A surprise dip in April existing home sales and weak regional manufacturing data supports the bearish view that the second quarter may prove weaker than expected.
An improvement in weekly jobless claims, however, was one relatively bright spot. The number of people filing first time unemployment claims fell to 409,000 from 434,000, the week earlier.
But the balance of Thursday's data was discouraging and sent buyers into bonds, which pared losses. Stocks also lost some ground.
April home sales fell a surprise 0.8 percent, and the Philadelphia Fed's regional survey of factory activity in the Mid Atlantic region was shockingly low. Economists expected a level of 20, compared to 18.5 in April, but it came in at 3.9.
The indicator is widely watched because it is one of the freshest readings of the health of manufacturing, ahead of the monthly manufacturing data from the Institute of Supply Management. The Philadelphia survey measures activity in the Philadelphia region, including Delaware and southern New Jersey.
"The Philly Fed number is certainly more problematic. The question is to what degree is this due to supply chain disruptions. We know there's a significant amount of that going on in the auto sector and some of the tech areas," said Stephen Stanley, chief economist at Pierpont Securities.
The Japanese earthquake and tsunami has disrupted manufacturing of shipments of autos, parts and other components globally.
"We could have a one or two or three month period where manufacturing is considerably weaker and it may be related to the supply chain disruptions. We saw it earlier this week with the industrial production numbers. There's clearly an effect," said Stanley. He said the question is how much a factor the disruptions will be, and also what impact rising commodities prices may have had.
Also disappointing Thursday was the decline in the Conference Board's leading economic indicators, down 0.3 percent, the first negative reading since last June, and below the increase of 0.1 percent expected by economists. The broad gauge of economic growth was impacted by a jump in the number of new jobless claims and the weak housing market.
Sales of previously owned homes fell to an annual rate of 5.05 million units, below the 5.2 million unit rate expected.
"Housing is just flatlining," said Brian Edmonds, who heads Treasury trading at Cantor Fitzgerald.
First quarter GDP was reported at 1.8 percent, but economists have largely expected the second quarter to be better. Stanley is forecasting 3.6 percent GDP growth for the second quarter, but he says he may look at adjusting that if the data continues to disappoint.
He said he may look to lowering his view on ISM manufacturing data later this month but he's not ready to slice his above consensus view on the second quarter GDP as others have done.
"I'm assuming we're going to get some increase in consumer spending given the fall off we're seeing in gasoline prices...the wild card is really inventories with all the supply chain issues," he said.
Edmonds said bonds may have gained more ground on Thursday's negative reports were it not for the recent rally that took the 10-year yield to 3.10 percent Wednesday.
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