Unemployment Claims Higher Again

Stocks are higher and Mortgage Bonds are trading near unchanged levels so far this morning.

Yesterday, the Fed’s Beige Book was released, which is a report that takes the temperature of the economy in the Fed’s twelve districts across the US. The latest release showed that five of the twelve districts or about 42% reported flat or declining economic growth. This is up from only two districts only six weeks ago. Clearly, things have slowed over the last month and half and historically, it’s been significant when this amount of districts are experiencing flat or declining growth. The last two times were in March 2001 and January 2008…both before recessions.  

Initial Jobless Claims

Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, rose 20,000 to 243,000. This is the highest level in 11 months and points to more people getting let go and then filing for benefits. The bump higher after last week’s lower reading also confirms that the BLS does not properly adjust for holidays, as the previous report was low due to July 4.

Today’s report also has added significance because it is the “sample week” that includes the twelfth of the month, which the BLS uses in their jobs report estimates. From this one component, we would expect some weaker job growth. 

Continuing Claims was also released and measures Individuals continuing to receive benefits after their initial claim. This metric can be used to gauge how much companies are hiring – If we see more continuing claims, you can infer that it’s harder to find a job once you are let go. 

Continuing Claims rose 20,000 to 1.867M, which is the highest level since November 2021. We continue to see signs that the labor market is weakening. 

CoreLogic Rental Index

CoreLogic released their Rental Report for the month of April, showing that blended rents are up 3.2% year over year, up from 3% in the previous report. This is the highest level in almost a year, but is still trending much lower than the rental component of the inflation reports we receive, which is running at 5.2%. This is only for single family rents, but compares to the Cleveland Fed’s rent index showing an increase of 4% and Truflation showing rents down 0.36% year over year. The methodologies are a bit different, but the theme in most reports remains the same – Rental prices and overall shelter is falling.

So long as last week’s CPI report was not an anomaly, it appears that we are starting to see shelter catch up and begin to reflect the lower shelter costs we have been seeing in the market. Because Shelter makes up 45.5% of core CPI and 21% of core PCE, inflation often goes the way of shelter…And we should continue to see lower shelter readings, leading to lower inflation. The PCE inflation report is due for release next Friday, where we will look for more confirmation of lower shelter costs.

Technical Analysis

Mortgage Bonds have been trading sideways the few days and appear to be consolidating in a range between support at 100.914 and overhead resistance at 101.199. The 101.199 level was previously a resistance level that has now been flipped as support, which is bullish for Bond prices. 

The 10-year broke beneath the important 4.25% last week and has been testing the next important technical level at 4.17%. Thus far, we have not been able to convincingly break beneath it, but once we do, there is a lot of additional room for improvement until reaching 4.07%. Yields look like they want to continue to move lower, and we may see that next week with the QCEW job revision data for Q4 of last year and the Fed’s favorite measure of inflation, core PCE. If core PCE declines from 2.6% to 2.4% as expected, the Bond market should rally, as that is pretty close to the Fed’s target.