Just when we thought we had recovered, initial unemployment claims rose back above 400,000 to smack stocks.
Thursday’s economic reports began with the Department of Labor’s weekly report on initial unemployment claims, which indicated an increase of 78,000 new claims, compared with the anticipated increase of 21,000 new claims. We are now well above the 400,000 – claim threshold. It has been an entire year since we were only able to break below the 400,000 claim level for the first time since the recession began. If this is progress, it sure doesn’t seem that way.
From the report:
In the week ending November 10, the advance figure for seasonally adjusted initial claims was 439,000, an increase of 78,000 from the previous week’s revised figure of 361,000. The 4-week moving average was 383,750, an increase of 11,750 from the previous week’s revised average of 372,000.
The Federal Reserve Bank of New York managed to release its Empire State Manufacturing Survey for November on time, despite the chaos caused by Hurricane Sandy. Prior to the storm, economists had been expecting the survey’s business conditions index to increase from negative 6.2 to negative 5. After the storm, many economists were anticipating a further decline. (A result below zero indicates contraction.) Nevertheless the New York Fed had good news.
From the report:
The headline general business conditions index was little changed from last month and, at a level of -5.2, suggests that overall, business activity was modestly lower than in our previous survey. Employment levels were noticeably down, as the employment index fell 14 points to -14.6, its lowest level since mid 2009. On the upside, however, the new orders index climbed into positive territory and the shipments index shot up 21 points to 14.6, its highest level since May.
The headline index might have been expected to look worse. The November survey was in the field after the storm—from November 5 to November 13—and many of the respondents were affected. In fact, supplemental questions in the report asked firms whether their businesses were disrupted by the storm. Impacts were widespread and substantial for downstate respondents, while the effects on upstate firms tended to be less prevalent. All of the firms from the New York City area were disrupted—in most cases, severely—with 70 percent of downstate businesses stating that losses of power and communications were major factors in reducing business activity. In upstate New York, just 21 percent of firms reported that business activity was interrupted for a day or more, mostly due to disruptions to their supply chains and problems from their customers who were also affected by the storm.
Skeptics found their feelings of pessimism validated by the Philadelphia Federal Reserve’s November 2012 Business Outlook Survey. Economists had been anticipating a nosedive from positive 5.7 to negative 4.5. The Philly Fed served-up a 16-point slam to negative 10.7. Philly Fed Business Outlook: Contraction Returns, Courtesy of Sandy
From the report:
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased 16 points, to a reading of ‑10.7. The fallback of the general activity index followed a single positive reading in October that was preceded by five negative monthly readings (see Chart). Nearly 32 percent of firms reported declines in activity this month, while 21 percent reported increases. The demand for manufactured goods, as measured by the current new orders index, declined 4 points from last month and remains in negative territory. Shipments also fell this month: The current shipments index fell 7 points, to ‑6.7. Declines in inventories were also more widespread this month; 31 percent of firms reported declines compared with 21 percent in October.
The major ETFs expected to respond to the New York and Philly Fed reports – as well as the Department of Labor’s weekly report on initial unemployment claims are:
SPDR S&P Retail ETF (NYSEARCA:XRT) +0.05%
Industrial Select Sector SPDR ETF (NYSEARCA:XLI) -0.17%
Consumer Discretionary Select Sector SPDR Fund ETF (NYSEARCA:XLY) -0.02%
Consumer Staples Select Sector SPDR Fund ETF (NYSEARCA:XLP) -0.06%
Bottom line: Despite New York’s resilience, the severely disappointing results from the Philly Fed and the Department of Labor indicate that our economic recovery is following a pattern of two steps forward and one step back .