The Labor Department reported that initial jobless claims decreased last week to a three-week low, indicating demand for labor continues to show strength despite concerns about the economy. Claims in regular state programs decreased 12,000 to 214,000 for the week ending October 15th, after reporting 226,000 initial claims the prior week. The four-week moving average climbed to 212,250 from 211,000 the prior week. The total number of people continuing to receive regular ongoing state benefits, a report which is lagged one week, increased 21,000 to 1.385 million for the week ending October 28th.
The New York Federal Reserve reported the Empire State Manufacturing Index, which is one of the first signals for factory sector activity, declined for a third straight week in October. The decline was led by a drop of 20 points in the shipment index and an index of future business conditions dropping to the second weakest level since 2009. The index recorded a negative 9.1 in October after a negative 1.5 reading in September. Readings below zero signal contraction in New York, northern New Jersey, and southern Connecticut.
The Federal Reserve reported industrial production, which includes factory production, mines and utilities, increased in September. The gain helps the case that inflation is slowing in core goods going into the year-end as supply of goods rises while demand is softening. This is not much comfort though as services prices account for the bulk of inflation. Industrial production rose 0.4% in September after dropping 0.1% in August. Production at factories, which make up 74.3% of output, rose 0.4% in September after gaining 0.4% the previous month. Utilities declined 0.3% after falling 3.3% in August and mining gained 0.6%. Capacity utilization, which measures the amount of a plant that is in use, increased to 80.3% in September from 80.1% the prior month.
The National Association of Home Builders/Wells Fargo reported housing sentiment declined in October for the tenth straight month to its lowest level since early 2020. The loss in builder confidence reflects a surge in mortgage rates to levels near 7% as well as elevated construction costs. The index of builder sentiment fell to 38 in October from 46 last month. The index recorded an 84 in December of 2021.
The Commerce Department reported that housing starts fell in September after jumping higher in August. The decline in starts brings the pace of starts more in line with the downward trend that had prevailed prior to August. Mortgage rates continue to depress housing activity and there is more weakness ahead. Housing starts fell 8.1% in September to a 1,439,000 annualized rate following August’s 1,566,000 pace. Single-family starts declined 4.7% in September with multi-family starts plunging 13.2%. Building permits, a gauge of future construction, climbed 1.4% in September to a 1,564,000 pace.
The Fed released the latest rendition of the Beige Book, which is based on information collected through October 7, 2022. This report is published eight times each year. The report showed economic activity expanded modestly with slowing or weak demand attributed to higher interest rates, inflation and supply disruptions. Retail spending was relatively flat, reflecting lower discretionary spending. Travel and tourist activity rose strongly. Manufacturing activity held steady or expanded in many Districts due in part to easing in supply chain disruptions. Demand for nonfinancial services rose. Rising mortgage rates and elevated house prices further weakened single-family starts and sales, but helped buoy apartment leasing and rents. Outlooks grew more pessimistic amidst growing concerns about weakening demand.
The National Association of Realtors reported that existing home sales fell in September for the seventh straight month, the longest streak since 2007. The details of the report indicate the housing market is going to take a long time to fully cool, even with mortgage rates over 7%. Limited inventories continue to prop up housing prices even as mortgage rates hurt demand. Contract closings, which usually occur a month or two after a contract is signed, decreased 1.5% in September to a 4.71 million pace after dropping 0.8% in August. The median selling price decreased to $384,800 from $391,700 in August.
The Conference Board reported the index of leading economic indicators declined 0.4% in September, the seventh straight drop. The loss was led by a decline in stock prices, consumer expectations and a drop in new orders. 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 September after gaining 0.1% in August.
The Mortgage Bankers Association reported the MBA index of mortgage applications continued to fall last week, the ninth decline in ten weeks. The index decreased 4.5% for the week ending October 14th, after falling 2.0% the previous week. Refinancing applications fell 6.8% to 394.6 from 423.2 the prior week. Home purchase mortgage applications decreased 3.7% to 164.2. Refinancing made up 28.3% of applications with an average loan size of $275,200, while purchases average loan size was $402,600. The average contract rate on a 30-year fixed-rate mortgage climbed to 6.94% from 6.81% last week.
BOND MARKET REVIEW
Friday’s yields for the 2-, 5-, 10- & 30-year Treasury benchmarks securities were 4.47%, 4.34%, 4.22% and 4.33%. The 2yr/5yr, 5yr/10yr, 10yr/30yr and 2yr/30yr spreads closed at -13, -12, 11, and -14 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