Worries about TARP, the auto sector and the jobs market more than enough to give the bear’s power. The focus this week has been on Capitol Hill where discussions have been held about TARP and an auto sector bailout. However, Thursday’s focus turned to the jobs market following a very disappointing jobless claims release.

Jobless claims for the week ending Nov. 15 rose by nearly 30,000 to a level of 542,000. This was well above expectations for a reading of 505,000 with the four-week moving average moving above the 500,000 level, hitting a 25 year high. As if this wasn’t bad enough news, continuing claims continued to rise, adding 109,000 to 4.012 million, which is its highest level since 1982. This data doesn’t bode well for nonfarm payrolls and the unemployment rate in November. Because times are so rough, the House of Representatives passed legislation to extend unemployment insurance for workers whose benefits have expired. The Senate also passed the bill today, sending it on to President Bush, who is expected to sign it into law.

The leading indicators report for October fell 0.8 percent, 2-tenths worse than estimates. This data points to further economic contraction; something that isn’t a surprise to anyone. Ironically, the index of coincident indicators actually rose 0.2 percent after falling sharply the past two months. The one positive in the report was the increase in money supply due to the influx of capital the Fed has put into the system to help the credit markets.

The manufacturing sector has been hit hard during the economic downturn and the Philadelphia Fed Survey did little to change this. The index fell to -39.3 in November, down nearly two points and worse than the -35.0 figure expected. The fact that the prices paid and prices received components turned negative show that demand is weakening. The employment component fell 7 points to -25.2 with the workweek slipping to -19.7.

The FOMC announced this afternoon that its December 16 meeting was being expanded to two-days. At this meeting, the committee is expected to cut rates by 50-basis points with Fed fund futures pricing in an 80 percent chance. It makes sense that the FOMC would like to take extra time to discuss ways to mend problems in the economy.

As economic slowing has intensified, oil prices have tumbled. On Thursday, crude prices fell $4 a barrel to close at $49.62. This is the lowest level for the commodity since May 2005. Worsening economic news is lowering the outlook for demand and this is pushing oil prices lower. It was only four months ago that crude hit a high of $147 and gasoline prices were above $4 a gallon. Now prices for unleaded gasoline at the pumps has fallen safely below $2 a gallon.

Besides the jobless claims report this morning, another reason for selling was the failure of Congress to come to the rescue of automakers. Democrats on the Hill told Big Three leaders that they need to come up with a firm plan that shows how they would use a bail out to turn their companies around. This means that the earliest a plan might be approved is when Congress returns on December 8. Ron Gettelfinger, president of the UAW, stated that at least one, maybe two auto makers could collapse by the end of the year with assistance.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site