This weekend, lots of corned beef was consumed in celebration of St. Patrick’s Day. There was a lot of basketball on TV and there’s about to be a lot more. Did your team make the tournament? My alma mater didn’t, but my brother graduated from the University of Michigan and my sister goes to Michigan State, so it was interesting in our house yesterday when they played for the third time this year. Good luck to your teams!
There was just as much market news that came out last week, so let’s jump in.
After a dismal December report in which sales dropped 1.6% on the month, retail sales were up 0.2% in the month of January, beating expectations for a 0.1% increase. The gain would’ve been stronger had weaker auto sales been removed. Sales would’ve been up 0.9% on the month. Low gas prices didn’t help either. When these were removed, sales were up 1.2%. In the final topline number, sales in a control group were up 1.1% in January.
Sales of general merchandise were up 0.8% in January. Non-store retailers, which include e-commerce like Amazon and Etsy, were up 2.6% after sliding 5% in December. There are big month-to-month swings throughout the report in several categories.
However, analysts are still inclined to blame a large portion of this on the government shutdown impacting numbers at the end of the year. Consumer confidence was certainly down over the same period.
One negative in this report is that the number originally released for December was a 1.2% growth. The 1.6% drop represents a further downward revision which won’t bode well for fourth quarter GDP reports.
Consumer Price Index (CPI)
This measure of consumer inflation was up 0.2% after being flat in January. On the year, inflation is up 1.5%. Energy prices actually helped push inflation up last month as when these were taken out, inflation was only up 0.1%. Despite this, when the categories are taken out on an annual basis, inflation is actually higher overall, up 2.1%.
Housing cost makes up almost half of the overall index and slower appreciation here does mean that overall inflation is a bit slower. Housing costs were unchanged, being only up 0.2% overall on the year despite homeowner expenses and renter expenses both being up 0.3%. The cost for lodging away from home was also 1.3% on the month.
Notably, the cost of medical care was down 0.2% on the month. The cost of physician services was up slightly, but the price of hospital services and prescriptions were down 0.7% and 1%, respectively.
The cost of food was up 0.4%, while the cost of recreation fell by the same amount. Communications costs were flat.
Quicken Loans Home Price Perception Index (HPPI)
Continuing a recent trend, homeowners and appraisers were further apart in their perceptions of home value, with home values coming in 0.5% below homeowner estimates in February. Despite this, homeowners are still seeing higher values than they expected in 62% of the metro areas surveyed.
In regional data, homeowners in the West are closest to the actual appraised value, overestimating by just 0.22%. Meanwhile, in the South and Northeast, consumers overvalued homes by 0.4% and 0.48%, respectively. Homeowners in the Midwest are a little further from the pack, overvaluing homes by 0.79%.
Meanwhile, in terms of city data, Boston homeowners have the hottest market relative to their estimates, with appraisals coming in 2.51% above expectations. The Windy City is at the other end of the spectrum, overestimating by 0.79%. Homeowners in Riverside, California are closest, with values coming in just 0.02% below their estimates.
Quicken Loans Home Value Index (HVI)
Home values were up 0.05% in February and have gone up 5.47% on the year. While this is a faster price uptick annually than we’ve seen recently, the gains were a bit uneven. This is illustrated in the regional data.
Values in the Northeast were up 0.5% on the month, and they’re up 4.8% on the year. Meanwhile, values out West were up 0.33% in February and 5.6% annually. Values in the Midwest were down 0.25% and up 3.72% since the same time a year ago. Values in the South were down 0.56%, but up 5.28% on the year.
MBA Mortgage Applications
Helped no doubt by the fact that mortgage rates were lower – the average rate on a 30-year fixed conforming loan last week was down three basis points to 4.64% in this report – overall mortgage applications were up 2.3%.
Purchase applications were up 4% and refinance applications fell 0.2% on the week. At this point, many finances make up only 38.6% of total applications.
