Economic update for the week ending February 19, 2022

Stock markets ended the week lower – Stock markets dropped again last week. While investors are concerned with higher interest rates, inflation, labor and supply shortages, and possible tensions in Ukraine, it should be noted that on December 31, 2021, the NASDAQ had risen 74%, the Dow had risen 27%, and the S&P had risen 47% since December 31, 2019. Those represent pretty hefty two-year increases! Perhaps these stocks, especially the tech-heavy NASDAQ were overvalued. The Dow Jones Industrial Average closed the week at 34,079.18, down 1.9% from 34,738.06 last week. It is down 6.21% year to date. The S&P 500 closed the week at 4,348.87, down 1.6% from 4,418.64 last week. The S&P is down 8.8% year to date. The NASDAQ closed the week at 13,548.07, down 2.5% from 13,751.19 last week. It is down 13.4% year to date.

U.S. Treasury bond yields - The 10-year treasury bond closed the week yielding 1.90%, down slightly from 1.93% last week. The 30-year treasury bond yield ended the week at 2.24%, unchanged from 2.24% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates - On February 17, 2022, Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products were as follows: The 30-year fixed mortgage rate was 3.92%, up from 3.69% last week. The 15-year fixed was 3.15%, up from 2.93% last week. The 5-year ARM was 2.98%, up from 2.80% last week

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.

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."

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