4 Economic Indicators Shocking Investors Today

1. Philly Fed. Manufacturing in the Philadelphia region unexpectedly contracted in August, according to the Fed’s general economic index, which plunged to -30.7 this month, its lowest level since March, down from 3.2 in July. The reading signals a significant contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. Many are concerned that the contraction may be more widespread, and could trigger another recession.

The Philadelphia Fed’s new orders gauge fell from 0.1 in July to -26.8 in August, its lowest level since March 2009, while the shipments gauge fell to -13.9 from 4.3 last month. The prices paid index fell from 25.1 to 12.8, while the prices received index fell from 1.1 to -9. The Fed’s employment index fell to its lowest level since October 2009, from 8.9 last month to -5.2.

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2. Jobless claims. Initial jobless claims rose to 408,000 in the week ending August 13, after falling the previous week to a an upwardly revised 399,000. Claims rose significantly more than expected, especially since the previous week’s decline seemed significant evidence that the job market was improving. The initial claims report for the week ending August 6 followed news that the economy had added 117,000 jobs in July, beating economists’ expectations and pushing down the unemployment rate from 9.2% to 9.1%.

While the 4-week moving average still declined, down to 402,500 from last week’s revised average of 406,000, that number needs to drop below 400,000 and stay there for a while if the unemployment rate is going to continue to improve. The 400,000-mark is the break-even point, above which the economy is losing jobs, and below which the economy is adding jobs.

3. Consumer prices. The U.S. consumer-price index rose 0.5% in July from a month earlier, more than twice the 0.2% increase economists had forecast, which means the cost of living in the U.S. climbed by the most it has in four months, with higher energy and food prices leading gains. When excluding volatile food and fuel costs, the core gauge rose a more modest 0.2%. In the last twelve months through July, consumer prices have increased 3.6%, while the core CPI, which excludes volatile food and fuel (NYSE:USO) costs, rose 1.8%.

Higher prices are in part due to producers passing on higher commodity costs to consumers, though that practice may soon change if businesses find their higher prices are costing them customers. The cost of rent, the single largest component of the CPI, rose 0.3% in July. Apparel, tobacco, and prescription drug (NYSE:XLV) prices also increased significantly.

4. Sales of existing homes. The National Association of Realtors’ report on existing home sales showed that 3.5% fewer homes were sold in July than in June. The national median existing-home price also fell, down 4.4% from the previous year, despite a 21% year-over-year increase in the annual sales rate, which was 4.67 million in July.

According to NAR President Ron Phipps, a high number of potential home buyers were unable to complete their transactions. “For both mortgage credit and home appraisals, there’s been a parallel pendulum swing from very loose standards which led to the housing boom, to unnecessarily restrictive practices as an overreaction to the housing correction,” said Phipps.

Existing-home sales fell in three of the nation’s four real estate (NYSE:IYR) regions: the Northeast, the South, and the West, down 2.7%, 1.6%, and 12.6%, respectively. The only region posting gains was the Midwest, which increased 1.0% in July. But while Midwest existing-home sales increased 31.3% from a year earlier, the median price of a home in the Midwest fell 2.9% year-over-year to $146,300, the lowest median of any of the four regions.

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