BondSquawk

By Maulik Mody – Bondsquawk.com

November 24, 2010

The Labor Department reported that the number of people filing for jobless claims for the week ended Nov 20 fell to its lowest level over two years. Initial jobless claims fell 32,000 to 407K, beating expectations of a fall to 435K. This reading brings the 4-week moving average from 443.5K down to 436K. Although jobless claims are improving lately, it is still increasing on a non-seasonal basis due to job cuts in the construction industry. But economists believe these layoffs are smaller than usual owing to the decimation in the industry, and job reports for November will be improved due to strong private sector hiring.

Consumer spending increased for a fifth month in October, lead by an increase in personal income, which improved 0.5% in October. Personal spending increased 0.4% last month, after a 0.3% gain the prior month. The recent increase in jobs and household income may instill confidence in consumers to spend during the holidays. Although simultaneous increase in spending and incomes makes some analysts believe that the recovery may be speeding, it might be a result of the holiday season closing in. Consistent improvement in this area is required for a longer time before its effect on the recovery can be gauged.

The Commerce Department released reports showing that demand for durable goods dropped 3.3% in October. The fall in orders for long term goods threaten to reduce business investments in capital equipment, which will hurt the economy, especially as spending rises slowly but steadily. Demand for these goods for the month before was revised up to an increase of 5% after a previously reported 3.3%.  This makes the fall in October the biggest plunge since 2009.

The demand for capital goods also suffered, falling 6.6% in October after an increase of 11.7% the month before. Non defense good orders fell 4.5%. Commercial aircrafts also faced reduced demand last month, after sales more than during the previous month.

Among other independent releases, mortgage applications for the week ended Nov 19 increased 2.1%, following a 14.4% decrease the previous week. Purchases surprisingly jumped 14.4%, while refinancing decreased by 1%. The 30-Yr fixed rate mortgage increased slightly to 4.50%, which is still near record low levels, making this a good time to purchases homes.

The University of Michigan Confidence index improved 2.3 points to 71.6 in November, its highest level since June. Economists had projected it to increase slightly to 69.5. The gauge for economic conditions increased 2.4 points to 82.1, while economic outlook also increased 2.1 points to 64.8.

New home sales declined 8.1% to 283K during October, as opposed to economic expectations of an increase to 312K. Although consumer spending and income in increasing, it is not strong enough to sustain the recovery in the housing markets despite low mortgage rates. Sales increased by 5000 in the South, but major decline in the West and Midwest regions drove the numbers lower.

Investors were optimistic ahead of thanksgiving. Stocks erased much of their losses since yesterday. The S&P was 1.2% higher at 1194.30 as of 11:52 AM EST. NASDAQ gained 1.8% to 2539.84. Treasuries fell across the curve. The 10-Yr fell pushing its yield 11 bp higher to 2.88%. The 2-Yr yield rallied 5 basis points to 0.51%. The Long Bond last traded 6 bp higher at 4.25%.