The positive news is that England and Sweden made large cuts to key lending rates today, lowering the interest rate environment and thus facilitating another cut by the Federal Reserve. In addition, France has announced a stimulus package with a value equivalent to $33 billion.

In the economic news of the day, the Labor Department reported that the seasonally adjusted level of initial claims for state unemployment benefits fell last week by 21,000 to 509,000. This is a second weekly decline for a cumulative total of 34,000 but it follows two weeks of gains totaling 59,000. The latest move may also have been distorted by the adjustment that had to be made for last week's Thanksgiving holiday.

In any case, readings over 400,000 are considered a sign that hiring is not keeping up with layoffs. Moreover, the four-week moving average, which smoothes out some short-term volatility, rose by 6,250 last week to 524,500, the highest reading since the week ending December 18, 1982. For the forty-eight weeks of the year to date, the average weekly claims reading has been 408,500. For the same period last year, the average was 319,521.

The report said that the level of continuing claims rose by 89,000 to 4.087 million in the week of November 22 (continuing claims must be at least a week old). This was the highest reading since the week ending December 25, 1982. The four-week moving average rose by 63,750 to 4,001,750, the highest reading since the week of January 15, 1983. For the first forty-seven weeks of the year, the average continuing claims reading has been 3,222,979. For the same period last year, the average was 2,537,553.

Yesterday, the employment report from Automatic Data Processing indicated a loss of 250,000 private (non-government) jobs in November. Another report on corporate layoff announcements from the outplacement firm of Challenger, Gray, and Christmas said that layoff numbers were up by 148.4% from a year earlier to the highest level in almost seven years.

All of the recent indicators point to a weak employment report for last month. The report will be released tomorrow. Current predictions call for a loss in nonfarm payrolls of between 300,000 and 325,000. This would be the largest drop since October of 2001. The unemployment rate is expected to have risen to 6.8% from 6.5%. This rate would be the highest in fifteen years.

Later this morning, the report on factory orders for October was released and it was more bearish than anticipated. In it, the Labor Department said that the seasonally adjusted level of orders fell by 5.1%, the largest drop since July of 2000. In addition, September's originally reported decline of 2.5% was revised to a drop of 3.1%.

A large but volatile category is transportation. Orders there fell by 11.2% in October. But even excluding the category, orders were down by 4.2% following a 4.3% decline in September (originally reported as a drop of 3.7%). Observers are also interested in orders outside the defense sector since those within it are not governed by standard market forces. Defense orders fell by 25.9% following a jump of 26.3% in September. Ex-defense orders fell by 4.3% following a 4.0% decline in September. Ex-defense orders minus aircraft fell by 4.3% following a September drop of 4.6%.

Another closely watched category is that of ex-defense capital goods minus aircraft. The trend in orders in this category is seen as a gauge of core business demand. The order level there fell by 5.0%, the largest decline since January of last year. September's originally reported decline of 1.5% was revised to a drop of 3.4%.

Last week's report on durable goods orders said the level fell in October by 6.2%. This was revised in today's report to a decline of 6.9%, the largest in two years. The level of nondurable goods orders fell by 3.4% following a drop in September of 5.8%. September's decline was revised from 5.5% and it was the largest drop in two years.

Wednesday, 12/03/08 : It was another volatile session for stocks as the indices swung from negative territory to positive to negative and finally again to positive territory. Treasuries saw losses throughout the morning that were relatively substantial but the faltering in the stock market helped bonds regain their footing and prices finished with modest gains.

In late trading, the 10-Year Treasury Note was up by 4/32, lowering its yield by 1 basis point to 2.66%; the Dow was up by 172.60 points to 8,591.69; and the Nasdaq was up by 42.58 points to 1,492.38.

Yesterday's economic news was mixed. The revised assessment of productivity in the third quarter was surprisingly better than originally reported in the preliminary estimate. Unit labor costs were also revised down.

But the ISM index on the services sector showed the strongest contraction of activity in November since the new index or the old one have been in existence (eleven months for the new one, eleven-plus years for the old).

The ISM news and technical pressure following a rally on Tuesday weighed on stocks in early trade but they got a boost on news that mortgage applications spiked last week due to lower rates. The morning climb faded but news in the afternoon of strong online consumer buying on Monday helped spur another rally.

By the end of stock trading, the Dow had gained 2.05%; the S&P 500, 2.58%; and the Nasdaq, 2.94%. In the last two sessions, the Dow gained 5.43%; the S&P 500, 6.67%; and the Nasdaq, 6.75%. But this followed Monday's rout that sent the Dow down by 7.70%, the S&P 500 by 8.93%, and the Nasdaq by 8.95%.

In other news, the Energy Information Administration reported that inventories of crude oil declined last week by 456,000 barrels (one barrel equals forty-two gallons). This was the first decline in ten weeks but it was small and the level was 6.7% above were it stood a year earlier. This was the highest weekly Y/Y margin since the week ending October 13, 2006.

The report indicated that inventories of gasoline fell by 1.5 million barrels last week, the first decline in five weeks. This left levels down by 2.5% on a year-over-year basis, the worst margin in seven weeks. The report also said that inventories of distillates fell by 1.7 million barrels. Distillates are assuming greater significance as the weather cools since the category includes heating as well as diesel fuel. Supplies were 7.3% below year-ago levels, the worst margin in six weeks.

Despite the reductions in inventories, the price of a barrel of light, sweet crude oil for January delivery edged down by $0.17 on the New York Mercantile Exchange to close at $46.79, the lowest for a front-month contract since February 9, 2005. The decline reflects decreasing demand for the commodity as the world economy slows.

The latest edition of the Fed's Beige Book was released yesterday afternoon and offered no real surprises. The situation was summed up in the first sentence: "Overall economic activity weakened across all Federal Reserve Districts since the last report." Contractions were reported in consumer spending, manufacturing, services, residential and commercial real estate, and banking. The results were mixed for agriculture. Demand for labor was generally weak and inflation pressures eased.(BEIGE BOOK)

LionMTS