Economic reports released this past week is further evidence that the economy continues in its recessionary mode.
Personal incomes in December continued to decline dropping an additional 0.2 percent from the November report, and the average work week held at a level discouraging any change in consumer spending habits.
The report on consumer spending showed a decline of 1.0 percent, and construction spending dropped by 1.4 percent. Both reports exceeded levels expected by the markets. The drop in factory orders also surpassed the expected decline, giving further evidence of the extent to which the economy is continuing to contract.
Other reports were equally dismal. Consumer credit dropped by $6.6 billion, more than double the forecast, and initial jobless claims increased by 626,000 versus an expected 585,000. While pending home sales increased 6.3 percent, far surpassing the forecasted decline of 0.5 percent, the increase was a result of further significant drops in home prices, which will cause additional reductions in personal wealth and spending.
The report on jobless claims was accompanied by a report that non-farm payrolls had contracted by nearly 600,000. The previously reported 2008 total job-loss number was increased by 311,000 to a total of 3,572,000. The unemployment rate is now the highest it has been since 1991, reaching 7.6 percent.
Signaling that it is still committed to taking steps to ease the credit squeeze at banks, the Federal Reserve Bank announced that it will expand the Term Asset-Backed Securities Lending Facility (TALF), stating its intent to lend u to $200 billion for newly and recently originated loans. The move is intended to free up lending and loan purchasing capacity at these financial institutions and intermediaries.
The Treasury also announced a move to bring back the issuance of the 7-year note, last seen in 1993. This is the second such announcement from the Treasury, which had earlier stated its intent to bring back the 3-year note.
The combination of the moves by the Treasury and the Federal Reserve and the anticipated passage of the stimulus bill have brought inflation back into the price of Treasury securities. The yield on the benchmark 10-year Treasury increased by 29 basis points during the year, while the yield on the 30-year moved up 23 basis points from the close a week earlier.
Credit markets this week will be focused on jobless claims, retail sales, the Michigan Sentiment report.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
