Market Commentary

In my view the statistics were consistent with a sustainable recovery
December 2, 2009

In my view the statistics were consistent with a sustainable recovery.  Pending home sales rose to a 3 ½ year high, probably the result of the impending expiration of the first time home buyers tax credit.  However the data is also suggesting possible strength in November and December given the lag between when a contract is signed and when the sale actually closes.
Construction spending was flat versus the consensus view of a nominal decline primarily due to home improvements.

The national ISM Manufacturing Index however was mildly disappointing but its 53.6 reading is still suggesting an expanding and solid manufacturing sector.   Any number over 50 indicates expansion and vice versa    More importantly the “New Order Sub Index” rose nearly 2 points to a very strong 60.3.

Auto sales were also generally stronger than expected suggesting sales are around the 11.0 million rate.  This is up from February’s 9.11 million rate but far from the 16.8 million units sold annually in the 10 years ending 2007.

Is this data a reason for Philadelphia Fed President’s rising confidence about the sustainability of the recovery and is now forecasting a 3% growth rate for the next two years? Perhaps.  
In prepared remarks Plosser believes residential real estate has “bottomed out” but commercial real estate poses “some risks.”  Plosser further stated the Fed might start draining liquidity and rising interest rates before unemployment drops to “acceptable levels” in order to contain inflationary expectations.

Equities gained momentum on this news, a rally that began with relief that Dubai might not be an issue and Chinese factory production rising to the highest level in five years.  Treasuries declined about a point.

Today the Beige Book, the private ADP Employment survey, and Challenger Job Cuts are released.  How will this data influence thinking about Friday’s inclusive BLS labor report?
Last night the foreign markets were up.  London was down 0.07%, Paris up 0.22%  and Frankfurt up 0.03%.  Japan was up 0.38% and Hang Sang up 0.80%.

The Dow should open mixed as both private employment surveys were nominally weaker than expected.  The 10-year is off 2/32 to yield 3.29%.