Instant view: Philly Fed, home sales add to economic fears

NEW YORK Thu Aug 18, 2011 10:54am EDT

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NEW YORK (Reuters) - The Federal Reserve Bank of Philadelphia said on Thursday its index of business conditions in the Mid-Atlantic region fell in August to -30.7 from 3.2 in July.

HOME SALES:

Existing-home sales unexpectedly dropped in July as cancellations of pending contracts continued to depress buying activity.

KEY POINTS: The National Association of Realtors said sales fell 3.5 percent month over month to an annual rate of 4.67 million units. June's sales were upwardly revised at a 4.84 million-unit rate. Economists polled by Reuters had expected sales to rise 3.8 percent to a 4.90 million-unit pace. Compared to July 2010, sales were 21 percent higher.

COMMENTS:

MICHAEL TREBING, ECONOMIC ANALYST, FEDERAL RESERVE BANK OF PHILADELPHIA:

"Orders weakened notably. Firms reported some moderation in cost pressures. Consistent with that overall weakness, more firms reported declines in prices for their own manufactured goods than reported increases.

"Still expectations looked forward to some growth in new orders, shipments and employment over the next six months as indicated by positive readings on diffusion indexes. The good news is that expectations are still holding up.

"We got comments on the positive side and negative side. We got more negative comments this month than in the past, especially focusing on new orders, consistent with declines in new orders.

"About a third of the firms provided comments this month. They were general comments and did not focus on other activities like the debt ceiling debates, debt downgrades, or the euro zone. Still, the survey period from August 8 to 16 overlaps with unusually high volatility in domestic and international markets. The last data collection day was Tuesday, August 16. Those kinds of events can effect sentiment indexes. But firms' comments did not focus on that. All I can point out is that it was an unusual time for doing the survey.

"Seasonality is important and you adjust for those declines. Especially in July or August. Over a third of the firms said seasonals affect monthly production. They haven't grown in importance. The data are seasonally adjusted and we have no reason to think seasonal factors are responsible for these declines.

"The other thing to point out is that diffusion indexes are very sensitive to the pattern of increases and decreases, but don't say anything about the levels."

DREW MATUS, ECONOMIST, UBS, STAMFORD, CONNECTICUT

" look pretty bad. There are lots of phrases you could use to describe them, none of them printable.

"It was a very weak report. It wasn't that the headline number was different from the underlying. It seemed like there was a big slowdown in new orders and shipments. Interestingly though, inventories did drop off very sharply, so there is a potential there for a bit of a bounce going into September, but when you're at -30.7 it's a little hard to kind of get a big enough bounce to go all the way back up.

ON DOUBLE DIP RECESSION: "I don't think I would be willing to call a double dip on Philly Fed. There is a bit of volatility in Philly Fed. Claims have been very stable in August so far. What we know of consumer spending has been relatively good. If consumer spending and the employment numbers look OK so far in the month of August, and that is 70 percent of GDP, I don't think I would be willing to go out there and say 'there is going to be a recession' based on a regional Fed index."

BRET BARKER, A PORTFOLIO MANAGER AT TCW, LOS ANGELES:

"This was a very disappointing number on both headline and new orders and consistent with levels seen in the recession's in 2001 and 2008. The graph of new orders on Philly Fed is amazing and off a cliff. I am hearing of strong Treasury buying from all account types... even before this number like people woke up and said... I'm going to buy today."

DEAN POPPLEWELL, CHIEF CURRENCY STRATEGIST, OANDA, TORONTO

"The data is certainly pointing toward QE3. And it's not just the United States --- the troubles in Europe are testing the mettle of the SNB. Safety in trading is certainly a priority and risk aversion is the rule. That's why both the euro and the dollar are having a tough go of it. In the U.S., does this all point toward QE3? Absolutely. There's little to give markets hope or confidence. The economy has taken a real battering in the last couple of weeks. This feels like deja vu from three years ago."

SCOTT BROWN, CHIEF ECONOMIST AT RAYMOND JAMES, ST. PETERSBURG,

FLORIDA

:

"It certainly was a surprise, relative to expectations. Investors were looking for a moderate increase. This was a pretty big wipeout.

"The survey week... included a week of unusually hyper activity in the financial sector. It doesn't label actual measure of activity, it's more of a sentiment indicator. Mood plays some factor in that. The markets very rarely get past the headline number." On existing home sales:" It's another disappointing figure. It looks like there's a fair bit of noise month to month. If you look at the trend, we're bouncing along the bottom in housing."

ROBBERT VAN BATENBURG, HEAD OF EQUITY RESEARCH, LOUIS CAPITAL,

NEW YORK:

"Businesses are paring back, and unless you have something that could force a turnaround, I think the situation doesn't look very good near-term. My expectation is for the Fed chairman to give some sort of a signal... that he is ready to step in with another round of stimulus."

GUS FAUCHER, DIRECTOR OF MACROECONOMICS, MOODY'S ANALYTICS,

WEST CHESTER, PENNSYLVANIA:

"It looks pretty bad across the board, especially with new orders. It shows demand is softening. Businesses are anxious at this point. There is a lot of volatility out there in general."

SAL CATRINI, MANAGING DIRECTOR FOR EQUITIES AT CANTOR

FITZGERALD & CO, NEW YORK:

"The market is in meltdown mode; the data continues to stink. I don't know that there's much more to be said. We continue to be in a soft patch."

FABIAN ELIASSON, VICE PRESIDENT, CURRENCY SALES, MIZUHO

CORPORATE BANK:

"It's pretty clear this is a horrendous number. But I wouldn't go so far as to say (we're headed for QE3). We also saw a uptick in inflation data this morning, which would speak against doing anything like that. We came in today with a fall in the Dow and this is only accelerating the selling. These numbers are reminding us that the economy is in for a slow and bumpy ride with a lot of market volatility."

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:

"Obviously, a very sharp contraction in orders is bad news. It may be tied to the financial markets since the survey overlaps the last couple weeks of financial market volatility. It may have impacted corporate sentiment. A contraction in orders is damaging. Employment looks like it's beginning to cave, but hopefully it won't. It's hard to squeeze any good news out of the numbers in this report.

"The home sales number is beginning to creep downward, too. It gives the appearance of melting away, contributing to consumer sector worries. And that was even before the recent financial market volatility."

MARKET REACTION:

STOCKS: U.S. stock indexes added to losses BONDS: U.S. bond prices rallied FOREX: The dollar fell against the yen; the euro dropped

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