Market Matters

This week we had two very hot numbers with PPI and Retail Sales both coming in higher than expected, with PPI at 9.7% YoY. Tensions with Russia and Ukraine are causing volatility in financial markets this week, both for US equities and bonds as we have seen conflicting reports throughout the week. The Fed minutes came out on Wednesday, and there were no real surprises in the minutes that the market was fearing.

 

Initial Jobless Claims

Initial jobless claims rose to 248k for the week of February 12th from a revised 225k (orig. 223k) in the previous week. The 4-week moving average of headline claims fell from 253.8k to 243.3k, as the peak read of 290k in the January 15th week fell from the average. Continuing claims, which lag by a week, fell to 1.593mln from a revised 1.619mln (orig. 1.621mln).

 

Retail Sales

Retail Sales blew out expectations for January, up +3.8% after disappointing expectations in November and December. Looking YoY, we have to remember that the economy at this time had just received a boost from fiscal stimulus, so the annual gains are lower with headline down from +16.7% to +13.0%, ex-autos down from +18.7% to +13.4%, and the control group from +12.5% to +8.9%. Hopping back into the January report, motor vehicles and parts rose +5.7%, building materials gained +4.1%, and gasoline sales fell -1.3%. Core sales rose +4.8% vs. expectations for a +1.3% gain, while in other categories, furniture and home furnishings sales jumped +7.2%, and general merchandise store sales gained +3.6%. Leading the way were online sales, which bounced back +14.5% and are most likely due to some Omicron quarantining during the month. Overall, the January data looks strong, however, the figures are nominal and not adjusted for inflation.

 

PPI

Headline producer prices (PPI) increased by +1.0% in January, with the YoY result at 9.7%. Energy prices rose +2.5% for the month, while food increased by +1.6%. Excluding food and energy, producer prices rose +.8% for January, bringing the YoY rate down from 8.5% to 8.3%. Except for transportation prices for passengers, the report showed more evidence of broad inflation pressure. Durable goods prices rose by +1.0%, which was the hottest result since 2008. Services PPI excluding trade/transportation/warehousing increased +.9% month over month, the largest gain on records back to 2009. Construction prices jumped another +3.6%, also now the highest on record.

 

Mortgage Applications

The MBA weekly mortgage applications index declined by -5.4% for the week ending February 11th. Purchase applications fell -1.0% and were -7.0% lower than the same week a year ago. Refinance applications declined by -9.0% and were -54.0% lower vs. the same week last year. "Mortgage rates increased across the board last week following the recent rise in Treasury yields, which have moved higher due to unrelenting inflationary pressures and increased market expectations of more aggressive policy moves by the Federal Reserve," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "The 30-year fixed rate saw the largest single-week increase since March 2020 and was above the 4 percent mark for the first time since 2019. Consistent with this period of higher mortgage rates, refinance applications fell 9 percent last week and stood at around half of last year's pace. The refinance share of applications was also at its lowest level since July 2019." Added Kan, "Purchase applications saw a modest decline over the week, with government purchase applications accounting for most of the decrease. Prospective buyers still face elevated sales prices in addition to higher mortgage rates. The heavier mix of conventional applications again contributed to another record average loan size at $453,000."