The markets attention, rightfully so, remains on the European summit, as markets gyrate with each new details, headline, and leak in anticipation.
However we did have a potpourri of US fundamental macro release come out today, that while flying under the radar in regards to impact on the market, still gives us a good update on the status of the US economy and may become important as we move further away from the headline driven market we have currently.
The dated today included jobless claims, Philadelphia fed manufacturing index, existing home sales, and the conference board leading index.
Philly Fed Index Jumps in October
The biggest surprise was the manufacturing report which showed a much stronger-than-expected reading, moving back into positive territory after three months of negative readings.
From Marketwatch: Manufacturing in the Philadelphia region showed signs of recovery in October, the Federal Reserve Bank of Philadelphia reported Thursday. The Philly Fed diffusion index rose to 8.7 in October from negative 17.5 in September. This is the first positive reading in three months. Readings above zero indicate expansion. The increase was much larger than expected. Economists were expecting the index to improve only to negative 10.0. Underneath the headline, labor market conditions improved only slightly. The Philadelphia index has been weaker than the national data for the past two months. The Institute for Supply Management reported that its key reading of the health of the manufacturing sector rose to 51.6 in September from 50.6 in August.
- New orders index rose to 7.8 versus Septembers -11.3
- Shipments climbed to 13.6 compared to Septembers -22.8, a massive increase.
- Employment, while still positive the 1.4, was lower than Septembers 5.8 reading.
Overall this report certainly bolsters the case that the manufacturing sector may have finally come out of its malaise that it's been in during the spring/summer, that was precipitated by the shutdown of Japanese plants following their March tsunami and the summer slowdown due to the budget battle debate and US credit rating downgrade. It should therefore boost expectations for the national manufacturing survey for October, and may help expectations for the global recovery which would be good for risk assets and riskier higher-yielding currencies.
Jobless Claims Point to Decent October NFP
While jobless claims are unable to move below the 400K level for the week ended October 14th, but at 403K, its another week where claims came in just above that level. The 400K level is important as it usually coincides with a non-farm payroll figures of 120K+.
It's been about four weeks (403K, 409K, 405K, 395K) in a row that jobless claims have hovered just above the 400K level, and as we could see from the chart above the four-week moving average has move down as a result.
September's non-farm payroll report showed 103K jobs added during the month following August 57K. With claims lower than they were in September, October should therefore provide a nonfarm payroll number which is closer to September's reading than to August's.
Still, there needs to be more job growth in order to bring down the persistently high unemployment rate (9.1%), as the US needs to add around 120K jobs a month just to keep up with new entrants into the labor force.
Overall though labor market is at least stabilizing with the recent readings at lower level than we've seen in recent months and should be considered a positive for the labor market.
Existing Home Sales Down 3%
state of the housing market continues to be week as existing home sales fell 3% to an annualized rate of 4.90 1 million units. Prices of homes dropped 3.5% on the year, while the inventory of unsold homes is now at 8.5 months supply.
From Marketwatch: Sales of existing homes fell 3% in September, reflecting continued tough times in the housing market as well as newly imposed tougher loan limits, a trade group said Thursday. The National Association of Realtors said sales fell to a seasonally adjusted annual rate of 4.91 million, pretty much in line with the 4.9 million consensus. August data was revised higher to 5.06 million from an initially reported 5.03 million. The impact of tougher jumbo loan limits was seen in the West, where sales dropped 8.8%, according to Lawrence Yun, chief economist of the NAR. The median price of homes dropped 3.5% from year-ago levels to $165,400. Inventories declined 2% to 3.48 million units, representing 8.5 months of supply at current sales rates.
Here's a look at existing home sales figures which had been in a downtrend throughout 2011, broken in August and now we've eased off that level in September. We can also see that the mortgage rate continues to fall, which reflects lower yields and the feds attempts at keeping longer interest rates lower.
The take away from today's reports is that the manufacturing sector may be finally seeing some rebound in October which would be a net positive for the US macro picture - as well as for the global macro picture.
That fact that jobless claims continue to hover near the 400K area - while we would like to see a break below -, is still better than where we've been and therefore a indication that October's nonfarm payroll should come in either near Septembers reading or slightly better.
Existing home sales eased off the jump seen in August, but with low mortgage rates and if economic conditions improve that could further thaw conditions in the existing home sales market. We have seen some positive readings from the construction sector of late, but overall it's unrealistic to expect too much out of this sector for the next half a year.
If market participants weren't so concerned with Europe today's reports likely would have added to risk appetite and risk sentiment. Instead we'll store this information away for later when we look more at the fundamental and macro differences between countries and for when we consider our expectations for global growth for the third and fourth quarters.