The Market Today

Housing Remains on Fire; California Improvement Skews Jobless Claims Headlines

by Craig Dismuke, Dudley Carter


Single Family Activity Continues to Drive Housing Construction Higher: New housing construction continued to beat expectations in December with housing starts rising 5.8% (exp. +0.8%) and building permits rising 4.5% (exp. -1.7%).  In addition to the strong headline results, November’s housing starts figure was revised up from +1.2% to +3.1%.  Continuing a pandemic-era theme, single family activity far out-paced multi-family.  Since family starts rose 12.0% in December and are now up 35% since January.  Multi-family starts, however, fell 13.6% and are now down 47.3% since January.  Building permits showed the same trends with a 7.8% increase in single family and a 3.0% decline in multi-family permits in December.

Initial Jobless Claims Better, but Remain Elevated: Initial jobless claims for the week ending January 16 beat expectations but remained elevated.  The previous week’s claims were revised down from 965k to 926k, and new claims for the current reference week dropped to 900k.  While the trend is positive, with the exception of the previous week’s tally, the current total of 900k is the highest number of weekly claims since August.  As for new PUA claims, they rose from 285k to 424k. Volatile figures coming out of California appears to have skewed many of the pandemic-related figures.  Of the 139k increase in PUA claims, 77k came from California while another 48k came from Nevada.

Improvement in California’s Tallies Skews Headline Results: Continuing jobless claims also fell more than expected for the week ending January 9.  Traditional continuing claims fell from 5.18 million (revised down from an initial report of 5.27 million) to 5.05 million. This marks the lowest number of continuing claims since March. Colorado and California both reporting more than 50k fewer continuing claims, accounting for the majority of the decline.  Continuing PEUC claims fell a very strong 1.14 million for the week ending January 1.  This however came almost exclusively from California, which reported a 995k decline to 300k.  Continuing PUA claims also saw a great headline, down 1.74 million to 5.71 million.  California reported a decline of 907k continuing PUA claims.

Philadelphia Fed Report Positive on Regional Manufacturing Activity: The Philadelphia Fed report on regional manufacturing activity for the month of January beat expectations, rising from 9.1 to 26.5.  As with the other manufacturing survey of late, challenges for delivery times exaggerated the headline figure higher; the delivery time index rose from 17.3 to 30.0.  However, the Philly Fed report showed broad-based improvement even apart from the delivery challenges.  The new orders index jumped from 1.9 to 30.0, the shipments index increased from 12.0 to 22.7, the employment index jumped from 5.6 to 22.5, and the average workweek improved from 15.5 to 18.6.

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Monitoring the Virus Headlines: Some early but encouraging improvements have been noted in the most recent U.S. virus statistics but levels remain near the worst of the pandemic. Echoing that, California reported 694 new deaths, marking the second highest of the pandemic. The virus is also still a concern across Europe. The U.K. reported 1,820 new fatalities tied to COVID-19, the second consecutive daily record, and Prime Minister Johnson said the health care system remains under “unprecedented pressure.” The U.K. also said supply issues were impacting vaccination efforts but is working with manufacturers and still expects to meet their target for mid-February. The Dutch prime minister proposed a nationwide curfew between 8:30 p.m. and 4:30 a.m. that would begin Friday and run through February 10. Spain reported 18,500 new cases, a daily record.


Stocks Climbed to Records as Netflix Led Broad Gains and Joe Biden Became the 46th President of the United States: The financials sector was the only laggard within the S&P 500 on Wednesday as tech names and consumer discretionary stocks led the broader index to its latest record high. Tech shares had improved overnight following a record earnings report from Netflix that jolted the company’s shares up nearly 17% Wednesday to a new all-time high. While certain companies have been decimated by the virus, others such as Netflix have reaped the benefits of consumers spending more time at home. While many were watching the day’s inauguration events that finalized the transition of the presidency, stocks gradually strengthened after a positive open to close near the highs of the day. The Dow rose 0.8%, the S&P 500 added 1.4%, and the Nasdaq led all three with a nearly 2% gain, all closing at record highs.

Treasury Yields Remained Relatively Unexcited After Early-Year Surge on Hopes for More Stimulus: Containing the virus was a key component of President Biden’s inauguration speech, which preceded the swearing in of new senators and shift in control of the Senate to Democrats. And while expectations that the shift in power could lead to larger stimulus efforts have boosted Treasury yields in 2021, and despite the daily strength for equity markets, the curve dipped lower on Wednesday. Even with Vice President Harris able to break ties in Democrats’ favor, the evenly split Senate will require delicate and strategic negotiating in order for the administration to push forward with its agenda, even under the reconciliation process. Those dynamics were on display Wednesday as one of the most moderate Republicans, Senator Murkowski from Alaska, said Democrats’ stimulus proposal will require a “fair amount” of debating. Once trading wound down, the 2-year yield had declined 0.4 bps to 0.13% and the 10-year yield had edged 0.8 bps lower to 1.08%.


Quiet Central Bank Meetings Keep the Focus on the U.S.: A couple of Thursday policy decisions from central banks in Japan and Europe were expected to be uneventful, keeping the focus on corporate earnings, the weekly jobless claims update, and actions from President Biden in his first full day at the White House. As expected, the Bank of Japan and European Central Bank both left their key policy tools unchanged as they continue to monitor economic developments tied to the coronavirus. At their December meetings, the former extended emergency business lending programs and announced a review of its policy framework and the latter increased the size of its emergency asset purchase program. Since those meetings, certain prefectures in Japan have seen cases rise and many countries across Europe have extended lockdowns and strengthened restrictions to fight the virus.

Jobless Claims Expected to Remain High as President Biden Begins Work to Fight the Virus: Combatting the pandemic will be an early focus of the Biden administration as it initiates its COVID-19-fighting plan and effort to achieve 100 million doses in 100 days. The president released the details of his strategic plan on Thursday which is expected to be followed by multiple executive orders to assist in its implementation. Already, President Biden has signed 17 executive orders and actions covering a range of topics, including immigration, climate change, oil production, racial equality, and certain aspects of the virus response. The Biden administration hopes its mask mandate will help slow the spread of the virus until more involved measures can take hold. The recent virus resurgence has weighed on the global recovery and led to an uptick in jobless claims in the U.S. Before this morning’s weekly jobless claims data were released, S&P 500 futures were up 0.2% following gains in Asia and Europe and the Treasury curve was steepening higher. The 2-year yield had edged up 0.2 bps to 0.13% at 7:20 a.m. CT as the 10-year yield added 2.2 bps to 1.10%.


NAHB Reports Small Decline in Home Builder Confidence: Home builder confidence dipped unexpectedly in January to match a five-month low as sales expectations, both current and over the next six months, and the level of potential buyers perusing new homes for sale cooled to start the new year. The headline confidence index slipped for a second month, down 3 points to 83, leaving the index 7 points below November’s record high. Nonetheless, confidence remains strong relative to February’s pre-pandemic 74 and 2019’s average reading of 66. As discussed in our 2021 Economic Outlook, affordability has become more of a headwind as rising prices shrink the benefit of lower rates. The NAHB said, “While housing continues to help lead the economy forward, limited inventory is constraining more robust growth. …A shortage of buildable lots is making it difficult to meet strong demand and rising material prices are far outpacing increases in home prices, which in turn is harming housing affordability.”

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