Weekly jobless claims little changed

Trend remains positive

With the exception of reporting on the specifics of the data, not a whole lot can be said about weekly initial jobless claims this week. Initial claims inched up by 1,000 to 434,000, while the 4-week-moving average continues to fall, dropping 10,250 to 450,250, and continuing claims declined 179,000 to 4.8 million.

Not much action in the latest week, but the drop in the 4-week moving average, which washes out most of the volatility, tells me the economy continues to improve. 

And continuing claims are down almost 2 million from the peak, though much of the decline may be due to the jobless losing standard benefits that typically last six months and not from gainful employment.

Initial claims remain at an historically high level. And though layoffs are clearly easing, further gains in economic activity are needed in order to bring claims to a more acceptable level as well bring about respectable increases in employment.

ISM services post small gain

The ISM Non-Manufacturing Index managed to end a two-month losing streak, moving back into expansionary territory in the latest month.  The closely-followed survey that looks at the broad service sector increased from 48.7 in November to 50.1 in November but came up a little short of expectations.

Though above 50, the boundary that marks expansion and contraction, the survey suggests that the service sector was barely expanding at the end of the year. However, the overall trend continues to be in the right direction, despite recent sluggishness in the index. 

The ISM survey shows that employment improved slightly but continues to lag, which is in contrast to November’s nonfarm payroll report, which showed the economy lost just 11,000 jobs.

Friday’s release of December nonfarm payrolls is expected to show that the economy gained 10,000 jobs in the final month of the year, according to Bloomberg.  That’s a far cry from the number of jobs the economy needs to create in order to bring down the unemployment rate to more acceptable levels.

But given recent trends, we will probably see a respectable report within a couple of month, though upbeat numbers are likely to be sporadic until the recovery settles into a more sustainable, upward path.

Winning streak for pending homes sales ends

The nine-consecutive monthly increases in pending homes sales finally came to an end in November as potential first-time home buyers rushed to beat the expected expiration of the first-time tax credit.

This index designed to forecast future existing home sales fell a steep 16.0% to 96.0.  A decline had been widely anticipated. But the severity of the drop caught some analysts by surprise, and Treasury bonds rallied on the news.

Predictably, Lawrence Yun, the chief economist for the National Association of Realtors, said, “It will be at least early spring before we see notable gains in sales activity as home buyers respond to the recently extended and expanded tax credit.”

Other analysts are less certain and believe the much of the demand from first-time buyers was absorbed before the originally-expected expiration of the $8,000 tax credit on November 30.

However, Congress authorized a $6,500 tax credit for buyers who have been in their homes at least five years, and mortgage rates remain near historic lows, which will likely support the beleaguered housing industry.

Although the outsized pullback is a little disconcerting, pending homes sales remain 15.5% higher versus a year ago, lending support to the argument that the housing industry has bottomed.

ISM points to further economic gains

The ISM Manufacturing Index hit its highest level since April 2006, rising from 53.6 in November to 55.9 in December.

New orders remain strong and customer inventories are too low, according to the survey, signaling that manufacturing should continue to expand in the near term.

Moreover, the upward trend in the well-respected survey remains intact.

Separately, a purchasing managers survey of eurozone manufacturing hit its highest level in over 20 months and a similar index in China reached its best level in about 5 years, indicating the worldwide recovery among goods-producers continues.

Another look at today’s report is available at Examiner.com.

Jobless claims at new low

We received another piece of good news about the economy on the final day of the year.  Weekly jobless claims fell 22,000 in the latest week to 432,000, well south of the Bloomberg forecast of 460,000 and the lowest level in almost 18 months.

The 4-week moving average continued in a downward trend, dropping 5,500 to 460,250, and continuing claims slipped 57,000 to 4.98 million.

Recognizing that seasonal adjustments can sometimes be difficult this time of year, the steady decline in weekly jobless claims is impressive and is one of the clearest indications that the economy is on the mend.

The drop in layoffs not only reflects rising optimism among businesses but it also shows that the worst losses in nonfarm payrolls are behind us.  Still, fewer job cutbacks by employers do not necessarily portend a rise in employment, at least at this point in the business cycle. But it is a prerequisite to job creation.

We’ll need to see steady increases in aggregate demand before the economy begins to create new jobs.

Unfortunately, a falling unemployment rate and rising nonfarm payrolls are among the last economic statistics to show improvement after a recession.

Expected end of tax credit wallops new home sales

New home sales fell a steep 11.3% to a seasonally-adjusted annual rate of 355,000 in November, which puts the supply of homes on the market at 7.9 months (up from 7.2 months).

Unlike existing home sales, which are recorded at closing, the sale of a new home is counted when a contract is signed. We did see a jump in new home sales in October as buyers rushed to beat the end of the first time home buyers tax credit, which had originally been set to expire November 30.

The extension and expansion of the tax credit, coupled with the growing economy and still-low mortgage rates, should lend support to the market next year.

Final 3Q GDP indicates economy limped out of recession

Gross Domestic Product - commonly referred to as GDP - is the broadest view of economic activity and is among the more complex pieces of economic data that the government releases each quarter simply because it covers so much territory.

That is the reason we have three separate releases - advance, preliminary, and final - from the government.

The final release for 3Q, which came out today, showed that GDP increased at an annual rate of 2.2%, down from the initial estimate of 3.5, and the downwardly revised gain of 2.8%.

It's a little discouraging to the downward revisions chip away at early gains, but the data are old (4Q ends in about one week) and most economic reports suggest that we'll see the economy continue to expand when the final quarter's advance report is released at the end of January.