U.S. stocks fell for the first day in four as the Fed’s latest flow of funds report reminded the market that debt levels remain high. This offset a jump in the Philly Fed index and a decline in initial jobless claims. The pullback was slight though, especially considering the run we’ve seen; it was more like a pause than anything else.
Nine of the 10 major industry groups closed lower; health-care was the only one to escape downside, the index that tracks these shares closed unchanged for the day. Telecom, energy and utility shares were the worst performers on the session.
The Fed’s flow of funds data for the second quarter did show that household net worth rebounded by $2 trillion ($323 billion from home prices and $1.6 trillion from the rise in stocks) to $53.1 trillion. But the report also showed that household debt (mortgages and consumer credit) remained high at 118% of disposable income. This is down from 120% in Q1, but up from 100% in 2001 and 90% a decade back.
To be sure, even the day’s more positive data had elements that indicated things remain quite subdued. The Philly Fed index, while up nicely, showed its employment and inventory gauges deteriorated. The jobless claims data, while showing initial claims decreased, reported that continuing claims jumped.
We’ve had three straight sessions now in which volume has returned to more normal levels, averaging 1.48 billion shares – that’s in line with the five-year average.
Market Activity for September 17, 2009
Jobless Claims
The Labor Department reported that initial jobless claims fell 12,000 to 545,000 for the week ended September 12 from an upwardly revised 557,000 in the week prior. The four-week average of initial claims fell 8,750 to 563,000. This is the lowest level since…well, it wasn’t that long ago – the week of August 21.
This data coincides with the survey period for the September monthly jobs report, so the reduction of 35,000 in initial claims from this time last month may signal a slower rate of payroll decline when the employment report is released – we’ll get that figure on October 2. That said, the Labor Department did mention that last week’s decline may have been influenced (to the downside) by the Labor Day holiday. We should learn the affect the holiday had, if any, by next week’s release.
Continuing claims jumped 129,000 to bring the figure back above the 6.2 million level; this erases what many saw as repair over the past month. It’s likely the decline of the previous couple of weeks was more a function of benefits expiring than some sort of job creation taking place. As we’ve touched on for a few weeks now, the duration of unemployment and the exhaustion rate of benefits – the former just barely off of the record high and the latter still making new highs – is the common sense reason for the dip in claims we had seen of late.
The Emergency Unemployment Compensation component rose 21,781 to a new level of 3.141 million. This number involves people who have seen their benefits expire but have yet to find a job – most states offer this emergency extension.
Housing Starts
Housing starts, as measured by the Commerce Department, rose 1.5% in August, after slipping 0.2% in July – starts rose at a seasonally-adjusted annual rate of 598,000, perfectly in line with expectations. This reading for August is the highest print since November when starts came in at 655,000.
The headline number made the report appear a bit better than was actually the case; starts were driven by multi-family housing starts, which jumped 25.3% in August. This is a very volatile component of the overall figure and thus it makes it difficult to have conviction starts will continue to rise and continue to benefit GDP. (The rise we’ve seen in housing starts, even though they are off of all-time record lows, will add to Q3 GDP after subtracting from the figure for 12 straight quarters.)
The single-family side of this data saw starts fall 3.0%, marking the first decline since hitting its record low in January. Single-family permits also slipped in August, although a slight 0.2%. Even though this decline isn’t meaningful, it does suggest we’ll see single-fam. starts fall in September. People should be fine with this as the supply figures still need to come lower. If we get too far ahead of ourselves, all we’re doing is delaying a true recovery as construction will only have to retrenchment if sales fail to keep improving.
And speaking of home sales and construction, the chairman of the National Association of Home Builders stated (referring to the homebuyers tax credit), the “window is now basically closed for being able to start a new home that can be completed in time for buyers to take advantage of the tax credit before it expires at the end of November.” So builders are certainly concerned about the expiry of that credit (just another crutch for the industry). He also stated, “Congress needs to act now to keep the credit from expiring just as the intended effect on buyer demand is starting to materialize. And they are doing so as we speak, it appears we’ll get a six month extension.
Philly Fed
The Federal Reserve Bank of Philadelphia’s business outlook survey, known as the Philly Fed, jumped to 14.1 from 4.2% in August – this marks the highest reading since June 2007. The sub-indices of the survey were mixed, however.
New orders remained positive (in expansion mode) coming in at 3.3 for September, but this is down from the 4.2 print in August. The shipments index rose to 8.2 from 0.6. The average workweek improved to -3.9 from -6.3, but of course, as the negative sign implies, remains in contraction mode.
On the components of the report that showed deterioration, delivery times fell to -8.9 from -7.0 (a positive reading means delivery times have slowed and thus suppliers are having a tough time keeping up with orders, which obviously wasn’t the case last month as it fell further into negative territory). The inventories survey got crushed, falling 17.8 points to -18.1. We saw this with the Empire Manufacturing reading too; we are not seeing stockpiles being refilled, in fact both Philly and Empire showed inventory levels became even leaner. (This does suggest the inventory dynamic will be powerful for fourth-quarter GDP, but without an upswing in final demand it will be a one-and-done event). And then we have the employment index, which deteriorated, printing -14.3 from -12.9 in August.
Another interesting aspect of the report was the divergence in the price paid index vs. prices received. Prices paid jumped to 14.9 from 10.0, yet prices received got hammered, falling to -10.6 from -1.5. This does not speak well of profit margins, just as the Empire data suggested.
