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The Labor Department reported that initial jobless claims declined again last week, showing the incredible resilience in the labor market. The labor market has yet to cool in a convincing way, forcing the Fed to keep rates higher for longer. Claims in regular state programs declined 1,000 to 205,000 for the week ending January 7th, after reporting 206,000 initial claims the prior week. The four-week moving average dropped to 212,500 from 214,250 the prior week. The total number of people continuing to receive regular ongoing state benefits, a report which is lagged one week, decreased by 63,000 to 1.634 million for the week ending December 31st.
The Federal Reserve reported consumer credit increased more than expected in November with credit card purchases jumping by the most in three months. Consumer credit increased $28.0 billion after gaining an upwardly revised $29.1 billion in October. Credit card debt increased $16.5 billion to $1.188 trillion. Auto and student loan debt increased by $11.5 billion to $3.570 trillion. These figures are not adjusted for inflation.
The National Federation of Independent Business reported sentiment among small businesses declined in December, with price pressures and a tight labor market continuing to undermine sentiment. The index dropped to 89.8 in December from a 91.9 reading in November.
The Commerce Department reported wholesale inventories rose 1.0% in November to $933.1 billion after gaining 1.0% in October. Year-on-year wholesale inventories have gained 20.9%. Wholesale trade sales declined 0.6% in November after remaining unchanged in October, with year-on-year sales up 8.7%. The ratio of inventory to sales increased to 1.35 from 1.32 in November.
The Labor Department reported the consumer price index was in line with expectations, but the details indicate lingering pressures at the core. Inflation has clearly peaked and is likely to decelerate further now that pressures from higher commodity prices and supply constraints have eased. Core goods inflation has slowed from last year’s peak, but core services are still accelerating. The index declined 0.1% in December after climbing 0.1% in November. The year-on-year change in consumer prices is 6.5% in December. Service prices gained 0.6% in December after climbing 0.3% in November. Prices of commodity based manufactured goods dropped 1.1% in December after falling 0.3% the prior month. The core CPI, which excludes volatile food and energy prices, gained 0.3% in December after increasing 0.2% the prior month. The year-on-year change in core CPI is 5.7%.
The Treasury Department reported a budget deficit of $85.0 billion for the month of December with the government collecting $454.9 billion and spending $539.9 billion. This compares to a deficit of $21.3 billion a year earlier. The December year-to-date budget deficit is $421.4 billion, which compares to a deficit of $377.7 billion in December of 2021.
The Labor Department reported the import price index increased in December for the first time in six months, led by price gains in industrial supplies and food. Import prices increased 0.4% in December after falling 0.7% in November. The cost of petroleum declined 2.7% in December after declining 4.0% the prior month. Import prices are up 3.5% year-on-year. Import prices ex petroleum climbed 0.8% in December after decreasing 0.3% the prior month.
The University of Michigan’s preliminary index of consumer sentiment improved in January to its second highest reading since April 2022. Overall consumer sentiment continues to heal from the damage caused over the summer by record high gasoline prices. The one-year-ahead inflation expectations fell to 4.0% from 4.4% the previous month. The closely watched 5-10 year inflation expectations measure edged back to 3.0% in January from 2.9% in December. The index increased to 64.6 in January from a 59.7 reading in December. The index of current conditions climbed to 68.6 from 59.4 the prior month while the index of expectations increased to 62.0 from 59.9.
The Mortgage Bankers Association reported the MBA index of mortgage applications increased last week as mortgage rates pulled back from recent highs. The index climbed 1.2% for the week ending January 6th, after dropping 10.3% the previous week. Refinancing applications increased 5.1% to 326.7 from 310.9 the prior week. Home purchase mortgage applications fell 0.5% to 159.4. Refinancing made up 30.7% of applications with an average loan size of $261,600, while purchases average loan size was $389,000. The average contract rate on a 30-year fixed-rate mortgage decreased to 6.42% from 6.58% last week. The average contract rate was as high as 7.16% in October of last year.
BOND MARKET REVIEW
Friday’s yields for the 2-, 5-, 10- & 30-year Treasury benchmarks securities were 4.23%, 3.61%, 3.50% and 3.61%. The 2yr/5yr, 5yr/10yr, 10yr/30yr and 2yr/30yr spreads closed at -62, -11, 11, and -62 basis points respectively.
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.Read full bio