- Unemployment claims are at multi-decade lows as employers hang on to their employees
- U.S. home prices are expected to continue their steady advance
- March LEI expected to improve after a weak stretch in Dec-Feb
- Philadelphia Fed index expected to settle back after March’s surge
- 5-year TIPS auction to yield near -0.22%
Unemployment claims are at multi-decade lows as employers hang on to their employees — The unemployment claims series are both at decade-plus lows, which illustrates a relatively tight labor market where businesses are hanging on to their employees and are engaging in a very small number of layoffs. The initial unemployment claims series last week fell by -13,000 to match the 42-1/2 year low of 253,000 posted in the first week of March. Meanwhile, the continuing claims series last week fell by -18,000 to post a new 15-1/2 year low of 2.171 million. The market consensus is for today’s initial claims report to show a +12,000 increase to 265,000 and for the continuing claims report to be unchanged at 2.171 million.
U.S. home prices are expected to continue their steady advance — The market is expecting today’s Feb FHFA house price index to show an increase of +0.4% m/m, adding to January’s increase of +0.5% m/m. The FHFA index has risen steadily in recent years and has not shown a monthly loss in more than four years. The index is at a record high and has risen by a total of +28.4% from the housing-bust low posted in March 2011. The index is up by +6.0% y/y.
Housing prices are likely to continue rising due to the relatively tight supply of homes and continued strong sales. U.S. existing home sales in March rose by +5.1% m/m to 5.33 million units, which was only -2.7% below the 9-year high of 5.48 million units posted in July 2015. Furthermore, the supply of existing homes on the market is relatively tight at 4.4 months, just mildly above the 11-year low of 3.9 months posted in Dec 2015 and well below the long-term average of 7.0 months.
March LEI expected to improve after a weak stretch in Dec-Feb — The market is expecting today’s March leading indicators index to show an increase of +0.4%, strengthening from Feb’s report of +0.1%. The LEI has recently been weak, falling by -0.3% in Dec and -0.2% in Jan, and then showing a measly increase of +0.1% increase in Feb. The weak LEI is consistent with poor GDP growth in Q1, where the market consensus is for a weak report of +0.7% on April 28. However, the market consensus is for the U.S. economy to pick up some steam and reach a growth rate of +1.8% in Q2. A stronger LEI report today would provide some support for hopes that the economy will pick up during spring.
Philadelphia Fed index expected to settle back after March’s surge — The market is expecting today’s April Philadelphia Fed business outlook index to show a -3.4 point decline to 9.0, giving back a little of March’s surge of +15.2 points to 12.4. Today’s Philadelphia Fed report will be the second piece of regional data for April that has been released thus far. The Empire manufacturing index in April rose by +8.94 points to 9.56, adding to March’s sharp +17.26 point increase to 0.62.
The markets are hoping for a continued improvement in the business confidence data in April. The ISM manufacturing index has risen for the last three months (Jan-March) by a total of +3.8 points to post a new 8-month high of 51.8. The ISM new orders has performed even better, surging by +9.5 points in the past three months to post a new 1-1/3 year high of 58.3.
Meanwhile, the ISM non-manufacturing index has shown a smaller +1.1 point recovery to 54.5 in March after falling by a total of -4.9 points in the previous four months.
5-year TIPS auction to yield near -0.22% — The Treasury today will sell $16 billion of 5-year TIPS. Today’s auction issue will be a new 5-year TIPS security as opposed to a reopening of a previous issue. The Treasury follows a pattern of selling a new 5-year TIPS in April and then reopening that security in August and December. The $16 billion size of today’s 5-year TIPS auction is $2 billion smaller than the Treasury’s comparable auctions of $18 billion in the past three years. The smaller size is part of the Treasury’s move to reduce the size of its longer-term coupon auctions and increase the size of its T-bill auctions as the Treasury tries to suppress long-term yields. Today’s 5-year TIPS issue was trading at -0.22% in when-issued trading late yesterday afternoon.
The 12-auction averages for the 5-year TIPS are as follows: 2.51 bid cover ratio, $42 million in non-competitive bids to mostly retail customers, 6.2 bp tail to the median yield, 14.0 bp tail to the low yield, and 50% taken at the high yield. The 5-year TIPS is moderately below average in popularity among foreign investors and central banks. Indirect bidders, a proxy for foreign buyers, have taken an average of only 53.0% of the last twelve 5-year TIPS auctions, which is mildly below the average of 55.9% for all recent Treasury coupon auctions.
