See. What did I tell you? The Federal Open Market Committee (FOMC) decided today to leave its target rate for Fed Funds unchanged.

Yesterday I downloaded a copy of the minutes of the FOMC meeting of March 26. These minutes are not released to the public until several weeks after the meetings; but, even with the delay, they're interesting reading if you want to get a handle on the indicators the Fed watches and the thought processes behind the Fed's decisions. If you ever wondered what it is the Fed is trying to accomplish, you'll find the answer in these FOMC meeting minutes. In the copy I've been reading it is clearly stated that the long-run objectives of the FOMC are price stability and sustainable economic growth. On Monday I explained how none of the indicators of current or future inflation were showing any signs of increases in the rate of price changes. Yesterday I pointed out that the current growth rate of the Composite Index of Coincident Economic Indicators was very close to the Fed's target rate of 2.5 percent. Given these circumstances, what other decision could the FOMC have made at its meeting today?

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In other news today, the Commerce Department's Bureau of the Census released its report on Manufacturers' Shipments, Inventories, and Orders for May. This report is known in the financial press as the Factory Orders report.

In May, new orders for manufactured goods increased $5.9 billion or 1.9 percent. Excluding a large influx of orders for aircraft and parts, new orders increased by just 0.4 percent. But, nontheless they did increase, and this was the fifth such increase, exclusive of aircraft orders, in the last six months. For the first five months of this year, new orders were 3.8 percent above the same period a year ago.

Shipments of manufactured goods rose for the fourth consecutive month, increasing by 1.1 percent to $314.1 billion. This followed a 2.0 percent increase in April. Year to date, shipments are 3.2 percent above the same period a year ago.

Backlogs of unfilled orders have risen in eight of the last nine months. In May, the unfilled orders-to-shipments ratio stood at 2.80, down from 2.83 in April.

Inventories of unsold goods have been declining for three straight months, and the inventories-to-shipments ratio declined to 1.34 from 1.36 in April.

Taken all together, we have a rosy picture of activity in the manufacturing sector in recent months. Orders have been coming in and shipments have been going out at increasing rates. What's more, orders have been coming in so fast that production has not been able to keep up with demand, and the stock of goods already on the shelf is being gradually depleted.

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In another report today, the Department of Labor announced that new claims for state unemployment insurance fell by 4,000 in the week ending June 29. This was much less than the drop of 13,000 which had been forecast by analysts.

After rising for four weeks straight, the four-week moving average of new claims edged down by 750 from 356,500 to 355,750. Five weeks ago this indicator bottomed out at the 345,750 level. So, the trend of the four-week moving average is still up. The four-week moving average of new claims for state unemployment insurance is one of the eleven indicators that make up the Department of Commerce Composite Index of Leading Economic Indicators (LEI). A month-to-month decline in the four-week moving average makes a positive contribution to the LEI and vice-versa.

The recent behavior of the four-week moving average of unemployment insurance claims data seems to be telling us that job creation might be slowing and that, when Friday's Employment Situation report comes out, we should expect to find that fewer new jobs were created in June than in May.

Byline: Lafferty (MF Merlin)