Thursday's Indicators

by Dollars and Sense

Weekly new jobless claims in the US fell 15,000 to 565,000, and continuing claims dropped by 80,000 to finish the week ending 15 August at 6.133 million. How many unemployed workers exhausting benefits, thereby contributing to the fall in existing claims, must be considered here, however.

US 2Q GDP was revised upwards to minus one percent. In the longest recession since 1947, real GDP has fallen for four straight quarters. Corporate profits, though, rose 2.9 percent in 2Q, following a return to positive territory in 1Q of 1.3 per cent. Inventories were cut by more than anticipated during the quarter, but this was offset somewhat by stronger consumer spending (a part of that as a result of higher gas prices and the now-expired cash-for-clunkers--After posting this I remembered that the program didn't go into effect until July, so this had no impact on second-quarter purchases; sorry for the mistake). Tomorrow's personal income number will no doubt add definitively to the picture of the consumer's health.

Wall Street opened by shrugging off these data, which seem to confirm long-awaited indications that consumer spending has at least some legs to stand on. Some may be puzzled by this--it wasn't too long ago that negative readings were routinely ignored by the Street. And there are some mighty strange things happening on the markets. Today's FT noted that AIG, Fannie Mae and Freddie Mac put in the most improved performance on the New York Stock Exchange since early August. All three have vaulted more than 150%, with the terrible government-sponsored entity twins posting gains of 250%. And there's more at work here than positive news on the homebuilding front: it seems short sellers have been betting against the trio, and have been caughtm, well, short: so some of the buying was of the panic sort, to buy back shares of the three that speculators had shorted which gained in price.

Also, readers may recall a post from last week in which Arindrajit Dube showed how the shares of big insurers reacted to the demise of the public option in July. I don't follow individual stocks or sectors that much, so I'm guessing here, but I imagine that insurers are still racking up gains. To see so such upward activity suppported by such movements, which can only be regarded as neutral or harmful in an economic sense, would mitigate against the simple recovery story. And retail investors remain close to the sidelines.

The FT also had a longer piece on the very weird upward movement of stocks, bonds and commodities recently (usually bonds move opposite to stocks, and commodities, especially oil, are used as a hedge against inflation--and hence, often-times, stock performance). Add in currencies, in which a movement away from the dollar as a safe haven has been proposed (and the dollar usually moves counter to commodity prices), and you have a very confusing situation, indeed.

Labels: bond market, commodity prices, corporate profits, dollar, economic indicators, GDP, stock market, weekly initial claims

 

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8/27/2009 08:37:00 AM