The Fed's Beige Book and Initial Jobless Claims

The Fed Beige Book was released yesterday afternoon, adding to the concern that the U.S. economic expansion remains inconsistent across districts and is slowing gradually. The main worries continue to be a depressed housing market and a persistently high unemployment level. On the bright side, manufacturing activity continued to expand in a few districts, although at anemic levels. Also, falling input prices helped drive consumer spending moderately higher during the month of June. “Price pressures seemed to have moderated somewhat, although some firms reported being able to pass on some rising costs. Overall, input price pressures appeared to have fallen modestly. Input price increases remained elevated in the Philadelphia, Chicago, Minneapolis, and Kansas City Districts. Meanwhile, the Boston, Cleveland, Atlanta, and San Francisco Districts reported moderation in input price pressures relative to the previous Beige Book. For the most part, firms' ability to pass on price increases remained mixed”. Fed Beige Book, July 27^th 2011

Treasury prices are reversing yesterday’s trend as market participants react to this morning’s Jobless Claims report. Currently, the 2 year note has gained 1/32 to yield 0.41% while the 5-year note has improved 7/32 yielding 1.51%. The 10-year note has moved 10/32 higher in value to yield 2.94% and the 30-year bond is trading up 16/32 to yield 4.26%.  For the record, the Department of Labor released its weekly Initial Jobless Claims report in which claims dropped 24,000 from the previous week to 398,000, a number sharply lower than expected as analysts had anticipated a 415,000 reading for the week. The less volatile 4-week average number of initial claims was also lower than the previous period reporting a decrease of 8,500 from the previous week to 413,750. Continuing Claims, however, declined at a lower rate reaching 3.703 million for the previous week. Analysts were anticipating a reading of 3.70 million for the period. Additionally, Pending Home Sales will be released at 9:00 a.m. CDT. Pending Home Sales, which tracks the number of home resales under contract, is expected to have decreased 2.00% for the month of June. This index is often used as a gauge to predict future home sales activity as these sales usually become existing home sales one or two months later. However, as shown in the graph below, there appears to be no consistent trend in the past 12 months as we have not seen 3 straight months of an increase or decrease in sales.