisions were to nonresidential structures, PCEs, and exports.
Economy-wide inflation was revised up incrementally to 2.5 percent annualized, compared to the previous estimate of 2.4 percent and the first quarter rise of 2.5 percent. Analysts had projected a no revision number of 2.4 percent.
Overall, economic growth was very sluggish during the first half of 2011. More recent monthly data are very mixed but net suggest marginal strengthening at best for the third quarter.
It turns out Hurricane Irene may have elevated jobless claims all along. At least that's what the Labor Department is suddenly hinting at, attributing a giant 37,000 decline in initial claims in the September 24 week to state offices catching up with hurricane-related data. A Labor Department official also told Market News International that end-of-quarter factors are also coming into play as offices catch up on their work. Adjustment problems tied to calendar shifts may also be at play.
Initial claims totaled 391,000 in the week, far below Econoday's consensus for 420,000. The prior week is revised 5,000 higher to 428,000. The latest week is the first sub 400,000 reading since early August and is the lowest since early April. The four-week average is down 5,250 to 417,000 from a revised 422.25 in the prior week to end five straight weeks of increases. Still the average is roughly 5,000 higher than the month-ago comparison which isn't a positive signal for the monthly employment report.
Continuing claims, in data for the September 17 week, fell 20,000 to 3.729 million with the four-week average down 5,000 to 3.743 million. The month-ago comparison is mildly positive showing a nearly 15,000 decrease. The unemployment rate for insured workers is unchanged for a seventh week at 3.0 percent.
Stock futures are rising sharply in reaction to this report as well perhaps to the upward revision to second-quarter GDP which came out at the same time. But there's plenty of surprising noise in today's claims report which may limit its impact on the markets and on expectations for next week's employment report.
Last week's fall in mortgage rates, which was tied to the Fed's policy shift to longer-term Treasuries, sparked a rush into refinancing and may have also given a boost to home purchase applications, according to the Mortgage Bankers Associations. The refinancing index jumped 11.2 percent in the September 23 week while the purchase index rose 2.1 percent. The rise in purchase applications was due to a 4.9 percent rise in conventional purchase applications that offset a 0.6 percent decline in applications for government loans which MBA tied to the pending decline in FHA loan limits. The purchase index has been on the rise in recent weeks and the gains hint at welcome strength in tomorrow's pending home sales report.
The average rate for 30-year mortgages with conforming loans ($417,500 or less) fell four basis points in the week to 4.25 percent with the jumbo loans ($417,500 or more) also falling four basis points to 4.51 percent. FHA 30-year loans fell two basis points to 4.05 percent.
Durables orders edged down in August, but after such a strong July, the pace is still healthy. New factory orders for durables in August nudged down 0.1 percent, following a 4.1 percent surge in July (previously up 4.1 percent from the factory orders report). The August dip came in a little lower than analysts' forecast for a 0.2 percent gain. Excluding transportation, durables slipped 0.1 percent after rising 0.7 percent in July (factory orders report revision).
Components were mixed. On the downside in August were primary metals, down 0.8 percent; fabricated metals, down 0.5 percent; transportation, down 0.3 percent; and "other," down 0.8 percent. On the plus side were machinery, up 0.1 percent; computers & electronics, up 1.3 percent; and electrical equipment, up 1.3 percent.
Within the important transportation component, motor vehicles fell 8.5 percent after a 10.2 percent jump in July. Nondefense aircraft increased a monthly 23.5 percent in August, following a 49.9 percent surge the month before. And defense aircraft advanced 22.5 percent after edging up 0.1 percent the month before.
Looking at private capital equipment related numbers, a big positive was a 1.1 percent rebound in nondefense capital goods excluding aircraft, following a 0.2 percent decline in July. Shipments for this series jumped 2.8 percent in August after a 0.4 percent rise the month before.
Overall, today's report indicates that despite sluggishness elsewhere in the economy, manufacturing remains on a moderate uptrend, taking into account the volatility of durables orders. While businesses may not be hiring people, it clearly looks like they are "hiring" equipment with the rise in nondefense capital goods excluding aircraft. This will be a plus for third quarter equipment investment and export components.
Home price trends are holding steady based on S&P Case-Shiller data that, for July's adjusted composite-20 index, show a third straight unchanged reading. Half of the 20 cities tracked show declines with eight gaining and two unchanged. Weakness is concentrated in the West including a third straight decline for Phoenix, San Diego and LA and a sixth straight decline for Las Vegas. Gainers are led by Detroit, Chicago and Washington DC.
Summer is a seasonally strong period for housing demand as seen in the unadjusted data that show a 0.9 percent rise for the composite-20 index vs June's 1.2 percent gain. But the unadjusted year-on-year rate, at minus 4.1 percent, underscores the housing sector's weakness. The minus 4.1 percent reading, though, is an improvement from minus 4.4 and minus 4.5 percent in the prior two months.
Case-Shiller data, which are three-month moving averages based on repeat transactions, offer strongly reliable indications on home prices though they do lag other home-price information including those in the existing and new home sales reports. Yesterday's new home sales report showed unusually severe monthly price contraction during August.
Pulled down by the weak employment report, the Chicago Fed National Activity index fell to minus 0.43 in August from plus 0.02 in July (revised from -0.06). Employment-related indicators fell to -0.08 vs July's plus 0.12, while consumption & housing weakened to -0.35 from -0.33 in July. Production-related indicators rose 0.01 in August but are down sharply from 0.26 in July. Despite the big decline in August's overall index, the three-month moving average fell only slightly to -0.28 from -0.27 in July (revised from -0.29).
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