5/17/2012
By David Urani, Research Analyst

We're just starting to get some substantive economic data rolling in for this month, and while it's been a bit lukewarm so far the Philly Fed has now chipped in with what I think most of us were bracing for; it is one of the first indicators that the whole mess in Europe is indeed dragging on our economy. The index fell to -5.8 for May from 8.5 in April, and of course a negative reading means activity contracted; the Street expectation was for it to rise to 10.0.

Looking into the components, the picture just isn't pretty as new orders, employment and prices received all fell into the negative zone. The one small bit of solace comes from shipments which inched up to 3.5 from 2.8 but remains not too far above 0.

Now anyone who thinks the US may have been isolated from Europe can start to second guess. One group who is apparently now second guessing the economy is the gold bugs. Check out the intraday move on gold right at 10:00 when the Philly Fed was released:

Not only is the money-under-the-mattress crowd getting antsy but more importantly all the metals traders know that Ben Bernanke is watching (it's the Philadelphia Federal Reserve's report, after all). That means QE and cheap money are even more likely to come back to the table. This is on the tail end of yesterday's Fed meeting in which more members saw monetary easing as an option in the event of a stalled recovery.

One final thought on initial jobless claims. The 370k reading was even with last week, but for me it actually means that claims increased. You see, the Department of Labor revises the prior week up every time, like clockwork. Just as last week's number was revised to 370k from 367k, this week's number is sure to be bumped up next week. Thus, I am 99% sure claims actually increased.

David Urani
Wall Street Strategies

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