The Market Today

Jobless Claims Drop Sharply and March Retail Sales Blow Out Expectations

by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Vaccines: Vaccines remained front and center of the virus headlines on Wednesday. The French government said it would proceed with use of the Johnson & Johnson vaccine as planned. Johnson & Johnson’s Chief Medical Officer confirmed that there had been seven “adverse events” out of the 7.2 million doses administered. The director of the U.S. CDC said the pause of the Johnson & Johnson vaccine indicates safety protocols are working and a White House adviser said it could result in a short-term impact to vaccination metrics. However, the adviser also noted that there is sufficient supply of shots from Moderna and Pfizer to fill the void left by temporarily halting Johnson & Johnson inoculations. The CDC panel reviewing the clotting cases tied to the Johnson & Johnson vote concluded a Wednesday meeting without voting, saying more information was needed and effectively extending the ongoing pause of shots around the country. Related to other vaccines, Denmark said it would no longer administer AstraZeneca doses while Pfizer announced it would increase shipments to the EU by 25% (to 250 million doses).



Jobless Claims Drop to Lowest of Pandemic: Initial jobless claims for the week ending April 10 fell 193k, the largest monthly decline since July, to 576k, the lowest weekly total for the traditional program since the pandemic began. Initial PUA claims also fell 20k to 132k bringing the total number of new claims down to 708k.  The pre-pandemic record for most initial jobless claims in one week was 695k.  Continuing jobless claims for the week ending April 3 disappointingly rose 4k, although the non-seasonally adjusted figure actually dropped 88k.  On an NSA basis, 30 states reported declines. Continuing PEUC claims fell 475k to 5.16mm, due largely to California’s 422k decline.  Continuing PUA claims fell 501k to 7.05mm, due in part to California’s 299k decline. Total unemployment filings for the week ending March 27 fell 1.24mm to 16.9mm, the lowest non-Christmas week since the pandemic.

Unsustainable Blow-Out for Retail Sales: Retail sales blew out expectations in March jumping 9.8% for the month versus expectations for a 5.8% gain.  While the report is another indicator of a strong economic acceleration in March, the results are also artificially above longer-term trend capacity given that the spending was fueled by one-time stimulus payments. Every category of sales rose sharply. Auto/parts sales rose 15.1% and gas sales jumped 10.9%.  Evidence that construction activity remains strong despite some ugly February data, building materials sales increased 12.1%.  Clothing and restaurant sales benefited from increased re-openings, rising 18.3% and 13.4% respectively.  The largest gain, sporting goods sales rose 23.5%.  As of March, the only category with activity still below its pre-pandemic level is restaurant/drinking places.  However, it is now only down 4.8% from pre-virus.

Fed Surveys Compound Optimism from Retail Sales and Jobless Claims: Two separate activity surveys from regional Fed banks covering April easily beat expectations. The Empire manufacturing index jumped from 17.4 to 26.3, its best level since November 2017, on broadly firmer details. Notable, new orders improved to the highest level since October 2009 and the prices paid index moved up to its highest level since July 2008. The outlook for six months from now hit a seven-month high. Separately, a downward revision to the Philadelphia Fed index in March meant April’s 50.2, a 5.7-point monthly improvement, marked the strongest reading since April 1973. The six-months-ahead index was also strong, jumping 7.5 points to 66.6, the highest reading since October 1991.

Still-Busy Economic Calendar: The remainder of the day brings more, important data including the March industrial production and capacity utilization report at 8:15 a.m. CT.  February’s business inventory and April’s homebuilder confidence reports are scheduled for 9:00 a.m. CT. Speaking from the Fed today are Bostic (10:30 a.m.), Daly (1:00 p.m.), New York Bank’s Logan (1:00 p.m.), and Mester (3:00 p.m.)


S&P 500 Gave Up Morning Gains Despite Boost from Energy and Financials, Limiting Treasury Yield Increases

The S&P 500 gave up morning gains in afternoon trading to close below Tuesday’s record high, despite support from strong energy gains and improvement in financial names. The index jumped to a new record high early in the morning after a couple of big banks beat earnings expectations. Energy names provided additional support, jumping with crude prices after a government report showed a larger-than-expected drawdown of U.S. crude inventories last week. U.S. WTI gained more than 4% to its highest level in nearly a month. However, losses for tech names, which reversed some of the sector’s gains from Tuesday, dragged the broader index down 0.4%. The Nasdaq fell 1% while the Dow eked out a 0.2% gain. Treasury yields closed up but off their daily highs, pulling back with equities in the afternoon. The 10-year yield added 1.8 bps to 1.63% after rising as high as 1.65%.

Markets had reversed course overnight before the influx of economic data on Thursday morning, with stock futures recovering and Treasury yields edging lower. In addition to the economic data, corporate earnings continue to roll in. Bank of America followed Goldman and JPMorgan’s lead by beating earnings expectations on strong results from investment banking and trading activities. Similar to JPMorgan, Bank of America also released reserves set aside last year to cover bad loans. Corporate earnings were also credited with helping Europe’s Stoxx 600 move up 0.4% and to a new all-time high. At 7:25 a.m. CT, just before the morning’s major economic reports hit the wires, S&P 500 futures were 0.6% stronger and the 10-year Treasury yield had declined 2.3 bps to below 1.61%, a new one-month low. Despite some really strong economic data, the 10-year Treasury yield fell further to a new session low below 1.60%.


Dallas Fed President Kaplan explained again on Wednesday his efforts to strike a balance between removing accommodation too quickly and falling behind the curve. He said he’s unsure if firmer inflation this year will last into 2022 and believes it will take some time for the U.S. to return to full employment. However, he again noted that his dot in the Fed’s March rate plot is one projecting an earlier liftoff than the median estimate, in part to mitigate risks of easy monetary policy fueling financial imbalances.

Fed Chair Powell repeated his statement from a Sunday evening interview with 60 Minutes that the U.S. economy appears to be at an inflection point. The groundwork is set for a period of faster economic growth and recovery of jobs lost during the pandemic, but risks remain, particularly the risk of a resurgence of COVID-19 cases. He reiterated that rate hikes will depend on how the economy evolves not on the passage of time, although he did remind the audience that most officials didn’t expect to raise rates until at least 2024. Avoiding specifics on timing, he would only say that tapering monthly bond purchases would occur, “well before the time we would consider raising rates.” Vice Chair Clarida’s comments were, not surprisingly, closely aligned with Powell’s messaging.

The Fed’s latest Beige Book, updated through early April, reflected the more upbeat tone from officials in recent weeks. Positive discussion of activity across the various economic sectors supported the overall statement that “activity accelerated to a moderate pace from late February to early April.” Notable was “a pickup in demand for leisure activities and travel which contacts attributed to spring break, an easing of pandemic-related restrictions, increased vaccinations, and recent stimulus payments among other factors.” Similar to most professional economic forecasts, the Fed’s business contacts “were more optimistic…boosted in part by an acceleration in COVID-19 vaccinations.” Job growth indications were positive but “generally strongest in manufacturing, construction, and leisure and hospitality” and expectations for hiring “were generally bullish.” The report indicated firmer inflation and noted “Contacts generally expect continued price increases in the near term.”

New York Fed President Williams expects the economy to avoid much long-term damage from the pandemic, in part because of the powerful support provided by the Fed and Congress. A return to full employment will likely take another year or two and he believes that disruptions in the supply chain will calm. “We could see some period where prices kind of go up for a while,” but “I think that inflation will stay relatively subdued, or near our 2% goal,” Williams said. The economic situation the Fed wants to see before it adjusts policy is “a long way off,” Williams noted.

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