Jobless came in better (or not as bad) as expected. Make no mistake, 473,000 new claims is troubling and the prior week's upward revision is also not good news, but the street was fearing worse. Continuing claims fell to 4,456,000, but the prior number rose to 4,518,000. Not accounted for in the continuing claims number are displaced workers receiving extended benefits. The number of displaced workers receiving extended benefits rose by 302,000 for a total of 5.84 million more people receiving unemployment benefits than indicated by the continuing claims data. Do the math. That would be over 10 million people receiving some kind of unemployment benefits. It is going to be a long time before we see unemployment drop below 9.00% never mind the sub 8.00% rate predicted by government economic officials last year. The Fed has viewed full employment as being between 5.00% and 6.00%. Good luck seeing that any time soon. Most economists see unemployment above 9.00% through 2011.
Relatively good news from the mortgage sector. Foreclosures and delinquencies fell on a percentage basis. However, the trend with in the quarter indicates that new delinquencies and foreclosures were beginning to rise. Mortgages more than one month overdue increased. This indicates renewed distress among home owners. Experts believe that such an increase suggests than a slowing economy may push foreclosures higher as borrowers lose their jobs. One street economist told Bloomberg News:
"As we work through the bucket of troubled loans, we’re seeing an increase in a new crop of troubled loans." "It’s primarily driven by the jobs market. It still takes a paycheck to make a mortgage payment."
It will be a long way back, but we will come back, as long as consumers to no become too discouraged and businesses are incentivized to create jobs. When you figure out the last part, let me know.
Durable Goods data missed expectations by a wide margin, so wide that the upward revisions of the priors month's data hardly matter. Durable Goods less the volatile transportation sector came in at a -3.8%. That is a horrendous number.
There were some disturbing signs within the durable goods data. For instance, there were gains in the purchase of business equipment, but the equipment is being used to replace less efficient equipment rather than for expansion purposes. By most accounts there is excess capacity in the economy and there is little reason to add more. Manufacturing continues to be the strongest sector, but there are signs it too is beginning to slow. Manufacturing makes up such a relatively small portion of the economy that reliance on it for growth is not a prudent strategy.
New home sales, like existing homes sales, were terrible. The month-over-month change was -12.4%. The prior month's data was also revised lower. A lack of home buyer incentives and a poor jobs market are hindering homes sales. In fact, foreclosures continue to rise as walking away from homes in which one is underwater is now considered to be a prudent financial decision. REITs are doing the same with commercial properties and are being applauded for doing so by traders and strategists. Values? We don't need no stinking values.\
Folks, we may be caught in a negative feedback loop. This is where economic data misses expectations causing consumers and businesses to retrench a bit. That causes the next round of numbers to be worsen and consumers and businesses retrench some more. This is the opposite of the optimism-driven recoveries we to which we have become accustomed. Usually consumer spending breaks the trend, but the consumer is strapped. Productivity only helps to keep consumer prices in check. If consumers have little with which to spend, productivity's benefits are muted.
Some readers have asked me if it is time to sell long-dated assets to realize gains. It is hard to time this. I have been cautiously optimistic on the economy at best. What scares me here is the potential for a negative feedback loop. If you asked me last month if we would see 10-year at 2.45% I would have said: "no way" as such a yield would be pricing in a double-dip recession but the data do not bear that out. Now the data are falling in line, but it is a chicken and egg situation. Are the data driving consumer and business sentiment or is sentiment driving the data?
I think it is more of the latter. Fundamentals were indicating a slow recovery. Consumers and investors were counting on a robust recovery (without knowing where the growth was going to come from). When that did not materialize negativity set in. I can't see rates going much lower short of another severe recession or worse and would be inclined to sell the long and now, but as long as we are caught in this loop, it may not be a bad idea to ride it for a while longer. Our only hope may be a repeal of Obama-care and an extension of the Bush tax cuts. The fears of businesses and consumers must be alleviated. The last thing they need is less money in their pockets.
I was once told by a wise person: "never ignore what the market is telling you.” Please keep that in mind when considering letting ideology affect your investment strategy
Tomorrow we have GDP. We shall watch and pray.
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