Monday Economic Report: 10-Year U.S. Treasury Yields Hit a Two-Year High

AICC, through its membership in the Council of Manufacturing Associations, is pleased to present the "Monday Economic Report" from the NATIONAL ASSOCIATION OF MANUFACTURERS (NAM).

By Chad Moutray, Ph.D., CBE – February 24, 2022

NAM Monday Economic Toplines: 

Market yields on U.S. Treasury securities hit 1.87% last Tuesday, the highest since Jan. 8, 2020, or before the pandemic began. Financial market participants have begun to process expectations of three to four rate hikes by the Federal Reserve in 2022, with consumers and businesses more concerned about inflationary pressures. As a result, yields have drifted higher. (To be fair, yields slipped somewhat later in the week but remained elevated.)   All eyes will be on the Federal Open Market Committee this week, with analysts looking for additional clues regarding upcoming monetary policy moves following its Jan. 25–26 meeting. The Federal Reserve is expected to wrap up its asset purchases by March, and it could start increasing the federal funds rate as soon as the March 15–16 meeting.   New housing starts rose 1.4% to 1,702,000 units at the annual rate in December, extending the 8.1% gain in November and the best reading since March. Housing construction has been challenged by rising building costs, affordability issues and difficulties in finding workers, and single-family housing starts declined 2.3% to 1,172,000 units.   Fortunately, builders remained optimistic about the coming months, with solid sales growth expected over the next six months despite ongoing concerns, even with a slight easing in the latest NAHB Housing Market Index.   Along those lines, housing permits jumped 9.1% to an annualized 1,873,000 units in December, an 11-month high. As such, it was not far from the January 2021 reading (1,883,000 units), which was the strongest since May 2006. These data suggest that housing construction should improve over the coming months.   Nonetheless, existing home sales fell 4.6% to 6.18 million at the annual rate in December, a four-month low. Even with weaker data at the end of the year, the annual pace of existing home sales in 2021 was the strongest since 2006.   There were 1.8 months of unsold inventory for existing homes on the market in December, which was a record low. The median sales price for existing homes has jumped 15.8% year-over-year, up to $358,000. That is not far from the record price recorded in July ($359,500).   The two regional manufacturing Federal Reserve Bank surveys in January provided mixed results. In New York, activity contracted for the first time since June 2020, with declining new orders and slowing shipments and employment. In contrast, Philadelphia Fed respondents reported a rebound in January after slowing materially in December.   Both surveys noted ongoing challenges with supply chain constraints, and input costs remained highly elevated. In the Philly Fed survey, respondents expected raw material costs to jump 8.9% on average in 2022, with wages rising 4.9%. Respondents predicted overall compensation, including wages and benefits, to increase 6.4% this year on average.   Initial unemployment claims increased to 286,000 for the week ending Jan. 15, a 13-week high, with continuing claims also rising. This likely reflects the impacts of rising omicron cases, even as the data continue to reflect a labor market that has improved mightily over the past year.   The latest Household Pulse Survey from the Census Bureau found that 8.8 million Americans, or 8.2% of all adults who were not working between Dec. 29, 2021, and Jan. 10, 2022, were out of work because they were caring for someone or sick from coronavirus symptoms. In addition, another 5.0%, or 5.3 million Americans, were caring for their children who were not in child care or school, and 3.0%, or 3.2 million adults, were not working because they were concerned about getting or spreading the virus. READ FULL REPORT