The Labor Department reported that initial jobless claims increased for the first time in four weeks last week. The gains were concentrated in three states with large jumps in Missouri, Ohio and Kentucky, but the overall trend is positive for the labor market. Demand for labor remains strong and job openings are plentiful. Claims in regular state programs increased 23,000 to 248,000 for the week ending February 12th, after reporting 225,000 initial claims the prior week. The four-week moving average declined to 243,250 from 253,750 the prior week. The total number of people continuing to receive regular ongoing state benefits, a report which is lagged one week, fell 26,000 to 1.59 million for the week ending February 5th.
The Labor Department reported the producer price index increased by 1.0% in January, the largest gain in eight months. The price gains are broad based with supply disruptions, elevated energy prices, robust demand and labor constraints pressuring prices. Inflationary pressures in the production pipeline are expected to remain intense. Goods prices, which make up 33% of the weighting rose 1.3% in January after dropping 0.1% in December. Services, which make up 67% of the index moved higher by 0.7% after increasing 0.7% the prior month. Year-on-year wholesale prices were up 9.7% in January compared to 9.8% in December. The core PPI, which excludes volatile food and energy prices, rose 0.8% in January after gaining 0.6% the previous month, with a year-on-year gain of 8.3%. PPI ex food, energy and trade gained 0.9%.
The New York Federal Reserve reported the Empire State Manufacturing Index, which is one of the first signals for factory sector activity, climbed slightly in February after contracting in January. The measure of prices paid and received suggest costs will continue to rise and put upside pressure on inflation. The index recorded a positive 3.1 in February after a negative 0.7 in January. Readings above zero signal expansion in New York, northern New Jersey, and southern Connecticut.
The Commerce Department reported that retail sales was unambiguously strong in January with sales having their biggest increase since March 2021 when the government sent out the last round of stimulus checks. The gains were led by online sales, auto sales, furniture sales and building material sales. The previous month’s poor data was revised downward suggesting consumers were impacted more than previously estimated by the Omicron wave. Retail sales surged 3.8% in January after a downwardly revised decline of 2.5% in December. January retail sales are up 13.0% year-on-year. Retail sales ex autos and gas increased 3.8% in January after falling 3.2% in December.
The Labor Department reported the import price index surged 2.0% in January after declining 0.4% in December. Global supply bottlenecks continue to exert pricing pressures even as the dollar strengthens. Import prices are up 10.8% year-on-year. Import prices ex petroleum climbed 1.4% in January after increasing 0.4% the prior month.
The Federal Reserve reported industrial production, which includes factory production, mines and utilities, improved in January with a spike in utility production exaggerating the factory sector’s progress to start the year. Industrial production rose 1.4% in January after decreasing 0.1% in December. Production at factories, which make up 76.0% of output, increased 0.2% in January after falling 0.1% the previous month. Utilities surged 9.9% and mining gained 1.0%. Capacity utilization, which measures the amount of a plant that is in use, increased to 77.6% in January from 76.6% the prior month.
The Commerce Department reported business inventories increased 2.1% in December after gaining 1.5% in November. Business sales fell 0.7% in December after gaining 1.1% the prior month. The ratio of business inventories to sales climbed to 1.29 in December from 1.25 the prior month.
The National Association of Home Builders/Wells Fargo reported housing sentiment pulled back to 82 in February from 83 in January, a four month low. While buyer demand is still solid, rising interest rates and increasing labor and materials costs are hurting housing affordability.
The FOMC Minutes for the January 25-26th meeting are dovish compared with market expectations, but this meeting took place before the January employment and CPI data. The minutes did not provide much new detail, but seemed to be trying to remind the market about their caution and patience in approaching the removal of policy accommodation while also trying to revise the market’s recent shift towards an expectation of aggressive tightening.
The Commerce Department reported that housing starts declined in January for the first time in four months. Supply bottlenecks, winter weather and difficulty attracting skilled labor plagued homebuilders at the start of the year. While demand continues to outpace supply, builders did make progress on their backlog of homes. The data also shows an increase in building permits and a pickup in the number of homes authorized but not yet started, suggesting residential construction will remain healthy. Housing starts fell 4.1% in January to a 1,638,000 annualized rate following December’s 1,708,000 pace. Single-family starts fell 5.6% in January with multi-family starts down 0.8%. Building permits, a gauge of future construction, increased 0.7% in January to a 1,899,000 pace.
The National Association of Realtors reported that existing home sales unexpectedly increased in January to a 12-month high. It appears buyers are rushing ahead to lock in a mortgage rate in anticipation of further mortgage rate increases. Contract closing, which usually occur a month or two after a contract is signed increased 6.7% in January to a 6.50 million pace after falling 3.8% in December. The median selling price decreased to $350,300 from $354,600 in December.
The Conference Board reported the index of leading economic indicators fell 0.3% in January, the first decline in eleven months. The loss was led by an increase in jobless claims, falling consumer confidence and declining stock prices. 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 0.5% in January after edging 0.2% higher in December.
The Mortgage Bankers Association reported the MBA index of mortgage applications dropped 5.4% for the week ending February 11th after decreasing 8.1% the prior week. Refinancing applications decreased 8.9% to 1,989 from 2,184 the prior week. Home purchase mortgage applications fell 1.2% to 279.0. The average contract rate on a 30-year fixed-rate mortgage rose to 4.05% from 3.83% the prior week for a 30-year fixed rate loan.
About the Expert
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.