Today’s Data Signals Economic Cooling

Rates fall as data shows a gradual slowdown. Swap rates and Treasury yields fell 7-10bps across the curve today after labor market and industrial production figures showed the effects of Fed hikes in action. Continuing claims for US unemployment benefits rose to the highest level in nearly two years and initial jobless claims were the highest since August. Meanwhile, industrial production slowed and was lower than forecasted, another catalyst for calls to end the hiking cycle.

US Industrial Production falls in October. October data showed a 0.6% MoM industrial production decline versus a 0.4% estimated dip and last month’s 0.3% growth. Excluding mining and utilities, factory output declined 0.7%, weighed down by a 10% drop in motor-vehicle production. Capacity utilization also decreased to 77.2%, a YTD low. The decline in auto output was largely driven by UAW strikes that started in September, though automakers and unions reached tentative agreements in late October, which could lead to a rebound in factory output in November. Looking ahead, the latest Fed poll of NY-area manufacturers revealed less new-order volume and growing economic concerns.

Fed’s Mester not sold on Fed pivot. Cleveland Fed President Loretta Mester warned today that she remains unconvinced that the central bank has defeated inflation. Though she cited the most recent CPI print as “discernable” progress, she maintained that “we need to see more of that… we’re going to have to see much more evidence that inflation is on that timely path back to 2%.” Mester remains unclear on the path forward, though she dismissed rate cuts and argued “it’s really about how long do we stay in a restrictive stance and perhaps have to go higher given what happens in the economy.”