U.S. stock indices ended mixed yesterday as the Dow Industrials and S&P 500 gained ground, while the NASDAQ Composite was unable to close above the cut line. 

The day’s economic data was mixed as we received a solid positive reading from a manufacturing gauge out of the Philly region (much better than expected as everyone thought it would post another negative print), but jobless claims and home sales disappointed.  More on this data below the click…

Financials, basic materials and energy led the broad market higher.  Tech and telecoms were the session’s worst performers as they closed lower.

Yesterday’s story from what’s become the European circus involved German Chancellor Merkel canceling today’s planned statement on the EFSF (bailout fund), obviously because an agreement hasn’t been met. 

So, just to keep the markets from tanking (well equity markets at least as European credit spreads continue to blow out) they announced more vague plans such as combining the EFSF with the ESM (European Stability Mechanism – a backstop that would actually operate with paid-in capital – unlike the EFSF which just rides on a bunch of guarantees.  Prior to yesterday, the ESM wasn’t supposed to be up and running until 2013 because the capital has yet to be supplied.  How it would get off the ground by mid-2012 now is beyond me.   If this all sound confusing, it is because EU ministers don’t have a plan at all – which should be obvious by now.  Instead, they simply announce a panoply of ever-changing plans on a daily basis. 

Market Activity for October 20, 2011

Sector Activity for October 20, 2011

Jobless Claims

The Labor Department reported that initial jobless claims fell 6,000 to 403,000 from yet again an upwardly revised result from the previous week.  This makes it 26 of the past 28 weeks in which initials have been above the elevated 400K mark.  Forty-nine states and territories reported an increase in claims, while just four reported a decline. 

The four-week average fell 6,250 to 403,000.  That is the lowest level since early April. 

On the continuing claims side of things, the standard issue rose 25,000 to 3.719 million – and just to keep the higher revision steamroller going, the 55K reduction we believed was the case for the previous week’s continuing claims figure has been revised to a 31K decline.  Thus, over the past two weeks these claims are statistically flat. 

Emergency level of claims fell 68,000 to 3.484 million.  I’d like to think that most of these people are finding jobs, but studying the long-term jobless situation within the monthly jobs reports one has to believe that these claims are expiring without most recipients finding jobs (or at least a job they desire) – even after 99 weeks of benefits. 

Philly Fed

The Philly Fed Bank’s gauge of factory activity within its region jumped 26.2 points to a reading of +8.7 for October from the -17.5 hit in September.  This breaks a string of contractionary readings for three of the four major regional factory surveys and halts a two-month slump for this particular gauge. 

The internals looked good as new orders bounced back to positive territory with a +7.8 print – up from -11.3 in September; backlog of orders returned to expansion mode, hitting +3.4, after five months of negative readings; and the average workweek reading returned to a positive print, touching +3.1, after three months of contraction. 

The only negative was that prices received turned down, which widened the gap between prices paid by factories and the prices they receive.  Price received is a bit of a lagging indicator so maybe its decline was due to the weakness seen in manufacturing over the preceding months – it’s reasonable to believe we’ll see a bounce next month.  Still, the gap between price paid and those received illustrates that factories may be in no hurry to expand hiring again. 

Existing Home Sales

The National Association of Realtors (NAR) reported that previously-owned home sales fell 3.0% in September (expected to fall 2.3%) to 4.91 million at a seasonally-adjusted annual rate (SAAR).  This marks the fifth decline in eight months. 

Previously-owned home sales are holding up – a number close to five million units isn’t all that bad on the surface, and single-family unit sales alone are at 4.33 million, which is one million higher than the 15-year low that was put in a year ago.  Nevertheless, considering that interest rates hover near the record low and the coming supply from foreclosed properties, this level remains insufficient. 

The months’ worth of supply (inventory/sales ratio) of previously-owned homes ticked up to 8.5 from the 8.4 hit in August.  The number of homes available for sale fell again to 3.48 million, but the drop in sales was a little too much to keep the inventory/sales ratio from rising.  Also, when we add in the shadow supply of homes – those with a mortgage that is either 90 days late or in the foreclosure process -- the supply of homes on or coming to the market doubles. 

The median price of an existing home fell $5800, or 3.4%, in September to $165,400. 

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Have a great weekend!

Brent Vondera, Senior Analyst