Jobless Claims Plunge, Service Sector Strong, Pending Home Sales Fall, Natural Gas Supplies Rise

- Initial Jobless Claims fell to 291K versus estimates of 320K and 326K the prior week.
- Continuing Claims rose to 2718K versus estimates of 2675K and 2705K prior.
- ISM Non-Manufacturing for December rose to 59.8 versus estimates of 59.0 and a reading of 58.5 in November.
- Pending Home Sales for November fell 2.5% versus estimates of a 1.0% fall and a 3.3% decline in October.
- The EIA reported a crude drawdown of 1,013,000 barrels vs. estimates of a 1,250,000 barrel drawdown. Gasoline supplies rose 1,406,000 barrels vs. estimates of a 400,000 barrel rise. Distillate inventories rose 2,114,000 barrels vs. estimates of a 300,000 barrel increase. Refinery utilization increased 1.03% vs. estimates of a 0.4% increase. Natural gas storage increased 1 bcf versus estimates of a 51 bcf decline.

BOTTOM LINE: The number of Americans filing first-time claims for jobless benefits fell last week to the lowest level since September 2000, suggesting employers are adding more than enough positions to keep unemployment near a four-year low, Bloomberg reported. The four-week moving average fell to 316,750 from 326,000 the prior week. The jobless rate among those eligible for benefits, which tracks the US unemployment rate, remained at 2.1%. I still expect the labor market to remain healthy without generating substantial unit labor cost increases over the intermediate-term.

US service industries expanded at a faster pace last month as job growth and rising incomes gave Americans the means to increase their spending, Bloomberg said. The Prices Paid component of the index fell to 69.5 from 74.2 the prior month. The New Orders component of the index rose to 61.9 from 59.5 the prior month. I expect the service sector of the US economy to remain healthy as a good labor market, low interest rates, rising stock prices, better consumer confidence and falling energy prices more than offset a slowing housing market.

Contracts to buy previously owned US homes fell in November, a third straight decline that adds to evidence the US housing market is slowing heading into 2006, Bloomberg reported. I continue to believe the housing market is slowing to more healthy sustainable levels, which should benefit US stocks this year.

The EIA weekly energy inventory numbers were very bearish for the energy complex. I continue to believe energy prices are being driven by fear, not fundamentals. I still expect substantial declines energy prices over the course of the year.