A report from the Labor Department that showed continuing jobless claims soared to a new record didn’t help things as it reminds the market we still have tough labor-market conditions to deal with. This though does not signal the latest moves by the Fed are a failure as we’re talking about jobless claims data for the week ended March 7.
In terms of market activity, energy and material shares were the big winners as investors have inflation on the mind due to the Fed’s print-money mentality – these are areas in which one can hedge against this risk and that is where money was going yesterday. The dollar has gotten smacked since the Fed’s announcement and that means dollar-denominated oil goes higher – up another 5.5% to $50.78 per barrel.
Utilities also saw some life, possibly because interest rates fell big on Wednesday and this is the traditional area with which to search for yield. Financials and health-care shares were the worst performing groups.
Market Activity for March 19, 2009
Jobless Claims
The Labor Department reported U.S. initial jobless claims remained high but did fall 12,000 to 646,000 for the week ended March 14. This is the week that corresponds with the March employment survey week (the week in which the initial estimate for the March jobs report is calculated). It’s good to see the figure fall, but the level of claims suggests we’re in for another 600K-plus decline in payrolls for the month.
The four-week average of claims, a less volatile figure, did rise – up 3,750 to 654,750, the highest reading since October 1982. We will point out for new readers, while the level of claims is high, when you adjust for employment growth we would have to see jobless claims hit one million to truly compare with the 1982 labor market contraction.
The more important news within the report seems to be the continuing claims data, which hit another new record. For the week ended March 7 (there’s a one-week lag between initial and continuing), continuing claims jumped 185,000 to 5.473 million. The insured unemployment rate (the rate of joblessness for those eligible for benefits and a figure than tracks the direction of the overall unemployment rate) rose to 4.1% (the highest since June 1983) from 3.9% in the week prior. This very likely shows the overall unemployment rate will jump to 8.3%-8.5% when the March jobs data is released – it was 8.1% in February.
Philadelphia Fed
The Federal Reserve Bank of Philadelphia showed their business conditions index rose to -35.0 in March from the -41.3 in February, which was the lowest reading since the 1990-91 recession. The March reading was better-than-expected, but the index remains at a very depressed level and a couple of the important sub-indices within the report suggest factory activity actually worsened this month.
The new orders index plunged to -40.7 from -30.3 in February – the lowest reading since the 1980 recession.
The employment index fell to -52.0 from -45.8. That’s the lowest employment reading for the Philly Fed since the index began in 1968. This corroborates what the other manufacturing surveys are showing, and the jobless claims data as well.
I really wish we’d engage in a pro-growth attack at this economic contraction – I’m thoroughly tired of reporting on this stuff and am looking for a more optimistic tone but have to call it as I see it. Businesses need to have some confidence about the future, and I’m not talking about a belief that the economy will receive a 12-18 month pop from all of this spending and Fed stimulus – I’m talking about lower “permanent” tax rates that drive confidence regarding the long-term prospects for economic and after-tax profit and income growth.
In addition, we need much less government intrusion and an inviting message to global capital. (Certainly, the current administration entered in the midst of a significant downturn -- and the Bush team made their share of mistakes the final year in office -- but by picking up the ball and running hard left is proving quite damaging and does take its toll on confidence).
I suspect we will see business spending bounce back several months out, and these manufacturing indices, such as Philly Fed, will be the first indicators of this event. Nevertheless, firms are not stupid; the decision makers understand that the spending on the fiscal side of things means Congress will very soon be displaying the ‘higher taxes” placard. They also know with all the Fed is doing means the chances that inflation will rise to unwelcome levels is heightened – and this will affect the cost side of the business ledger.
As result, we will likely not see the pop in business spending we would otherwise enjoy when we come out of this contraction and the bounce we do see may not prove all that long-lived as businesses remain cautious. We really need to see the direction of policy change course in order to think otherwise. We will eventually get it right again – you’ve got to believe that --, but vilifying the holders of capital and the business community is not a winning strategy.
Have a great weekend!
Brent Vondera, Senior Analyst
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