LIVE MARKETS-Same Auld Lang Syne: first data of the year picks up on last year's themes

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SAME AULD LANG SYNE: FIRST DATA OF THE YEAR PICKS UP ON LAST YEAR'S THEMES

Investors kicked off the new year with a smattering of data which shows the U.S. economy is weathering a mild winter.

Last week, 211,000 U.S. workers joined the queue outside of the unemployment office USJOB=ECI, a 4.1% drop from the previous week and 11,000 fewer than analysts expected.

It was also the lowest reading since mid-May.

And the underlying trend, as expressed by the four-week moving average of initial claims, is easing.

And a while shorter unemployment line is generally a reason to be cheerful, a robust labor market is hardly going to provoke Powell & Co to recommence their rate-cutting any time soon.

Ongoing claims USJOBN=ECI, reported on a one-week delay, dropped 2.7% to 1.84 million.

The data are "consistent with a labor market that is strong enough to allow the Federal Reserve to proceed with rate cuts at a more measured pace in 2025," says Nancy Vanden Houten, lead U.S. economist at Oxford Economics.

"The level of initial claims is consistent with a relatively low pace of layoffs, and while the level of continued claims suggests unemployed workers face some challenges finding new work, the recent decline in continued claims is encouraging."

Next, outlays on construction projects USTCNS=ECI were, on balance, unchanged in November, according to the Commerce Department.

While that's a downside surprise compared with the 0.3% consensus, the number stands on the shoulders of October's upwardly revised 0.5% gain.

Drilling below the headline, spending on private and public projects canceled each other out, with the former rising 0.1% and the latter falling by 0.1%.

The closely watched residential segment rose 0.1%, significantly slower than its 1.4% jump the month prior, a slowdown that aligns with the National Association of Home Builders' sentiment index, which has wallowed in pessimist territory since April.

Elsewhere, S&P Global unveiled its final take on its December purchasing managers' index USMPMF=ECI, which showed that while factory activity is still hovering just below 50 at 49.4, the picture has improved from the preliminary 48.3 reading released a few weeks ago.

A PMI reading south of 50 indicates monthly contraction.

"US factories reported a tough end to 2024, and have scaled back their optimism for growth in the year ahead," says Chris Williamson, chief business economist at S&P Global.

"Many firms are generally anticipating that business will pick up in the New Year, with respondents pinning hopes on expectations that the new administration will loosen regulations, reduce tax burdens and boost demand for US-made goods via tariffs."

The Institute for Supply Management (ISM) is expected to release its December factory PMI data on Friday, which is seen holding steady at 48.4.

Finally, the cost of financing home loans climbed higher over the last two weeks, and would-be borrowers weren't having it.

The average 30-year fixed contract rate USMG=ECI rose 8 basis points to 6.97%, according to the Mortgage Bankers Association (MBA).

That's the highest it's been since mid-July.

Consequently, applications for loans to purchase homes USMGPI=ECI slid 6.8% while refi demand USMGR=ECI tumbled 23.4%.

"Not surprisingly, this increase in rates – at a time when housing activity typically grinds to a halt – resulted in declines in both refinance and purchase applications," writes Mike Fratantoni, chief economist at MBA.

With this most recent gain, the 30-year fixed rate is now 21 bps warmer than the same week last year.

Over the same time frame, demand for loans to buy homes has softened by 2.8%, while refi applications are up 10.3%.

(Stephen Culp)

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