MBS MID-DAY: Positive And Relatively Steady Despite Volatility In Stocks

MBS Pricing Snapshot

- Factory Orders +0.8 vs 0.0 Consensus
- Durable Orders revised up to 0.5 from 0.0

New orders for manufactured goods in October, up three of the last four months, increased $3.8 billion or 0.8 percent to $477.6 billion, the U.S. Census Bureau reported today. This followed a 4.5 percent September increase. Excluding transportation, new orders increased 1.3 percent.

Shipments, up three of the last four months, increased $1.9 billion or 0.4 percent to $482.3 billion. This followed a 0.7 percent September increase.

Unfilled orders, up four of the last five months, increased $2.8 billion or 0.3 percent to $982.9 billion. This followed a 0.1 percent September increase. The unfilled orders-to-shipments ratio was 6.25, up from 6.24 in September.

Inventories, up four consecutive months, increased $0.5 billion or 0.1 percent to $616.0 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.6 percent September increase. The inventories-to-shipments ratio was 1.28, unchanged from September.

- Headline NMI 54.7 vs 53.5 Consensus
- Business Activity 61.2 vs 55.0 consensus
- Employment 50.3 vs 54.9

" The NMI™ registered 54.7 percent in November, 0.5 percentage point higher than the 54.2 percent registered in October. This indicates continued growth at a slightly faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 61.2 percent, which is 5.8 percentage points higher than the 55.4 percent reported in October, reflecting growth for the 40th consecutive month. The New Orders Index increased by 3.3 percentage points to 58.1 percent. The Employment Index decreased by 4.6 percentage points to 50.3 percent, indicating growth in employment for the fourth consecutive month but at a slower rate. The Prices Index decreased 8.6 percentage points to 57 percent, indicating prices increased at a slower rate in November when compared to October. According to the NMI™, 11 non-manufacturing industries reported growth in November. Respondents' comments are mixed; however, the majority of survey respondents reflect a cautious optimism about current economic conditions."

Equities markets and bond yields moved higher during the Asian session as China lifted a ban on insurance company investment into commercial banks. The Shanghai composite subsequently surged nearly 3%, leading other stock averages higher.

Domestic stocks have retained a good portion of their overnight gains, but the risk rally following China's news certainly hit a wall in the European session. The first big impact came from a rather weak Spanish debt auction which brought the biggest losses of the session for the Euro and the coincided with the biggest move lower in 10yr Treasuries. The reversal was helped along by lower-than-expected Retail Sales in the Eurozone, but mitigated to some small extent by better-than-expected service-sector PMIs.

Bond markets generally maintained a more even-keeled tone throughout the overnight events with early pre-market domestic trading providing another boost for Treasuries, this time getting 10yr yields close to 1.59 just before 7am.

10's and MBS both opened in line with yesterday's latest levels and extended gains at a moderate pace without much regard for weaker-than-expected ADP Payrolls data or the mixed results from the Productivity and Costs report. We're holding gains for now, with 3.0s are up 3 ticks at 105-14 and 10yr yields are down just over 1 bps to 1.594. S &P's rose briefly at the open, but have since fallen back to within a point of yesterday's close.

- Productivity +2.9 vs +2.7 Consensus, most since Q310
- Labor Costs -1.9 vs -0.9 Consensus, most since Q411



Nonfarm business sector labor productivity increased at a 2.9 percent annual rate during the third quarter of 2012, the U.S. Bureau of Labor Statistics reported today. The increase in productivity reflects increases of 4.2 percent in output and 1.3 percent in hours worked. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the third quarter of 2011 to the third quarter of 2012, productivity increased 1.7 percent as output and hours worked rose 3.5 percent and 1.8 percent, respectively.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers. The measures released today were based on more recent source data than were available for the preliminary report.

Unit labor costs in nonfarm businesses declined 1.9 percent in the third quarter of 2012, while hourly compensation increased 0.9 percent. Unit labor costs rose slightly, 0.1 percent, over the last four quarters.

BLS defines unit labor costs as the ratio of hourly compensation to labor productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them.

- Private Payrolls +118k vs +125k Consensus
- October Payrolls Revised To 157k From 158k

Carlos A. Rodriguez, president and chief executive officer of ADP, said, “This month’s ADP National Employment Report shows an increase of 118,000 new jobs in November. Today’s report shows that year-to-date employment gains averaged 135,000 jobs per month.”

Mark Zandi, chief economist of Moody’s Analytics, said, “Superstorm Sandy wreaked havoc on the job market in November, slicing an estimated 86,000 jobs from payrolls. The manufacturing, retailing, leisure and hospitality, and temporary help industries were hit particularly hard by the storm. Abstracting from the storm, the job market turned in a good performance during the month. This is especially impressive given the uncertainty created by the Presidential election and the fast-approaching fiscal cliff. Businesses appear to be holding firm on their hiring and firing decisions.”