Philadelphia Fed Survey, Jobless Claims and Treasuries All Bad

A lot of data came flashing across my radar this morning. Here's the rundown:

Philadelphia Fed Business Outlook Survey (-7.7)

The survey measures the Philly region's manufacturing conditions. The diffusion index of current activity decreased from 5.1 in July to -7.7 in August. Analysts expected a reading of +7.0, but apparently the industry came out short. For the first time since July 2009, the index reached negative territory, marking a period of declining monthly activity.

23% of firms surveyed reported a decline in employment, and a bigger decline in the average employee work week from 1.7 in July to -17.1 in August. 70% of the firms surveyed reported no change in prices of their manufactured goods, while 19% reported a decrease in prices.
However, the industry remains optimistic. Future new orders index increased to 25.7 and shipments remained unchanged. Overall, the outlook on employment remains bleak as 22% of the firms expect further decreases in jobs.

Jobless Claims (+12,000)

Initial jobless claims increased by 12,000 to 500,000 according to the US Labor Department. This is the third straight week of increasing jobless claims. Analysts say that as state governments proceed with budget cuts, government workers will lose jobs. Also, because of a sluggish housing market, construction jobs are minimal. It's important to note that this figure does not include the nearly 5.6 million unemployed workers who are receiving extended unemployment benefits.

QE-lite Begins

The Federal Reserve bought $6.16 billion of Treasuries, using capital from maturing securities as part of its reinvestment program (QE-lite). The Fed now owns 7 of the 27 Treasuries listed for purchase; most of which are set to expire in November 2016 and May 2017.

This could possibly be the reason for the US Dollar's intra-day rally against a basket of currencies (except Yen). Perhaps something technical, but either way at the time of this post, a peak is clearly evident as fundamentals come into play pushing the dollar lower.

Stocks slide, Yields lower

The negative data returned fears of double dip across Wall Street, causing the S&P to drop nearly 20 points (as of now).


Yields on the 10 year treasury experienced a steep decline as the Philly report added to the bond market rally responding to the Fed's reinvestment. (below- intra-day chart)

Overall, once again negative news. I can't stress enough the need for a complete fight against unemployment. We need to get on the supply side and help firms increase productivity, and along with that employment. A floating tax strategy to provide some incentives to firms that are directly involved in the industries that have severe unemployment (manufacturing and housing). But then again, it seems that some incentives are already in place, but it clearly shows that we lack a stiff game plan to combat unemployment.

For example, US Mortgage Rates dropped to record lows for the ninth straight week. This makes it cheaper and more attractive to borrow and refinance homes. Mortgage applications rose 13% in the week ending August 13th, but unemployment has placed a damper on home sales. Consumers and producers are eager to be productive, but they need the right support from government to provide the much needed boost to the US economy.

The news comes a day after President Obama spent a day with a couple in their Ohio backyard to showcase how the success of stimulus efforts helped Americans. This is not a majority case, and the data keeps depressing.

Like Dantes Outlook on Facebook!