Have a great weekend!
Brent Vondera, Senior Analyst
Nine of the 10 major industry groups closed lower; health-care was the only one to escape downside, the index that tracks these shares closed unchanged for the day. Telecom, energy and utility shares were the worst performers on the session.
The Fed’s flow of funds data for the second quarter did show that household net worth rebounded by $2 trillion ($323 billion from home prices and $1.6 trillion from the rise in stocks) to $53.1 trillion. But the report also showed that household debt (mortgages and consumer credit) remained high at 118% of disposable income. This is down from 120% in Q1, but up from 100% in 2001 and 90% a decade back.
To be sure, even the day’s more positive data had elements that indicated things remain quite subdued. The Philly Fed index, while up nicely, showed its employment and inventory gauges deteriorated. The jobless claims data, while showing initial claims decreased, reported that continuing claims jumped.
We’ve had three straight sessions now in which volume has returned to more normal levels, averaging 1.48 billion shares – that’s in line with the five-year average.
Market Activity for September 17, 2009
Jobless ClaimsThe Labor Department reported that initial jobless claims fell 12,000 to 545,000 for the week ended September 12 from an upwardly revised 557,000 in the week prior. The four-week average of initial claims fell 8,750 to 563,000. This is the lowest level since…well, it wasn’t that long ago – the week of August 21.
This data coincides with the survey period for the September monthly jobs report, so the reduction of 35,000 in initial claims from this time last month may signal a slower rate of payroll decline when the employment report is released – we’ll get that figure on October 2. That said, the Labor Department did mention that last week’s decline may have been influenced (to the downside) by the Labor Day holiday. We should learn the affect the holiday had, if any, by next week’s release.
Continuing claims jumped 129,000 to bring the figure back above the 6.2 million level; this erases what many saw as repair over the past month. It’s likely the decline of the previous couple of weeks was more a function of benefits expiring than some sort of job creation taking place. As we’ve touched on for a few weeks now, the duration of unemployment and the exhaustion rate of benefits – the former just barely off of the record high and the latter still making new highs – is the common sense reason for the dip in claims we had seen of late.The Emergency Unemployment Compensation component rose 21,781 to a new level of 3.141 million. This number involves people who have seen their benefits expire but have yet to find a job – most states offer this emergency extension.
Housing Starts
Housing starts, as measured by the Commerce Department, rose 1.5% in August, after slipping 0.2% in July – starts rose at a seasonally-adjusted annual rate of 598,000, perfectly in line with expectations. This reading for August is the highest print since November when starts came in at 655,000.
The headline number made the report appear a bit better than was actually the case; starts were driven by multi-family housing starts, which jumped 25.3% in August. This is a very volatile component of the overall figure and thus it makes it difficult to have conviction starts will continue to rise and continue to benefit GDP. (The rise we’ve seen in housing starts, even though they are off of all-time record lows, will add to Q3 GDP after subtracting from the figure for 12 straight quarters.)The single-family side of this data saw starts fall 3.0%, marking the first decline since hitting its record low in January. Single-family permits also slipped in August, although a slight 0.2%. Even though this decline isn’t meaningful, it does suggest we’ll see single-fam. starts fall in September. People should be fine with this as the supply figures still need to come lower. If we get too far ahead of ourselves, all we’re doing is delaying a true recovery as construction will only have to retrenchment if sales fail to keep improving.
And speaking of home sales and construction, the chairman of the National Association of Home Builders stated (referring to the homebuyers tax credit), the “window is now basically closed for being able to start a new home that can be completed in time for buyers to take advantage of the tax credit before it expires at the end of November.” So builders are certainly concerned about the expiry of that credit (just another crutch for the industry). He also stated, “Congress needs to act now to keep the credit from expiring just as the intended effect on buyer demand is starting to materialize. And they are doing so as we speak, it appears we’ll get a six month extension.
Philly Fed
The Federal Reserve Bank of Philadelphia’s business outlook survey, known as the Philly Fed, jumped to 14.1 from 4.2% in August – this marks the highest reading since June 2007. The sub-indices of the survey were mixed, however.
New orders remained positive (in expansion mode) coming in at 3.3 for September, but this is down from the 4.2 print in August. The shipments index rose to 8.2 from 0.6. The average workweek improved to -3.9 from -6.3, but of course, as the negative sign implies, remains in contraction mode.
On the components of the report that showed deterioration, delivery times fell to -8.9 from -7.0 (a positive reading means delivery times have slowed and thus suppliers are having a tough time keeping up with orders, which obviously wasn’t the case last month as it fell further into negative territory). The inventories survey got crushed, falling 17.8 points to -18.1. We saw this with the Empire Manufacturing reading too; we are not seeing stockpiles being refilled, in fact both Philly and Empire showed inventory levels became even leaner. (This does suggest the inventory dynamic will be powerful for fourth-quarter GDP, but without an upswing in final demand it will be a one-and-done event). And then we have the employment index, which deteriorated, printing -14.3 from -12.9 in August.
Another interesting aspect of the report was the divergence in the price paid index vs. prices received. Prices paid jumped to 14.9 from 10.0, yet prices received got hammered, falling to -10.6 from -1.5. This does not speak well of profit margins, just as the Empire data suggested.
Have a great weekend!
Brent Vondera, Senior Analyst
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