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THURSDAY DATA BUFFET: LUKE WARM, BUT NOT UNDERCOOKED

A spate of indicators appeared to show that the U.S. economy remains on fairly solid ground, despite the note of caution (and lowered projections) from the Federal Reserve.

Last week 223,000 U.S. workers joined the queue outside the unemployment office USJOB=ECI, marking an increase of 2,000 from the previous week and landing just a hair below consensus.

The underlying trend, as expressed by the 4-week moving average of initial claims, is essentially sideways with a slight upward bias.

Initial claims have been range-bound in the 200,000 to 250,000 area for about two years

The mass firings of Federal employees at the hands of billionaire Elon Musk's Department of Government Efficiency (DOGE) are handled in Unemployment Compensation for Federal Employees (UCFE) program, which is reported on a one-week delay.

That number pulled back a bit but remains well above the long-term historic trendline.

Continuing claims USJOBN=ECI, also posted on one-week lag, increased by 1.8% to 1.892 million, echoing recent survey data which shows deteriorating views of the jobs market.

"The number of people who are unemployed but who have exhausted their 26-week entitlement to jobless benefits likely has continued to creep up, and surveys of consumers' confidence are consistent with a rising trend in unemployment," writes Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.

Turning to the housing market, the sales of pre-owned U.S. homes USEHS=ECI unexpectedly increased by 4.2% in February to 4.26 million units at a seasonally adjusted annualized rate (SAAR), according to the National Association of Realtors $(NAR.UK)$.

That's 7.8% higher than economists predicted.

A 5.7% jump in single-family homes drove the gains, offsetting a 9.8% drop in condos/co-ops, which account for a much smaller slice of the pie.

Despite a slight increase of homes on the market, at February's pace it would take 3.5 months to sell every home on the market, unchanged from January.

"Home buyers are slowly entering the market," writes Lawrence Yun, NAR's chief economist. "Mortgage rates have not changed much, but more inventory and choices are releasing pent-up housing demand."

Pivoting to the manufacturing sector, the expansion of factory activity in the Atlantic region has decelerated a bit this month.

The Philadelphia Fed's Business index USPFDB=ECI dropped 5.6 points to 12.5, not quite as steep as the 9.6 point drop analysts expected.

A fairly pronounced slowdown in new orders, and significantly dimmer six-month expectations - likely a reflection of policy uncertainty under Trump 2.0 - were two of the report's more worrisome aspects.

The acceleration of prices paid - an inflation predictor - isn't exactly welcome news either.

Still, it's a cheerier reading than the Empire State's precipitous plunge into negative territory on Monday.

"Manufacturing may be slumping in the nation as a whole, but it is still booming in Philly, according to this index," says Carl Weinberg, lead economist at High Frequency Economics. "However, the 'boom' seems to be cooling on trend."

A negative Philly Fed/Empire state reading indicates monthly contraction, while a number above zero signifies expansion.

Next, the Conference Board's $(CB)$ Leading Economic Index USLEAD=ECI decreased by 0.3% last month, steeper than analysts expected and marking an accelerated decline from January.

The index is an amalgamation of ten forward looking metrics (including initial jobless claims, ISM new orders, yield spreads and S&P 500 price performance, among others).

"The US LEI fell again in February and continues to point to headwinds ahead," writes Justyna Zabinska-La Monica, CB's senior manager of Business Cycle Indicators. “Consumers’ expectations of future business conditions turned more pessimistic."

As a reminder that the stock market and the economy are two different things, the chart below shows the LEI against the S&P 500. While the two historically move in concert, they appear to have diverged toward the end of 2022, around the time the bull market began.

In more ancient news, the current account deficit USCURA=ECI, which accounts for trade, international investment and other transfers of capital, contracted by 2.1% in the fourth quarter.

That narrowing was likely temporary, as imports reached a record high in January as businesses tried to head off expected tariffs.

(Stephen Culp)

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