Economic Watchdog, Oct. 19

Mr. Bernanke steered clear of direct monetary policy talk, but note that the current situation in the economy is difficult to pin down. He noted that policy makers need to keep an open mind and base their decisions on current economic data. Fed fund futures have shown a lot of volatility the past few weeks. Last week retail sales, the producer price index and consumer sentiment combined to pushed the odds of a rate cut down to 30 percent. Today, these odds have nearly flip-flopped with the odds of a rate cut near 65 percent.

The housing sector and weakness in the credit markets have been the biggest concerns for the Fed, but they are keeping an eye on inflation pressures, especially with crude at record highs. On Friday, the November petroleum futures contract closed with a loss of 87-cents to $88.60 after hitting a high at the open of 89.58. This news wasn’t positive for stocks however, with the Dow () falling 367 points.

On Thursday, jobless claims for the week ending Oct. 13 rose by 28,000 to a level of 337,000. This was well above estimates for a reading closer to 312,000. This is the highest level for jobless claims since the troubling month of August. The four-week moving average came in at 316,500, which is still consistent with a tight labor market. However, this might now last given the continued weakness in the housing sector and record high oil prices.

The Conference Board announced that its index of leading indicators rose 0.3 percent during September. This follows a sharp 0.8 percent decline in August. The largest positives for the index came from vendor deliveries, a drop in jobless claims and a rise in the stock market. However, these indicators have shown the opposite result in October.

Recent data on the manufacturing sector has been mixed with October’s Philly Fed Survey only slightly positive. The index came in at 6.8, down from 10.9 in September. A reading above zero is considered a state of expansion, which means that a greater number of those surveyed are seeing growth as opposed to contraction. New orders, a key component of the survey, came in at just 2.7 after a reading of 15.1 last month. However, employment increased to 12.6 and the six-month outlook moved higher by six points to 35.7.

Next week’s economic calendar will be rather light as well, though data on new and existing home sales will get a lot of attention. Another major report is the durable goods orders release that is due out on Thursday. There will a lack of Fed speeches on tap with the FOMC meeting on tap for the following week.

Jody Osborne

Senior Staff Writer & Options Strategist
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