The US Senate OK’d an extension of the first-time home-buyer tax credit that was to expire at the end of this month. If the house approves the Senate bill, the incentive would expire six months into 2010. In addition, the program will allow homeowners who have lived in their current home for more than five years to receive a $6,500 tax credit to purchase a new primary residence. READ MORE
The Senate bill also includes an extension of unemployment benefits for states with jobless rates of 8.5% or higher. In those states, individuals will be eligible for an additional 20 weeks of benefits.
On to markets . . . After ending the day with mixed results yesterday, Thursday is set to open with similar sentiment. Equity futures are looking slightly down ahead of the weekly jobless claims report and the quarterly survey of productivity and costs. Both reports should confirm that the economy is experiencing a jobless recovery.
Meanwhile, the US dollar is stronger against an array of currencies but weaker against the yen. Oil is down 46 cents to $79.94, and spot gold is $4 off from record highs at $1,088.
In fixed income, Sal Guatieri from BMO noted that the 2-year Treasury yield fell to a one-month low of 88 basis points after Federal Reserve reaffirmed that short-term interest rates are on hold for a long time.
“Basically, the Fed won’t begin raising rates until the unemployment rate starts to trend down or inflation expectations begin to ratchet up,” he said. “Given our subdued growth outlook, we don’t expect a rate move until September, at the earliest.”
Key Events Today:
8:30 ― The Productivity & Costs report is hard to interpret. In the second quarter productivity climbed 6.6% while unit labor costs were trimmed by 5.9%. For Q3, production should gain another 6.4% while labor costs are cut 4.0%. This is great news for earnings but it’s hard to be enthusiastic about production jumping to new highs while lay-offs continue at such a rapid pace.
Analysts from Nomura said the four-quarter change in unit labor costs will be the lowest since 1950: “Solid GDP growth but falling hours worked suggest productivity likely increased again in Q3. We look for a gain of 4.8% q-o-q following a 6.6% increase in Q2. Unit labor costs likely fell by 4.5% q-o-q or 3.4% y-o-y.”
As for inflation, analysts from BMO argue that, “It’s simply impossible for inflation to ignite when labor costs are under water. Coupled with a weakening greenback, the decrease in unit labour costs implies a substantial boost to U.S. trade competitiveness—which will help the country repay its debt.”
8:30 ― Initial Jobless Claims have averaged 526k so far in October. Forecasters believe more of the same should be expected for the week ending Oct. 31, with the Street’s forecast at 530k. That’s far from indicating any stabilization in the labor market, but overall job losses continue to moderate.
“Although initial jobless claims remain well above levels that are normally consistent with net job creation, Wednesday’s data on Challenger layoff announcements for October suggest that we should see continued declines in initial unemployment claims in the months ahead,” said analysts from RDQ.
