Economic update for the week ending May 14, 2022

Despite a rally on Friday stock markets posted another large weekly loss – Stock markets rallied on Friday to end a turbulent week. The S&P and the Nasdaq posted their sixth weekly loss; their longest losing streak since 2012. The Dow has dropped for seven consecutive weeks, its longest losing streak since 1980. Over the past week, the Labor Department released four economic reports. Last Friday’s jobs report suggested that job growth is still strong which increases the chance of more aggressive rate hikes and tightening by the Fed. Thursday’s CPI, PPI and Import price reports suggested that inflation may have peaked in March. For example, the CPI report had inflation in April up 8.3% from one year earlier which is a very high inflation number but below the 8.5% year-over-year level in March, a 40-year high. First-quarter corporate profits were strong with over 70% of companies beating expectations; however, investors expect inflation and rising interest rates to increase expenses and lower profits in the coming months.

  • The Dow Jones Industrial Average closed the week at 32,196.66, down 2.1% from 32,889.37 last week. It is down 11.4% year-to-date.

  • The S&P 500 closed the week at 4,023.89, down 2.4% from 4,123.34 last week. The S&P is down 15.6% year-to-date.

  • The NASDAQ closed the week at 11,805.00, down 2.8% from 12,144.66 last week. It is down 24.5%, year-to-date.

U.S. Treasury bond yields - The 10-year treasury bond closed the week yielding 2.93%, down from 3.12% last week. The 30-year treasury bond yield ended the week at 3.10%, down from 3.23% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – Home mortgage rates have continued to increase. Freddie Mac Primary Mortgage Survey reported that mortgage rates as of May 12, 2022 for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.30%, up slightly from 5.27% last week. The 15-year fixed was 4.48% down slightly from 4.52% last week. The 5-year ARM was 3.98%, up slightly from 3.96% last week.

Mortgage Applications

The MBA weekly mortgage applications index increased by 2.0% for the week ending May 6th. Purchase applications rose 5.0% and were -8.0% lower than the same week last year. Refinance applications declined by -2.0% and were -72.0% lower vs. the same week a year ago. "The increase in mortgage applications last week was driven by a strong gain in application activity for conventional and government purchase loans, even as mortgage rates rose to their highest level -- 5.53 percent -- since 2009. Despite a slow start to this year's spring home buying season, prospective buyers are showing some resiliency to higher rates. Purchase activity has now increased for two straight weeks," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "More borrowers continue to utilize ARMs to combat higher rates. The share of ARMs increased to 11 percent of overall loans and to 19 percent by dollar volume." Added Kan, "The rapid rise in mortgages rates continues to hit the refinance market, with activity 70 percent below a year ago. Most homeowners refinanced to lower rates in the past two years."

Initial Jobless Claims

Initial Jobless Claims rose by 1k to 203k for the week ending May 7th. The 4-week moving average rose 4.3k to 192.8k, the highest since the week of March 5th. Continuing claims, which lag by a week, fell -44k to 1.343mln and are now at their outright lowest levels since the first week of 1970. They're also well below pre-pandemic levels, which average about 1.798mln in February 2020. The sum of claims in all programs fell by -38k to 1.44mln, the lowest since October 2019.

Consumer Price Index

CPI rose .3% on headline in April vs. the prior 1.2% increase back in March. Looking YoY, the all-items headline index increased by 8.3%, down from the 8.5% reported for March. Looking at the core measure, which strips out food and energy components, we see a MoM increase of .6%, with the YoY rate at 6.2%, down from a prior 6.5%. Within the data, shelter gained .5%, rents up .6%, food up .9%, with energy down -2.7%. Strong growth was seen in the airline fares index, up 18.6% this month, which was the most significant one-month increase since the measure began in 1963. Another large contribution to the recent rise in prices has been auto sales. This month, while used vehicle prices fell -.4%, new vehicle prices rose by 1.1%. Prices rose 22.7% and 13.2% for the two, respectively, over the past year. Finally, and probably one of the most important results here is that real wages adjusted for inflation declined by -.1% on the month despite the nominal increase of .3% in average hourly earnings seen from the last jobs report. Over the past year, real earnings have dropped -2.6% even though average hourly earnings are up 5.5%

Producer Price Index

PPI in April rose .5% vs. the prior 1.6% print back in March, and vs. February's 1.1%. Stripping out food and energy, wholesale prices rose by .6% in April, -.3% down from March's .9% increase. Looking YoY, headline PPI was up 11.0%, while the core was at 6.9%. Within the report, the index for final demand services showed no change after March's 1.2%. Similarly, with CPI, the prices for truck transportation rose 4.4%, and prices for motor vehicles and equipment grew .8%. The energy final demand rose 1.7% in April, while the final demand food rose 1.5%. The index for gasoline dropped by -3.2%, which was also a similar trend in CPI's energy index.

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