Information technology shares held back the tech-laden NASDAQ Composite as the S&P 500 index that tracks these shares slipped 0.24%.
Market Activity for August 21, 2008
Seven of the 10 major industry groups rose yesterday with energy, utility and basic material stocks leading the way. Energy shares within the S&P 500 have recorded their biggest three-day advance since 2002 – jumping 8.5% after getting clocked since July 3, down 20% since that date prior to this latest move higher.Crude-oil jumped $6.20 per barrel, or 5.39%, as Russia’s behavior in Eastern Europe is very likely the reason for this latest move.
On the economic front, first-time claims for unemployment benefits fell 13,000 to 432,000 in the week ended August 16. The four-week average, however, (as illustrated by the chart below) moved to the highest level in seven years.
While this is disturbing, the boost may prove temporary as more unemployed workers apply for benefits due to the Emergency Unemployment Compensation Program. Further, they are allowed to remain on the dole for a longer period than would otherwise be the case – this has moved the continuing claims figure higher.
For now it will be difficult to surmise from this figure the degree of monthly job losses. Claims in this range would normally indicate job losses of over 100,000 per month -- higher than the 66,000 average in monthly payroll declines over the past seven months.
Hopefully, any pick up in job losses will prove temporary but it will take a couple of weeks to get a cleaner look due to the government’s widened safety net – hammock, rather.
Thirty-three states and territories reported an increase in claims, while 20 reported a decrease.
In a separate report, the Philadelphia Federal Reserve Bank’s index of manufacturing activity – known as the Philly Fed survey -- posted its ninth-straight negative reading, but the pace of decline did moderate in August.
I’ll point out, the Chicago PMI (which tracks factory activity within that region – the most active region for manufacturing work) and the nationwide look that comes out of the Institute for Supply Management (ISM) have shown that the manufacturing sector as a whole remains right at the level that separates expansion from contraction – meaning activity is pretty much flat. Point is manufacturing activity is holding up remarkably well considering substantial drags from the housing and auto sectors.
Back to the Philly number, the price indices within the report remain elevated -- two-thirds of respondents reported higher input prices this month. That is down from 77% as energy prices capped their meteoric ascent last month. Regarding prices for their own manufactured goods (prices received as opposed to prices paid), the percentage of firms reporting higher prices in August exceeded the percentage reporting lower prices by a four-to-one margin.
And speaking of which…
MZM (money zero maturity) money supply [this includes checking accounts, savings accounts and money-market funds minus time deposits (CDs)] has soared over the past year rising 14.4%. The rate of growth has cooled over the past few months, but the 12-month rise has enormously outpaced nominal GDP growth of just 3.8% over the same period. The cause of inflation is too much money chasing too few goods and since MZM is money and GDP is goods produced…well, the rise in inflation should come as no great surprise.
We’re without an economic release this morning, but Fed Chairman Bernanke is scheduled to speak on “Financial Stability” at the annual symposium in Jackson Hole. It may behoove him, the market and the rest of society to make some comments on price stability too. I also wouldn’t be surprised to hear from Treasury Secretary Hank Paulson either today or Monday regarding the GSEs -- Fannie Mae and Freddie Mac.
Have a great weekend!
Brent Vondera, Senior Analyst
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