Ø The Department of Labor (DOL) reported Initial Jobless Claims were up +51,000 to 454,000 for the week ending January 22, a major setback. The consensus forecast was for only 404,000. Conversely, the number of Continuing Claims (people receiving unemployment benefits for 2 weeks or more) fell -6,000 to 3,991,000 but the number of people receiving extended benefits increased by 94,000 to 3.99 million. This clearly shows the disconnect between the economy and the stock market.
Ø In another minor surprise this morning, Durable Goods Orders declined -2.5% in December according to the Census Bureau. This was far from consensus of +1.5%. In addition, durable goods orders excluding transportation (aircraft orders fell -99%) was up only +0.5%, noticeably below the consensus forecast of +0.9%. Clearly the economy is may be moving forward but its slogging through the mud. Heaven help us when QE stops!
Ø The FOMC statement released yesterday clearly reveals that Bernanke’s Federal Reserve is aggravated by the slow recovery and it will continue its accommodative monetary policy. Clearly The Fed is intently focused on the level of unemployment, and will not alter the QE2 buying program. In fact, I expect there to be a QE3 and a QE4. Deflation NOT inflation is the real threat to our economy and rates will stay low, as Ben said it himself “…exceptionally low for an extended period.” This FOMC statement language is concise and unambiguous. Despite the market’s concern over rising commodity prices and fear that a surge in economic growth will prompt the Fed to change policy in 2011, there is no way the Fed will change course to a tightening policy in any way for a long long time.
Ø The Congressional Budget Office released its GDP projections for the economy yesterday, and expects a 3.1% GDP for 2011 and declining to +2.8% in 2012. CBO also sees a higher federal deficit in 2011, -$1.5 trillion, because of the recent tax deal. CBO has the deficit falling gradually to -$641 billion by 2015. The deficit as a percent of GDP is forecast to be -9.8% in 2011 and decline gradually to -3.0% by 2015. Hardly dynamic growth given $14 Trillion of stimulus.