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By Carlos Guillen

After a magnificent trading session yesterday, equity markets are giving up some of the gains as investors take some of the table.

While last Friday's employment data was rather discouraging, particularly as nonfarm employment actually only increased by 18,000 during June, which was much lower than the Street's estimate of 80,000, today the Labor Department brought us a bit of encouraging news that showed the number of people filing for unemployment benefits decreased, reviving some credence to the perception that the overall employment backdrop is making small but consistent improvements. According to the Department of Labor, initial claims during the week ended January 11 totaled 326,000, decreasing from the 328,000 revised figure reported for the prior week and landing below the Street's estimate of 333,000. Moreover, the initial claims' four-week moving average was 335,000, decreasing from the prior week's average of 348,500 further below the 350,000 level that economists say is consistent with moderate labor market growth of about 150,000 net new jobs a month.

Perhaps a bit encouraging today was that increases in the cost of living are not supporting the rumors of economic deflation. According to the Department of Labor, the Consumer Price Index (CPI-U) in December increased month-over-month by 0.3 percent, in line with the Street's consensus estimate. Excluding food and energy contributions to the price index, core CPI increased month-over-month by 0.1 percent, while economists' average forecast called for a 0.2 percent rise. Overall inflation still remains rather low, and while we do not believe there is deflation taking place, there is a case for disinflation. Fed officials are carefully monitoring inflation as they wind down their bond-buying program. As it stands, with full year inflation of 1.71 percent, the Fed is not quite meeting its inflation target of 2 percent. This may reduce the likelihood of tapering in the Fed's next meeting.

Perhaps encouraging but certainly not enough to mitigate stocks' downfall today was that manufacturing in the Philadelphia region expanded this month. According to the Federal Reserve Bank of Philadelphia, its diffusion index of current activity January result landed at 9.4, higher than the Street's consensus estimate of 8.0, increasing from the 6.4 reached in December. Given that a level above zero indicates an economic expansion, this represents the eight consecutive month of growth in the region covering eastern Pennsylvania, southern New Jersey, and Delaware. Yesterday, manufacturing data from the New York region also showed expansion as the general business conditions index January result landed at 12.5, higher than the Street's consensus estimate of 3.5.

Homebuilder Confidence
By David Urani

The NAHB housing market index for January, a measure of home builder confidence, is out showing a one-point decline to 56 versus consensus estimates for it to stay at 57. That said, it's a modest move down and remains just below the 58 high from August. All three of the major components were down, with perceptions of present conditions down from 63 to 62, expectations for the next six months down from 62 to 60, and traffic down from 43 to 40. For traffic in particular, that's the lowest reading since July. That being said, as we all know there was a sweeping cold front across the nation during the month, which could well have deterred home shoppers. Overall, builders continue to remain quite optimistic, as the index is still holding around levels last seen in 2006.