Economic Notes – May 28, 2013

May
28

Written by: Jon McGraw

Labor Markets

(+) The initial jobless claims number after seasonal adjustment was 340,000 in the week ending May 18, slightly lower than the expected 345,000.  Filing for first-time unemployment insurance benefits fell by 31,000 compared to the same time last year.  The 4-week moving average of initial claims was 339,500 versus 370,250 in 2012.

(+) Continuing claims for the week ending May 11 fell to 2,912,000, better than the median forecasted 3,000,000.  The figure was 3,296,000 in the comparable week in 2012.  For the year-to-date, continuing claims have shrunk by 217,000.

Housing Markets

(+/0) April existing-home sales rose 0.6% to a seasonally adjusted annual rate of 4.97 million, according to the National Association of Realtors.  It is slightly below the expected 4.98 million-unit level.  April’s resale activity is 9.7% higher than the 4.53 million-unit level in April 2012.  Low inventory, tight credit, and 31% more buyer traffic are pushing the national median existing-home price up 11% from April 2012.  The median time on market for all homes was 46 days in April, compared to 83 days in April last year.

(+) Federal Housing Finance Agency’s Housing Price Index (HPI) shows the Q1 U.S. house prices increased 1.9% from 4Q12.  Compared to 1Q12, house prices rose 6.7%.  The upward price momentum occurred across all regions of the country.  The purchase-only HPI index for March 2013 stood roughly the same as the November 2004 index level.

(+) New-home sales for April increased 2.3% month-over-month at a seasonally adjusted annual rate of 454,000, slightly faster than an expected 425,000.  New-home sales rose the most in the West by 10.8% but declined the most in the Northeast by 16.7% in April.  The monthly supply of new homes on the market is 4.1 months, tighter than 4.9 months from a year ago.

Manufacturing Economy

(0)   Data for April manufactured durable goods report is mixed.  New orders were up 3.3% in April from the prior month to $222.6 billion, reversed from March’s 5.9% decline.  It was a positive surprise compared to a median forecasted 1.6% increase.  The higher new orders came from broad-based industries, but primarily driven by defense aircraft and civilian aircraft orders.  Excluding transportation, new orders still rose 1.3%, ahead of an expected 0.5% increase.  On the negative side, shipments of capital goods (including defense and nondefense industrial equipment and parts) fell 3.3%.  Defense capital goods shipments declined by 5.6%, seeing a negative impact from the federal sequester spending cuts that went in effect March 1.  Nondefense capital goods excluding aircraft also decreased 1.5%, lagging the consensus -0.5% rate.

Last week was relatively light on major economic news.  Instead, global investors turned their focus on Bernanke’s semi-annual testimony before Congress on May 22.  In his testimony, Bernanke warned that, “A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further.”

Since the Fed’s third Quantitative Easing program last September, the unemployment rate has fallen from 7.8% to April’s 7.5%.  However, the improvement in the labor market is still far from the Fed’s desired 6.5% unemployment level.  Meanwhile, the inflation rate continues below 2%, within the Fed’s price stability mandate.  Without substantial improvement in the labor market and an increased risk of inflation, the Fed pledged to continue its asset purchase program.  Nevertheless, the Fed will keep monitoring the economy and decide whether to taper the program at its upcoming FOMC meetings in the summer and fall based on upcoming data.

Investors’ fears of the Fed scaling back in QE3 sent risky assets lower in the latter part of the week.  In the U.S., mid cap stocks declined the most by 1.9% in the S&P 400 Mid Cap index.  Mega Cap and large cap stocks fared the best, declining less compared to mid cap and small cap stocks.  Healthcare and consumer staples performed the best.  REITs, Utilities, Telecom and Material stocks retreated the most.

Outside the U.S., both EM and EAFE stocks underperformed the U.S. stocks.  The MSCI Japan index declined 3% for the week.  Weaker reading on Chinese manufacturing activities signaled contraction in May to its lowest level since October 2012.  Several other EM countries’ 1Q13 GDP releases exhibited weaker global growth: Thailand’s year-over-year GDP growth came in at 5.3% versus the 6% consensus; Mexico’s GDP was at 0.8% versus the 1.1% consensus; and Chile’s GDP was at 4.1% versus the 4.5% consensus.

The U.S. Treasury market sold off last week.  The 10-year treasury yield ratcheted up from 1.95% a week ago to 2.01% on Friday.  Lower-coupon mortgage-backed securities and treasury inflation-protected securities also weakened.  Major non-U.S. sovereign bond markets were mostly weaker.

Commodities were generally down on the week by more than a percentage point.  Gold rebounded and traded in a narrow range of $1,350 to $1,400.  Crude oil edged down amid investors’ concerns about the Fed’s monetary policy.  Copper drifted lower, driven by China’s sub-50 reading on the HSBC Flash Manufacturing PMI index.  Warmer weather and strong structural demand helped natural gas outperform in the commodity market.  Have a great week!