Weekly Economic Review | February 26, 2024

Economic Review

The Labor Department reported that initial jobless claims declined last week for the third straight week. The surprise drop comes after many high profile layoff announcements, adding to lingering doubts about how tight the labor market really is. First time claims in regular state programs fell 12,000 to 201,000 from the prior week’s upwardly revised 213,000 for the week ending February 17^th. The four-week moving average fell to 215,250 from 218,750 the prior week. Continuing claims, which include people who have received unemployment benefits for a week or more, fell 27,000 to 1.862 million for the week ending February 10^th. The insured unemployment rate, the number of people currently receiving unemployment insurance as a percentage of the labor force, fell back to 1.2% from 1.3% the prior week.

The Conference Board reported the index of leading economic indicators declined 0.4% in January after falling a downwardly revised 0.2% the prior month. The loss was led by a decline in the average workweek, a negative interest rate spread and consumer expectations. The biggest positive contributor to the leading index was 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, was 0.2% in January after climbing 0.2% in December.

The FOMC Minutes for the January 30^th-31^st meeting indicated participants were fairly united about delaying rate cuts. This is before the hot January CPI reading which has changed the picture since then. The running theme of the meeting is surprise at the resilience of the economy, particularly consumption. Stronger than expected fourth quarter GDP growth appeared to play a key role in making FOMC members wary of cutting rates too soon. Some glaring omissions from the minutes was guidance about the conditions for cutting rates and any mention of the neutral interest rate, known as “r-star”. The Fed is in a tough position of needing to demonstrate resilience against cutting rates too soon to avoid reigniting inflationary pressures.

The Federal Reserve Bank of Chicago reported the pace of U.S. economic activity declined in January. The Chicago Fed National index, which draws on 85 economic indicators, was negative 0.30 in January after reporting an upwardly revised positive 0.02 in December. 59 of the indicators affected the index negatively and 26 made positive contributions. A reading below zero indicates below-trend-growth in the national economy.

The National Association of Realtors reported that existing home sales rose 3.1% in January to an annualized selling rate of 4.00 million units. This is the biggest increase in nearly a year as buyers took advantage of lower mortgage rates at the start of 2024, which have since climbed back above 7.00%. The median selling price declined to $379,100 in January from $381,400 in December. Contract closings usually occur a month or two after a contract is signed.

The Mortgage Bankers Association reported the MBA index of mortgage applications decreased last week as mortgage rates climbed above 7.00% for the first time since early December. The index fell 10.6% for the week ending February 16^th after falling 3.3% the prior week. Refinancing applications declined 11.4% to 427.0 from 482.0 the prior week. Home purchase mortgage applications declined 10.1% to 133.6. Refinancing made up 32.6% of applications with an average loan size of $254,000, while purchases average loan size was $439,400. The average contract rate on a 30-year fixed-rate mortgage climbed to 7.06% from 6.87% the prior week.

BOND MARKET REVIEW

Rates were mixed last week on little economic data and the yield curve flattened. Friday’s yields for the 2-, 5-, 10- & 30-year Treasury benchmarks securities closed at 4.69%, 4.28%, 4.25% and 4.37%. The 2yr/5yr, 5yr/10yr, 10yr/30yr and 2yr/30yr spreads closed at -41, -3, 12, and -32 basis points respectively.

Economic/Events Calendar