All of today's economic releases were worse than expected. In the first release, the Labor Department reported that the seasonally adjusted level of initial claims for state unemployment benefits rose last week by 27,000 to 542,000.

The jump was somewhat of a surprise following an increase of 31,000 the week before (originally 32,000), though last week's figures may have been distorted by the Veteran's Day holiday. Nevertheless, the latest claims level was the highest since July of 1992. The four-week moving average, which smoothes out some short-term volatility, rose by 15,750 last week to 506,500.

Any initial claims reading over 400,000 is considered an indication that layoffs are outpacing hiring and the recent figures suggest that job losses are accelerating. For the forty-six weeks of the year to date, the average weekly reading has been 403,630. For the same period last year, the average was 318,435.

The report said that the level of continuing claims rose by 109,000 to 4.012 million in the week ending November 8 (continuing claims must be at least a week old). This was the highest level since December of 1982. The four-week average rose by 71,250 to 3.867 million. For the first forty-five weeks of the year, the average continuing claims reading has been 3,186,400. For the same period last year, the average was 2,533,222.

Later, the Conference Board, an independent research firm, released its Index of Leading Economic Indicators for last month. The report said that the index fell by 0.8%, a larger contraction than the 0.6% that analysts were predicting. In addition, September's originally reported increase of 0.3% was revised to a rise of just 0.1%. The largest contributors to October's decline were the drop in stock prices, the decline in the rate of building permit issuance, and the pessimistic consumer expectations index.

The news release indicated that the situation has deteriorated over the last twelve months. It said, "Between April and October 2008, the leading index declined 2.4 percent (a -4.7 percent annual rate), falling considerably faster than the 1.2 percent decrease (a -2.3 percent annual rate) over the previous six months. In addition, the weaknesses among the leading indicators have remained widespread in recent months."

The final release of the day and week was the manufacturing index data on the Philadelphia Fed region. It came in at -39.3 this month, down from October's -37.5 and below consensus predictions of a -30.0 reading. Any reading below 0.0 reflects a general contraction of activity relative to the preceding month and the latest reading was the worst since October of 1990. The index has been negative in eleven of the last twelve months with the average reading being -18.6.

The report said that the prices paid index, a gauge of inflation, came in at -30.7, the first negative reading since July of 2003 and the largest in the history of the data series going back to May of 1968.

Wednesday, 11/19/08 : Stocks fell hard yesterday as weak housing data and downwardly revised Fed economic projections weighted on the market. Analyst downgrades on the financial sector provided additional pressure. The shift away from equities found a haven in the government-backed Treasuries market.

In late trading, the 10-Year Treasury Note was up by 1-25/32, lowering its yield by 21 basis points to 3.32%; the Dow was down by 427.47 points to 7,997.28; and the Nasdaq was down by 96.85 points to 1,386.42.

The inflation news released in the last two days was positive. Tuesday's price index for last month on the wholesale sector (the Producer Price Index) and yesterday's index on the retail sector (Consumer Price Index) both fell by the largest amount in the history of each data series going back to 1947. Though the core PPI figure (ex-food and energy) rose more than expected, the core CPI number declined for the first time in twenty-six years.

Lower inflation helps the domestic markets since it means less erosion of investment assets. It also helps by facilitating interest rate cuts by the Fed. And more cuts are likely as an increasing number of indicators are showing how weak the economy is.

Yesterday's report on housing starts for last month contained such indicators but the news was not unexpected. The annualized pace of starts was the lowest going back at least as far as 1959 when the current data series began. The pace of building permit issuance also declined to its lowest level since at least 1960.

As the economy contracts, there is less demand for energy and this has helped lift oil inventories in the last couple of months. Yesterday, the Energy Information Administration reported that inventories of crude oil rose last week by 1.6 million barrels (one barrel equals forty-two gallons). This was the eighth consecutive weekly increase totaling 23.4 million barrels. On a year-over-year basis, supplies were up by 3.2%, the best Y/Y margin since July of 2007.

The report said that inventories of gasoline rose by 539,000 barrels. Despite the rise, levels were 1.3% below where they stood a year earlier. This was a worse margin than the previous week's -0.9%.

Not all of the supply data was good. Because the weather is getting colder, inventories of distillates, which include heating fuel, are becoming more important. They fell by 1.5 million barrels last week, the first decline in five weeks. They were 5.7% below year-ago levels, the worst Y/Y margin in three weeks.

The gloomy economic outlook and the increase in crude supplies helped pull oil futures down for a fourth consecutive trading session. The price of a barrel of light, sweet crude for next month delivery fell by $0.77 on the New York Mercantile Exchange to settle at $53.62. This was the lowest close for a front-month contract since January 2002.

By the end of stock trading, the Dow had lost 5.07% on the day; the S&P 500, 6.12%; and the Nasdaq, 6.53%. The indices closed at their lowest levels since early 2003. In the bond market, the yield of the benchmark 10-Year Treasury Note fell in each of the last four sessions for a total of 53 basis points. It closed yesterday at its lowest level since last March and before that, June of 2003.

Yesterday afternoon, the Federal Reserve released the minutes of last month's monetary policy deliberations. A detail that came as a surprise was that some committee members are becoming concerned about the threat of deflation. The minutes indicated that falling prices could become a problem as some members "saw a risk that if resource utilization remained weak for some time, inflation could fall below levels consistent with the Federal Reserve's dual mandate for promoting price stability and maximum employment, a development that would pose important policy challenges in light of the already-low level of the Committee's federal funds rate target."

The deflation issue suggests that the Fed has an even stronger argument for economic stimulation. However, while the minutes said that the committee felt its easing actions have been appropriate and that more might be needed, nevertheless, "several participants observed that it would be crucial for such policy actions to be unwound appropriately as the financial situation normalized."(FOMC MINUTES)

At the last meeting, the committee submitted its revised economic projections for the next few years. All of the estimates were more bearish than the previous ones submitted in June.

The estimate for gross domestic product growth between the fourth quarter of last year and the fourth quarter of this year is between 0.0% and 0.3%. For next year, the projected change is between a decline of 0.2% and an increase of 1.1%.

Average unemployment for the fourth quarter of this year is expected to be between 6.3% and 6.5% and in the fourth quarter of next year by between 7.1% and 7.6%. (FED ECONOMIC PROJECTIONS)

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