The Economy Guy

Issue: 10/4/07 Thursday

The market resumed it normal trending today, except the stock market moved sideways.  The dollar weakened across the board, oil and gasoline prices jumped, gold started back up and the bond market improved.  My opinion is that sanity came back to the currency market, helped by the fact that the European Central Bank didn’t lower their key interest rate.  Then the rest of the market took their queue from the currency market, and added an inflation risk to their pricing.

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So, here comes the US Factory Orders report.  It was bad.  What most people are looking for in these figures is any sign of a recession – that would mean the Fed would drop the Fed Funds rate again.  Do you see anything negative here??  My eyes settled on the words surrounding “food, clothing and gasoline.”  Why would those staples fall???  Maybe we are seeing the beginning of something significant.  Time will tell.  Don’t jump based on one months statistics about anything.

 

Orders to U.S. factories fell in August by the largest amount in seven months, reflecting weakness across a wide swath of manufacturing.  The Commerce Department said that orders dropped by 3.3 percent last month, even worse than the 2.8 percent decline that had been expected. The fall-off was led by a huge plunge in demand for commercial aircraft, which fell by 39.9 percent. However, orders were also weak in a number of other industries, from autos to industrial machinery and home appliances.

Orders for durable goods, items expected to last at least three years, fell by 4.9 percent, while demand for nondurable goods, items such as food, clothing and gasoline, fell by 1.6 percent.  Economists are worried that the steepest housing slump in 16 years and the biggest credit crunch in nearly a decade could push the country into a full-blown recession.

In other news, the Labor Department said that the number of newly laid off workers filing claims for unemployment benefits shot up by 16,000 to a total of 317,000. The gain was the largest one-week rise in four months and was bigger than analysts had expected.  Labor Department analysts said that the two-day auto strike involving General Motors Corp. did not appear to have a significant impact on the claims figures last week, according to preliminary information from the states.

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Here is the Jobless Claims – my advice is to ignore it, and wait for tomorrow’s Employment Report.

The Labor Department said jobless claims rose 16,000 to 317,000 in the week ended Sept. 29, a bigger jump than analysts anticipated.  But the jobless claims report also precedes the department’s much-anticipated September employment report on Friday, and Wall Street is hoping for a rebound. A strong job market has been an important prop for the U.S. economy, helping to offset investor concerns over a housing slump and sluggish growth.

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Here is a bright spot for the battered “Commercial Paper” market.  It grew, but not by much.  That means the “liquidity” provided by the Fed is doing its job, confidence is coming back in the CP market, and inflation can now keep building.  The CP market is key to keeping that stock market surging forward.  If companies can’t float paper (toilet or otherwise), they can’t grow their profits easily, and their stock prices just don’t go up as fast.

U.S. commercial paper outstanding grew this week for the first time since troubled mortgages triggered a crisis in credit markets back in August, according to Federal Reserve data released on Thursday.  The latest data showed that the size of the U.S. commercial paper (CP) market increased to $1.860 trillion, up $4.5 billion from the previous week’s $1.855 trillion.

Here are Today’s closing details:

DJ30 – 13,974 (Up 6 points)

10 year US Treasury Bond – 4.52%  (Down 0.02%)

US Dollar – $1.4137/Euro.

Gold closed at $744 per ounce. (Up $8)

Oil Closed at $81.44 (Up 1.50)

Gasoline is $2.05 (Up 0.05)