INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE

Takeaway: After several weeks of accelerating improvement in the labor market, this week saw conditions slow down a bit.

The good news is the labor market is still improving. The bad news is the rate of improvement isn't as strong as it had been. Rolling non-seasonally adjusted claims were lower YoY by 5.9% this week, as compared with 7.2% in the prior week. This rate of improvement is solid, but obviously a sequential deceleration. On a single week basis, the improvement slowed to -2.4%, down from -5.8% in the prior week. We place less emphasis on week to week moves as they've historically had significant volatility. The bottom line: the labor market is still improving, which is supportive for both credit quality and housing's momentum.

 

On the seasonally-adjusted side, the optical claims number was worse than expected rising 21k before revision to 357k. This brought the rolling SA print to 343.5k, an increase of 2.5k WoW. As this is what the market is paying attention to, it's logical that we're seeing the long end of the yield curve fall. This is incrementally bullish for housing, but obviously a continuation of headwinds on the margin. As a reminder, the SA data is now facing a small, but growing headwind over the coming six months. This headwind will peak in August 2013 and then turn into a tailwind for a final year. 

 

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Yield Spreads Narrow

The 2-10 spread fell -9.8 basis points WoW to 161 bps. 1Q13TD, the 2-10 spread is averaging 168 bps, which is higher by 25 bps relative to 4Q12.

 

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Joshua Steiner, CFA