What’s Happening with California’s Unemployment Numbers?
The number of people filing for unemployment rose by 53,000 in the latest week, as Initial Jobless Claims totaled 898,000 during the week ending October 10. Continuing Claims, which measures the number of people continuing to receive benefits, totaled 10 million, marking a decrease of 1.2 million. It’s important to note that California, which makes up 20% to 25% of claims, did not report for the second week in a row due to an internal review. So once again the caveat to this data is that the number of claims filed could have been much better…or much worse.
Wholesale inflation was on the rise in September, per the latest Producer Price Index report. The monthly Headline reading came in double market expectations while the Core reading, which strips out volatile food and energy prices, also rose. While the level of inflation is still relatively low, the key takeaway is that the pace of increase is sharp, partly due to the big rise in shipping costs we have seen.
Meanwhile, inflation at the consumer level remains relatively tame per September’s Consumer Price Index. But if inflation continues to rise at the wholesale level, higher producer costs could be passed down to consumers, causing inflation to rise. More about why rising inflation is important to monitor below.
Despite the ongoing impact of the pandemic, small businesses felt confident last month as the National Federation of Independent Business (NFIB) Small Business Optimism Index rose 3.8 points in September to 104.0, which is the best level since February and historically high. Of particular note, those expecting higher selling prices jumped by 12 points to 13, which is the highest since January. This again could point to future inflation.
There was mixed news from the manufacturing sector, as the Empire State Index, which shows the health of manufacturing in the New York region, was reported at 10.5 for October, which was below expectations of 14.5. The Philadelphia region fared better, as the Philadelphia Fed Index was reported at 32.3 for October, above expectations of 14.5.
Lastly, Retail Sales delivered some positive news as they were strong in September, up 1.9% and beating expectations of 0.7%. Removing auto sales, Retail Sales increased by 1.5%, which was also better than estimates. Sales of clothing and accessories led the gains, rising by 11%, while sporting goods, music and books also rose 5.7%.
Jobless Claims Report Brought Mixed News
Another 898,000 people filed for unemployment for the first time during the week ending October 10, which is an increase of 53,000 from the previous week. The elevated levels of first-time filers remains a major concern for our economic recovery. However, the number of people continuing to receive benefits did decline by 1.2 million to 10 million people.
The number of people receiving Pandemic Unemployment Assistance (PUA) has also improved by roughly 200,000, now totaling 11.2 million. PUA benefits are for people who would not typically be approved for unemployment, like gig workers and contractors. People can also apply for them when their regular unemployment benefits expire.
All in all, the total number of individuals receiving some kind of unemployment benefits is at 25.3 million, which also improved by 200,000. For comparison, there were just 1.4 million people receiving some type of unemployment benefits during this same week last year. The lack of people working will continue to pressure supply chains and could contribute to higher inflation ahead.
It’s important to note that California did not report for the second week due to an internal review to try to flush out some fraud they were experiencing, so these numbers once again need to be taken with a grain of salt. California makes up 20% to 25% of claims due to the size of its population, so the numbers could have been much better or much worse. California is expected to report their data in the next weekly report.
Wholesale Inflation Comes In Hot
September’s Producer Price Index (PPI) showed that headline wholesale inflation increased 0.4%, which was double market expectations. On a year over year basis, headline PPI also increased from -0.2% to 0.4%.
Core PPI, which strips out volatile food and energy prices, was also up 0.4% and increased from 0.6% to 1.2% year over year. Although the PPI report does not get much respect from the markets, it is hard to ignore the significant increases in wholesale inflation. These numbers are still relatively low, but the pace of increase is sharp.
Part of the reason for the big rise is shipping costs, which have been seeing double digit gains for land, air and sea. If this continues, those higher producer costs can find their way to consumers, causing inflation to rise.
Consumer inflation was still tame in September, however, coming in at 0.2%, per the Consumer Price Index (CPI) report. The year over year reading increased from 1.3% to 1.4%. Core CPI, which also strips out volatile food and energy prices, also increased by 0.2% month over month. On an annual basis, Core CPI remained stable at 1.7%. Consumer inflation readings were held down in part by rents, which make up 40% of the CPI and continue to move lower in many areas due to the pandemic.
Why does rising inflation matter?
Inflation erodes the buying power of a Bond’s fixed coupon over time. Home loan rates are tied to Mortgage Bonds, and if Mortgage Bonds worsen or move lower as they often do when inflation heats up, home loan rates can move higher.
Small Businesses Expressed Optimism in September
Despite the ongoing impact of the pandemic, small businesses expressed confidence as the NFIB Small Business Optimism Index rose 3.8 points in September to 104.0, which is the best level since February and historically high. The focal point of the report was those expecting higher selling prices, which jumped by 12 points to 13. This is the most since January and could point to future inflation.
Understandably, the Uncertainty Index increased 2 points to 92, up from 75 in April.
“As parts of the country continue to open, small businesses are seeing some improvements in foot traffic and sales,” said NFIB Chief Economist Bill Dunkelburg. “However, some small businesses are still struggling financially to operate at full capacity while navigating state and local regulations and are uncertain about what will happen in the future.”
Family Hack of the Week
One of the treats of carving pumpkins is roasting the seeds afterwards, but removing the sticky pulp from the seeds beforehand can be tricky. Here’s an easy trick that can help: Boil the pumpkin seeds in a salty brine first.
Add 1 cup of pumpkin seeds, 2 cups of water and 2 tablespoons to a medium saucepan. Bring to a boil and then simmer for 10 minutes. Once that’s done, drain and dry the seeds.
Next, coat with olive oil, 1 teaspoon of allspice (or your favorite spice) and a pinch of salt. Spread out on a baking sheet, bake at 400 degrees Fahrenheit for 20 to 25 minutes, and enjoy!
What to Look for This Week
Housing news will be in the spotlight with several key reports ahead. On Monday, we’ll get a read on builder confidence with the National Association of Home Builders Housing Market Index for October. Tuesday look for the latest on Housing Starts and Building Permits when the data for September is released. Then on Thursday, we’ll get an update on Existing Home Sales for September.
Also on Thursday, the latest weekly Initial Jobless Claims remain critical to monitor as the labor sector continues to struggle.
Technical Picture
The Fed’s ongoing purchases of Mortgage Backed Securities continues to provide stability to the markets. Mortgage Bonds remain in a battle with the 25-day and 50-day Moving Averages, which are basically the same level currently. This dual level is an important inflection point and it will be critical to see which direction Bonds breakout. If Bonds break to the upside, there is roughly 27bp of room for improvement. On the other hand, if Bonds move lower from these levels, there is roughly 40bp of room to the downside.