Weekly jobless claims data reflected a mixed activity. Initial claims (week ending March 8th) were unchanged at 353k, relative to the estimate of 357k and last week's upwardly revised level of 353k. The prior week's level was originally reported as 351k. As you are well aware, we like to look at moving averages for this data series to mitigate some of the weekly noise inherent in the data. The four-week average is 359k and the twelve-month average is 326k. This appears to reflect a labor market that is continuing to weaken. Continuing claims (week ending March 1st) rose to 2.835 million, relative to the estimate of 2.835 million and last week's downwardly revised level of 2.828 million. Last week's level was originally reported as 2.831 million. A similar analysis shows a four-week average of 2.813 million and a twelve-month average of 2.593 million. Again, this appears to corroborate a labor market that is showing signs of weakening. Recall that, in our opinion, jobless claims are one of the best real-time indicators of the state of the economy.
The Bureau of Labor Statistics released their Import Price Index for the month of February. Prices rose .2%, relative to the estimate of .8% and January's downwardly revised gain of 1.7%. January's release was originally reported as a 1.7% increase. On a year-over-year basis, prices increased 13.6%, relative to January's upwardly revised gain of 13.8%. The obvious culprit is the continued surge in oil prices.
Today February advance retail sales data was released and it reflected an unexpected decrease of .6%, relative to the estimate for a .2% gain and January's upwardly revised gain of .4% (originally reported as a .3% increase). The ex auto component registered a .2% decrease, relative to the Street consensus of a .2% gain and down from January's upwardly revised .5% increase (originally reported as a .3% gain).
January business inventories rose at a .8% rate, relative to the Street consensus of a .5% increase and up slightly from December's upwardly revised .7% increase (originally reported as a .6% gain).
The Carlyle Group announced that their Carlyle Capital Corp. defaulted on approximately $16.6 billion in debt when it was unable to meet an approximate $400 million margin call. The lenders have seized the assets, which will lead to additional liquidations of mortgage-related paper into a market with a shaky bid. The hits keep coming.
Stand & Poor's said that there is a light at the end of the tunnel. They forecast that the total subprime related losses will approximate $285 billion and that we are now "past the halfway mark." Let's hope that the light at the end of the tunnel is not another approaching train.
Paulson, Dodd (D-CT) and Barney Frank (D-MA) were on the tape today. Paulson is advocating regulatory reform while Dodd and Frank are proposing a government bailout of subprime borrowers. Stay tuned for further developments.
Equities were marginally higher on the day (DJIA +87) as investors reacted favorable to Standard & Poor's assessment of the subprime situation. April crude rose .15% on the day ($110.05), to, yes, yet another record high, as participants appear to be purchasing commodities as an inflation hedge. The 10yr was marked (99-19 3.549%) at the lower end of the day's 1-15+/32s range (99-13+ to 100-29). The overall Treasury market was mixed on the day (2yr up +/32s and 10yr down 17+/32s). Mortgages closed lower on the day (5s down 13/32s and 5.5s down 11/32s).
Today's MBS Chart looks like a ride on Disney's Space Mountain. The rates are like Denver's weather - if you don't like it, wait 10-minutes and it will change! There was a 60 bps price swing from the high to low first things this morning and then we headed into up's and down's the rest of the day!