"BOTH OPTIMISTS AND PESSIMISTS CONTRIBUTE TO OUR SOCIETY. THE OPTIMIST INVENTS THE AIRPLANE, AND THE PESSIMIST - THE PARACHUTE." G.B. Stern. The media's recent analysis of the economy has run the gamut of late, some optimism, some pessimism...but also some confusion as they attempt to decipher recent economic reports, particularly relating to the job market. Let's look at a few of the recent reports, and get behind the headlines to decipher what they really mean.

Last week's Initial Jobless Claims Report showed that 505,000 people filed for unemployment benefits, which was about what was expected, and represented a ten month low for the report. The Continuing Jobless Claims Report, which indicates the total number of people collecting unemployment benefits, fell by 39,000 to a total of 5.61 Million.

The media often spins this data as good news - but the labor market remains in exceptionally tough shape. The Continuing Claims number declining from a record high of 6.82M in June to last week's 5.61M is the result of only two potential things happening: People are finding jobs and no longer need unemployment benefits, or they have been unemployed for so long that their benefits are running out before they've been able to find a job. With a 10.2% Unemployment Rate looking like it will move higher still, it is most likely the latter.

Another clear sign of a very troubled labor market was back on November 6th, when President Obama signed a bill that will extend unemployment benefits by an additional 20 weeks...there would be no reason to do this if jobs were being created.

In other news, October Retail Sales were weak overall, which is concerning for several reasons. One somewhat overlooked impact is that tax receipts from retail sales help both the individual states and the country as a whole. If the consumer doesn't spend - perhaps due to job loss or lower family income - and there are therefore less tax receipts from retailers, the government runs an ever-deeper budget deficit. The only way to get out of a deficit is to either raise other taxes or cut spending - and neither option is very popular. Many states are in poor fiscal shape because of soaring budgets and lower tax receipts.

There aren't any easy answers - but it's clear that the labor market needs to see some serious improvement for the economy to recover in a significant way.
Bonds and home loan rates were unable to hang onto improvements made in the earlier part of the week, and ended the week around the same levels as where they began.

Forecast for the Week

It may be a shortened work week due to the Thanksgiving holiday, but there will still be plenty of action in store. Both Monday's Existing Home Sales Report and Wednesday's New Home Sales Report will give us a read on the housing market. With many homebuyers jumping into the market to take advantage of the Homebuyer's Tax Credit - which was recently extended until June 30, 2010 and expanded to include certain qualifying existing homeowners - it will be especially interesting to see what these reports reveal. Let me know if you have any questions on the Tax Credit, or if you'd like to learn how it might benefit you or someone you know.

We'll also get several reads on the economy this week, first with Tuesday's Gross Domestic Product (GDP) Report, which is the broadest measure of economic activity. Following will be Wednesday's Durable Goods Report, which gives an update on consumer and business consumption and buying behavior via data on items that are "non-disposable", like appliances, cars, cameras, etc. Wednesday also brings the Fed's favorite gauge of inflation, the Core Personal Consumption Expenditure (PCE) Index, found within the Personal Income Report.

More auction action...the Treasury will auction $118B in securities this week, starting with a record $44B in 2-Year Notes on Monday, a record $42B in 5-Years on Tuesday, and another record - $32B in 7-Years on Wednesday. This is an enormous amount of supply, and the market's ability to digest it all will be tested.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. Bonds and rates recently neared their best levels of the year, but were unable to make further improvements. Rates are likely to be moving higher in the coming months - so give me a call to discuss how the current rate climate might work in your favor, before these great rates slip away.