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Market Trends

Weekly Economic Review | September 25, 2023

Sep 25, 2023

Economic Review

The Labor Department reported that initial jobless claims were down last week to the lowest level since January. The data indicates that layoff activity remains moribund. There have been brief periods of elevated counts during 2023, specifically in June, but these periods have been short-lived and often explainable by special factors. Claims in regular state programs declined 20,000 to 201,000 from the prior week’s upwardly revised 221,000 for the week ending September 16th. The four-week moving average declined to 217,000 from 224,750 the prior week. Continuing claims, which include people who have received unemployment benefits for a week or more, decreased 21,000 to 1.662 million for the week ending September 9th.

The National Association of Home Builders/Wells Fargo reported builders housing sentiment dropped to a five month low in September as climbing mortgage rates, high construction costs and a lack of buildable lots drive many prospective buyers out of the market. The index of builder sentiment declined to 45 in September from 50 in August. The index recorded an 84 in December of 2021.

The Commerce Department reported that housing starts plunged in August as high mortgage rates discourage buyers of new homes. Housing starts have been subject to large downward revisions this year as financing pressures get buyers to abandon new projects. Housing starts declined 11.3% in August to a 1,283,000 annualized rate following July’s downwardly revised 1,447,000 pace. Single-family starts declined 4.3% in August with multi-family starts down 26.3%. Building permits, a gauge of future construction, increased 6.9% August to a 1,543,000 pace. Multi-family units drove the increase in housing permits in August as higher mortgage rates push many prospective buyers out of the market.

The FOMC met on Wednesday and held the targeted federal funds rate as expected to a range of 5.25% to 5.50%. The committee also released an updated Summary of Economic Projections with a very hawkish upward revision to rate projections for 2024 and 2025. Officials also completely scrapped any recession forecast for this year. Chair Jerome Powell said the goal is to achieve a soft landing for the economy and the new projections imply the FOMC members are confident about it. The dot plot shows a revision toward a higher for longer rate path. The median forecast for year-end 2023 remains at 5.6%, but the forecasts for 2024 and 2025 were revised sharply up from 4.6% to 5.1% and from 3.4% to 3.9%.

The Commerce Department reported a current-account deficit of $212.1 billion during the second quarter of 2023. This is slightly narrower than the $214.5 billion deficit in the prior quarter. The current account is considered the broadest measure of international trade, covering goods and services as well as income payments and government transfers.

The National Association of Realtors reported that existing home sales declined 0.7% in August to a selling rate of 4.04 million, the lowest level since the start of the year. The lack of inventory in the resale market remains a key constraint with housing inventories at historic lows. Elevated mortgage rates are also discouraging home buying. Many homeowners with low locked in mortgage rates are choosing not to sell their homes. Contract closings usually occur a month or two after a contract is signed. The median selling price climbed to $407,100 in August from $405,700 in July.

The Conference Board reported the index of leading economic indicators declined 0.4% in August, the eighteenth straight drop. The loss was led by a decline in ISM New Orders, consumer expectations and the interest rate spread. The biggest positive contributor to the leading index was building permits. The index of U.S. leading indicators is a gauge of the economic outlook for the next three to six months. The coincident index, a gauge of current economic activity, climbed 0.2% in August after gaining 0.3% in July.

The Mortgage Bankers Association reported the MBA index of mortgage applications rose last week from a very low level, driven by a jump in refinancing applications. The index increased 5.4% for the week ending September 15th. Refinancing applications rose 13.2% to 415.4 from 367.0 the prior week. Home purchase mortgage applications increased 2.3% to 147.0. Refinancing made up 31.6% of applications with an average loan size of $254,600, while purchases average loan size was $416,800. The average contract rate on a 30-year fixed-rate mortgage climbed to 7.31% from 7.27% the prior week.

BOND MARKET REVIEW

Rates continued to climb after the FOMC meeting last week as committee members indicated rates would be higher for longer. Friday’s yields for the 2-, 5-, 10- & 30-year Treasury benchmarks securities closed at 5.11%, 4.56%, 4.43% and 4.52%. The 2yr/5yr, 5yr/10yr, 10yr/30yr and 2yr/30yr spreads closed at -55, -13, 9, and -59 basis points respectively.

Economic/Events Calendar

Monday

September 25

Aug Chicago Fed Nat Activity Index (0.05)

7:30 Central

Tuesday

September 26

Jul FHFA House Price Index (0.4%)

8:00 Central

Jul S&P CoreLogic CS 20-City Index (0.65%)

8:00 Central

Aug New Home Sales (699k)

9:00 Central

Sep Conf Board Consumer Confidence (105.5)

9:00 Central

Wednesday

September 27

Sep 22nd MBA Mortgage Applications

6:00 Central

Aug Durable Goods Orders (-0.5%)

7:30 Central

Aug Durables Ex Transportation (0.1%)

7:30 Central

Aug Cap Goods Orders Nondef Ex Air (0.1%)

7:30 Central

Thursday

September 28

Sep 23rd Initial Jobless Claims (215k)

7:30 Central

2nd Qtr Gross Domestic Product-3rd Est (2.2%)

7:30 Central

2nd Qtr GDP Price Index-3rd Est (2.0%)

7:30 Central

2nd Qtr Personal Consumption-3rd Est (1.7%)

7:30 Central

Aug Pending Home Sales (-1.0%)

9:00 Central

Friday

September 29

Aug Goods Trade Balance (-$91.4b)

7:30 Central

Aug Personal Income (0.4%)

7:30 Central

Aug Personal Spending (0.4%)

7:30 Central

Aug PCE Deflator-YOY (3.5%)

7:30 Central

Aug Wholesale Inventories (-0.2%)

7:30 Central

Aug Retail Inventories (0.5%)

7:30 Central

Sep University of Michigan Sentiment (67.7)

9:00 Central

About the Expert

Troy Clark

Senior Vice President, Fixed Income Strategist, Fixed Income Sales & Trading

Mr. Clark has been in investment banking since 1983. He is a Chartered Financial Analyst. He has been a fixed income strategist at Stephens Inc. since 1996, developing investment strategies, policies and procedures for institutions consistent with overall asset/liability management.

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Source: Bloomberg L.P.
  1. This report has been prepared solely for informative purposes as of its stated date and is not a solicitation, or an offer, to buy or sell any security. All expressions of opinion reflect the judgment of the individual expressing the opinion and are subject to change. This report does not purport to be a complete description of the markets or developments referred to in the material. Information included in the report was obtained from internal and external sources which we consider reliable, but we have not independently verified such information and do not guarantee that it is accurate or complete. Prices, yields, and availability are subject to change with the market. There is no assurance any forward looking statements will be realized or any of the trends mentioned will continue. Nothing in this report is intended, or should be construed, as legal, accounting, regulatory or tax advice. Additional information available upon request. 2023 Stephens Inc., Member NYSE/SIPC.