This note covers both this morning's initial unemployment claims and MBA mortgage application weekly data released yesterday.
Revisions, Revisions, Revisions
The media is running with the headline that jobless claims fell 5k week over week to 359k. That's fine, but it's definitely misconstruing what really happened. Last week's jobless claims number was 348k. This week? 359k. So how does an eleven thousand increase become a five thousand decline? Revisions! Last week's number was upwardly revised by 16k. There is a serial upward revision bias to this data driven by its calculation methodology, but that upward revision normally averages 2-3k per week. This week it was 16k. We suspect this is a byproduct of this being the week in which the government incorporates the annual revision to its seasonal adjustment factors. The bottom line is that claims are now rising, which is a marked reversal from their steady trend of improvement over the past several months. This is consistent with our call for the tailwind of Lehman's Ghost to become a headwind from March through August.
The rolling claims number was similarly affected. The government is reporting a decline in rolling claims of 3.5k to 365k even though last week the rolling number was 355k. On a non-seasonally adjusted basis, claims were essentially flat vs. the previous week. Non-seasonally adjusted rolling claims fell 3.7k to 336k from 339k.
On a separate note, it's interesting to observe that the mean reversion between the S&P and jobless claims has finally played out. The two series are currently mean reverted. Given our expectation for claims to rise steadily over the next five months that should put a headwind on the market and XLF.
The 2-10 spread tightened 6 bps versus last week to 186 bps as of yesterday. The ten-year bond yield fell 9 bps to 220 bps.
Financial Subsector Performance
The table below shows the stock performance of each Financial subsector over four durations.
Mortgage Purchase Applications Were Stronger Last Week
MBA Mortgage Purchase Applications rose 3.3% last week, ending at an index level of 180.5. Purchase activity has been showing resilience after a dismal display in February. For reference, today's print is 11% higher than the February average of 162.1. Purchase Applications are currently 4.2% lower than a year ago. On a longer-term basis, demand for housing remains weak. Note in our long-term chart that the current 2012 average is now hovering around 1 levels.
Refinance Applications fell 4.6% last week. Mortgage rates fell 7bps to 3.98% yesterday from 4.05% last Wednesday.
Joshua Steiner, CFA
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