The Market Today

Lowest Jobless Claims in Over 50 Years Reinforce Historically Tight Labor Market

by Craig Dismuke, Dudley Carter


Jobless Claims Drop to Their Lowest Levels in More Than 50 Years: Initial jobless claims data were surprisingly strong and reinforce the broader labor data that indicate the labor market, despite a full recovery in participation, in historically tight. New jobless claims fell from 215k to 187k in the week ended March 19, beating expectations for 210k and marking the lowest level since September 1969. Continuing claims also fell more than anticipated, from 1.417mm to 1.35mm in the week ended March 12, the lowest reading since the first week of 1970. Holiday periods, including Spring Break, can create some volatility in the underlying data but the breadth of improvement across states reinforces the encouraging signal.

Durable Goods Orders Disappoint: Durable goods orders dropped 2.2% in the preliminary report for February, disappointing expectations for a 0.6% decline with the weakest month for activity since April 2020. The pullback follows three strong months for durables orders and was weighed down by a sharp decline in the transportation categories. Excluding sliding orders for private aircrafts and another soft month for auto activity, other durable orders fell by a less disappointing 0.6%, still reflecting moderation across most sectors. Focusing in on the categories that track business investment in equipment, core capital goods orders declined 0.3%, a disappointment relative to the expected 0.5% gain that was only partially offset by a positive revision to January. Shipments of those goods rose 0.5%, also short of the 1.0% increase expected and only partially mitigated by a stronger prior month.

Rebranded Markit PMIs Expected to Show Activity Slowed Early this Month: At 8:45 a.m. CT, the preliminary March Markit PMIs, recently rebranded as S&P Global PMIs after the two companies merged, are expected to show the pace of activity across both the manufacturing and services sectors of the economy slowed early in the month. If the Manufacturing index falls to 56.6 as expected, it would mark the second weakest reading (behind January) since October 2020. The expected decline for the Services measure would signal the second slowest expansion (behind January) since the Delta wave hit activity in September 2021. Despite the uncertainty created by the war in Ukraine, the European PMIs for March held up better than expected. Based on preliminary results for Germany and France, the Eurozone’s Composite PMI slipped 1.0 to a still respectable 54.5. Reflecting the most acute impact of the war, however, the prices paid index surged at a record rate to a record high.

Following the release of the Markit data, the Kansas City Fed will update its manufacturing activity index for March and is also expected to show activity moderating to a still solid level historically.

Fed Officials Make Appearances: Minneapolis Fed President Kashkari was scheduled to speak at 7:30 a.m. CT this morning but has so far made no headlines. Later today, Fed Governor Waller (8:10 a.m. CT) and Fed Presidents Daly (not disclosed), Evans (8:50 a.m.), and Bostic are scheduled to make remarks. Governor Waller is the only official among the group that will vote on policy decisions this year.


New Home Sales Cool Early in 2022 Amid Tight Inventories and Rising Rates: The latest report from the Census Bureau showed that sales of new home sales slowed more than expected to start the year after a stronger-than-previously-estimated surge to close out 2021. New home sales fell 2.0% in February, disappointing expectations for a 1.1% recovery from a January decline that was revised from -4.5% to -8.4%. The consecutive declines followed gains in November and December that were revised up from 12.3% to 12.9% and from 12.0% to 14.2%, respectively. Net of all revisions, February’s 772k annualized unit pace marked a three-month low, positioned between weaker levels in the fall and much stronger levels last January. Away from the sales data, the median price slowed but remained historically strong while the average price jumped to a new record high of $511k. A slower pace of sales and increase in inventory levels from 398k to 407k helped push the months of supply up from 6.1 to 6.3. The composition of the inventory, however, showed completed inventory remains tight. Only 35k of the 407k homes in inventory were completed homes, keeping the share of total inventories at a record low of 9%.

A Dove Sings a More Hawkish Tune: San Francisco Fed President Daly sounded a bit more hawkish Wednesday relative to the comments she made on Tuesday. In her prior remarks, Daly signaled support for raising rates to neutral, but said she expected the target range would not get to 2.00% by the end of this year and proposed a pause to allow for an assessment of the situation before moving policy into a restrictive position. On Wednesday, however, Daly said “everything [is] on the table” and promised, “We’re prepared to do whatever it takes to ensure that we get price stability, which clearly no one thinks we have right now.” “If we need to do 50, that is what we’ll do,” Daly said Wednesday, referring to the possible size of the Fed’s next rate hike in May, adding that “Some increase in the policy rate above neutral is likely to be required.” Still, the traditionally dovish Daly said, “That’s down the road in 2023. Right now I don’t think we need to be so decisional on what that looks like.”

Bullard and Mester On Board with Big Moves: Fed Presidents Mester and Bullard, both voters for the remainder of 2022, repeated their hawkish preferences for front-loading tightening this year to rapidly return rates closer to or above neutral in an effort to address unacceptably high inflation. Mester, who estimates the neutral rate to be around 2.50%, wants rates to end the year there. Bullard, who believes the neutral rate is closer to 2.00%, has previously proposed taking the overnight rate to around 3.00% by the end of the year. Both have said they support 50-bp hikes as a means of frontloading the Fed’s inflation response.


U.S. Equities and Treasury Yields Reversed Portion of Recent Climb: Stocks sold off Wednesday, cutting into a surprisingly strong rally over the previous six sessions that weathered the storm of a surprisingly hawkish Fed decision and subsequent speech from Fed Chair Powell that pledged to do whatever it takes to bring inflation down from unacceptably high levels. After rising more than 8% since last Monday, the S&P 500 fell 1.2% Wednesday. Energy companies were among the few sectors to settle higher, supported by another solid daily gain for crude prices. After sliding from above $130 per barrel on March 7 to around $95 on March 16, U.S. WTI has rallied back more than 20% to above $114 at Wednesday’s close. Joining the S&P 500 with a finish at session lows, the Dow and Nasdaq both ended 1.3% lower. The weaker tone for equities enhanced a bid that had already pulled Treasury yields lower. Yields have rocketed higher this month, many maturities reaching levels not seen since the first half of 2019 after Powell’s hawkish talk Monday. Yields extended an early morning decline prior to a strong auction of 20-year Treasury notes (stopped through on record direct demand) and fell further as equities reached session lows in the afternoon. All closing at weekly lows, the 2-year yield fell 6.8 bps to 2.10%, the 5-year yield dropped 8.2 bps to 2.32%, and the 10-year yield shed 9.1 bps to 2.29% and finishing back below yields across the belly of the curve. The 2.3 bps of flattening cut the spread between the 2-year and 10-year Treasury yields back below 20 bps to the second flattest level since March 2020.

U.S. equity futures and Treasury yields both rebounded overnight following their Wednesday declines. Foreign equities remained mixed and oil prices leveled off. With a lull in economic and central bank events, the situation in Ukraine moved back into focus. Western leaders, including President Biden, are gathering in Europe to discuss the war, including how the West would respond to a Russian attack using biological or nuclear weapons against Ukraine as well as new sanctions that could be used to ratchet up the pressure on Putin. Russia’s stock market opened for the first time in roughly a month and gained 4.4% after being clobbered in the early days of the invasion. The rise was mostly a ruse, however, as trading resumed only after the Russian government banned foreigners from selling positions, prohibited short-selling, and said the country’s sovereign fund would be an active buyer. Prior to this morning’s economic releases, stock index futures were up between 0.4% and 0.6%, the 2-year Treasury yield was 3.8 bps higher at 2.14%, and the 10-year yield had recovered 8.0 bps to 2.37%.

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