The Long and the Short of It

Economic reports today filled a vacuum of relatively uneventful reports this week. Sure there was housing but everyone knows about housing. It's dead and double dipping. The tax credit is over and its just going to take time until: (i) consumers are credity worthy enough and can afford a down payment on a house; (ii) the number of foreclosures slows in a meaningful way; and (iii) the inventory of homes for sale is reduced to a reasonable level so as to relieve the constant downward pressure on home values. So today's reports provided some more honest and significant insight, particularly the Philly Fed's report on manufacturing activity. But let's keep things in context too.

(1) The initial unemployment jobless claims report. To be honest, this is a news headline for a few hours. True, it hit 500,000 this week and has risen for the past 3ish weeks. True, its troubling to see such increases and more importantly to see the average # of initial claims (which smooths out volatility of week to week and seasonality) rise. But let's be honest, this is a short term trade playing on market momentum for the day or rest of the week. It's a sophisticated form of gambling. Everyone knows the real unemployment rate is closer to 18% than it is to 9%. The unemployment picture is known and priced into the markets. The true wrench would be to see the private sector stop creating jobs (which is reported in the montly reports).

(2) The Philly Fed Report indicated ACTUAL CONTRACTION in manufacturing for the mid-atlantic region. A couple things here - this is troubling because contraction sounds like recession. And it is alarming, but let us also remember: (i) manufacturing was knowingly in a slowing down phase and the inventory reboost has subsided and what initially led us out of recession was inevitably expected to return to normalcy and slow down; (ii) this is the first month of actual contration i believe and as they say (1 time does not a trend make). Do I expect significant growth in future months? No, but to the extent that a month of contraction exists relatively recently after months of outsized growth -- that's just the pendulum swinging.