10-Year Treasury Yield
10-year Treasury yield tumbles below 3.44% after producer prices decline by more than expected. The yield on the benchmark 10-year Treasury note dropped 14 basis points to 3.388%, its lowest level since September. The yield on the 30-year Treasury bond shed 9 basis points to 3.553%. Yields move inversely to prices.
Empire State Manufacturing Index
Business activity contracted sharply in New York State, according to firms responding to the January 2023 Empire State Manufacturing Survey. The headline general business conditions index fell twenty-two points to -32.9. New orders and shipments declined substantially.The New York Fed's "Empire State" index on current business conditions plummeted to -32.9 this month from -11.2 in December. That was the lowest level since May 2020 and the fifth worst reading in the survey's history. Economists polled by Reuters had forecast the index at -9.0. A reading below zero signals the New York manufacturing sector is contracting. Forty-four percent of respondents in the survey conducted between Jan. 3 and Jan. 10 reported that conditions had worsened, while only 11% said they had improved. A gauge of new orders tumbled 27.5 points to -31.1. The shipments index dropped 27.7 points to -22.4. Order backlogs are also drying up, while inventories are steadily rising.
MBA Purchase Applications
Mortgage applications increased 27.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 13, 2023.The Refinance Index increased 34 percent from the previous week and was 81 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 25 percent from one week earlier. The unadjusted Purchase Index increased 32 percent compared with the previous week and was 35 percent lower than the same week one year ago
Retail Sales
Retail sales fell 1.1% in December, slightly more than the 1% forecast. Those numbers are not adjusted for inflation, so the latest reading reflects both receding inflation and tepid consumer demand during the holiday shopping season.
Holiday retail sales tanked, but trucking data shows e-commerce wasn’t the issue. DHL Supply Chain is investing heavily in North American e-commerce operations.The retail holiday sales data for 2022 was a disappointment, but DHL said it is “continuing to see large growth in e-commerce.”Categories including autos, engineering, manufacturing, and high-end consumer goods are doing well. Core consumer retail may rebound in the mid-to-late second quarter, DHL’s head for North America tells CNBC. The market did not like what it saw from the final retail holiday sales numbers for 2022 which sets up a tough year for retailers, but e-commerce is continuing to boom, including in areas outside the core retail consumer. Holiday sales came in below industry expectations, as shoppers felt pinched by inflation and rising interest rates. Sales during November and December grew 5.3% year over year to $936.3 billion, below the NRF’s prediction. The gains include the impact of inflation, too, which drives up total sales. Sales during November and December grew 5.3% year over year to $936.3 billion, below the major trade group’s prediction for growth of between 6% and 8% over the year prior. In early November, NRF had projected spending of between $942.6 billion and $960.4 billion. The retail sales number excludes spending at automobile dealers, gasoline stations and restaurants, and is based on data from the U.S. Census Bureau. It covers the period from Nov. 1 to Dec. 31.
PPD Final
Prices for wholesale goods and services fell sharply in December, providing another sign that inflation, while still high, is beginning to ease. The producer price index, which measures final demand prices across hundreds of categories, declined 0.5% for the month, the Labor Department reported Wednesday. Economists surveyed by Dow Jones had been looking for a 0.1% decline. The decline was the biggest on a monthly basis since April 2020. Excluding food and energy, the core PPI measure rose 0.1%, matching the estimate. For the year, headline PPI rose 6.2%, the lowest annual level since March 2021 and down considerably from the 10% annual increase in 2021.
Wholesale prices fell 0.5% in December, much more than expected; retail sales fall The producer price index declined 0.5% for the month, compared to the Dow Jones estimate for a 0.1% decrease. A sharp drop in energy prices helped bring the headline inflation reading down for the month. The PPI’s final demand energy index plunged 7.9%. Retail sales fell 1.1% in December, slightly more than the 1% forecast.
Industrial Production U.S. manufacturing output tumbles in December. Production at U.S. factories fell more than expected in December and output in the prior month was weaker than previously thought, indicating that manufacturing was rapidly losing momentum as higher borrowing costs hurt demand for goods. Manufacturing output dropped 1.3% last month, the Federal Reserve said on Wednesday. Data for November was revised lower to show production at factories decreasing 1.1% instead of the previously reported 0.6%. Economists polled by Reuters had forecast factory production would decline 0.3%. Output fell 0.5% on a year-on-year basis in December. It decreased at a 2.5% annualized rate in the fourth quarter. Higher interest rates are undercutting demand for goods, which are mostly bought on credit. The dollar's past appreciation and a softening in global demand are also hurting manufacturing, which accounts for 11.3% of the U.S. economy. In addition, spending is also shifting back to services.
Business Inventories
U.S. business inventories increased in November as higher interest rates depressed sales, boosting the inventory-to-sales ratio to the highest level in nearly two years. Business inventories rose 0.4% after gaining 0.2% in October, the Commerce Department said on Wednesday. Inventories are a key component of gross domestic product. November's increase in inventories was in line with economists' expectations. Inventories increased 15.1% on a year-on-year basis in November.
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Beige Book The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25%-4.50% range, the highest since late 2007. In December, it projected at least an additional 75 basis points of hikes in borrowing costs by the end of 2023.
The Fed's Beige Book report on Wednesday described consumer spending as increasing "slightly, with some retailers reporting more robust sales over the holidays." But it added "retailers noted that high inflation continued to reduce consumers' purchasing power, particularly among low- and moderate-income households."
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Jobless Initial Claims
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Housing Starts US Housing Starts Fall Less than Expected. Housing starts in the US dropped 1.4% to a seasonally adjusted annualized rate of 1.382 million in December of 2022, the lowest level in five months, but above market forecasts of 1.359 million.
Building Permits
Building permits in the United States fell 1.0 percent from a month earlier to a seasonally adjusted annual rate of 1.337 million in December 2022, the lowest level since May 2020, as high inflation and rising mortgage rates hit demand for new housing, revised data showed. Single-family authorizations declined 6.4 percent to a rate of 731 thousand, the lowest since April 2020, while the volatile multi-segment rose 6.3 percent to 606 thousand. Permits were down in the South (-1.7 percent to 740 thousand), Midwest (-12.1 percent to 175 thousand) and Northeast (-2.5 percent to 115 thousand), but were up in the West (9.3 percent to 307 thousand)
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Existing Home sales Existing home sales fall to lowest level since 2010.Sales of previously owned homes fell for the 11th consecutive month in December, according to the National Association of Realtors.Existing homes fell to an annualized pace of 4.02 million units in December, down 1.5% month over month and 34% year over year.The last time the pace of buying was this slow was in November 2010. U.S. existing home sales plunged to a 12-year low in December, but declining mortgage rates raised cautious optimism that the embattled housing market could be close to finding a floor.The report from the National Association of Realtors on Friday also showed the median house price increasing at the slowest pace since early in the COVID-19 pandemic as sellers in some parts of the country resorted to offering discounts. Existing home sales, which are counted when a contract is closed, fell 1.5% to a seasonally adjusted annual rate of 4.02 million units last month, the lowest level since November 2010. That marked the 11th straight monthly decline in sales, the longest such stretch since 1999.
Fixed Mortgage Rates
The worst of the housing market rout is, however, probably behind. The 30-year fixed mortgage rate retreated to an average 6.15% this week, the lowest level since mid-September, according to data from mortgage finance agency Freddie Mac.The rate was down from 6.33% in the prior week and has declined from an average of 7.08% early in the fourth quarter, which was the highest since 2002. It, however, remains well above the 3.56% average during the same period last year. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.23 percent from 6.42 percent, with points decreasing to 0.67 from 0.73 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
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