Durable Goods Orders
There’s a lot of data giving conflicting signals. New orders for durable goods were up 0.4% on the month, with the transportation category being largely responsible for the gain as these were down 0.1% when transportation was taken out. However, there was also strength shown in the core capital goods category, which is up 0.8%.
While the orders of cars were down 1% in January, it appeared to be made up for by a gain in aircraft orders which rose 16%. Analysts say they’ll have to keep an eye on how the controversy over the crashes of Boeing’s newest 737 end up affecting future reports.
Digging a little deeper, orders for machinery were up 1.4%, while there were also strong gains for electrical equipment computers and communications equipment, which all contribute to the strong capital goods number.
Unfilled orders were up 0.1% in January, while inventory continues to rise despite declining shipments. It’s something to keep an eye on.
Producer Price Index (PPI)
Producer prices were up 0.1% and 1.9% on the year, narrowly missing expectations for a 0.2% increase. Prices paid are up 1.9% on the year. Lower prices for food and energy have kept that number down a little bit is when these categories are excluded, inflation was the same for the month, but is up 2.5% on the year. When trade services were further removed, the monthly number again matched. But it’s up 2.3% on the year.
Trade services were down 0.4% on the month. Meanwhile, total services are unchanged. Cost for transport services were down 1.3% on the month.
On the goods side, prices for producers were up 0.2%. Light truck prices fell and food prices were down 0.3%, but energy prices were up 1.8%.
Initial jobless claims were up 6,000 last week at 229,000. The good news is that the 4-week average was down 2,500 to come in at 223,750.
On the continuing claims side, these are down 18,000 to 1.776 million. Meanwhile, the 4-week average fell 1,000 to come in at about 1.766 million.
New Home Sales
New home sales were down 6.9% on a seasonally-adjusted annual basis to come in at 607,000 in January. However, this was expected, and this report is considered very volatile. Looking at the 3-month average sales are up to 19,000 to come in at 629,000.
Sales of new homes in the West were up 27.8% for the month to 184,000 in January. While this still means that sales are down in that market on the year, it’s a welcome sign for the region which had recently been showing consistent declines. The South was also up 6.1% despite being down 15.1% on the year. Total sales were down 4.1% on the year, something that’s being partially attributed to a slump at the end of 2018.
The decline in January sales meant that’s all those supply in the market was down 1.5% to 336,000 units, supply relative to sales actually went up to 6.6 months from 6.3 months in December. There was a 0.6% downturn in the price of new homes to the median and $317,000. Sales prices are down 3.8% on the year, which may be good or bad, depending on what side of the transaction you represent.
Industrial production grew at a rate of just 0.1% in the month of February. This missed expectations for a 0.4% increase. Worse, manufacturing output fell 0.4% as opposed to the expected 0.4% increase. Capacity utilization on factory floors fell from 78.5% to 78.2%.
The small increase that did occur was in part due to an increase in the output of utility companies, which were up 3.7%. The other key contributor with a 0.3% uptick was mining production.
The key concern is the fact that manufacturing output has seen its second straight decline, which is the first back-to-back downturn since the middle of 2017. Business equipment and motor vehicles were down 1% and 0.1%, respectively.
Consumer sentiment was up exactly 4 points to 97.8 in preliminary reading for March, exceeding all expectations.
Speaking of expectations, this component which asks consumers to look into the future was up almost 5 points to come and 89.2 which is the best reading seen since October. Meanwhile, the current conditions index was up almost 3 points to 111.2.
Inflation expectations were down 0.2% over the next year to come in at 2.4%. However, there was a matching gain in inflation expectations over the next five years, at 2.5%.
Investors like certainty. When there are conflicting pieces of economic data and global turmoil like the ongoing trade negotiations with China and Brexit, investors tend to pull their money out of stocks and put it into safer items like bonds. What does all this translate to? Last week, while the market may have not been so kind to your 401(k), mortgage rates benefited.
If you’re in the market for a mortgage at the moment, consider locking your rate to take advantage of the current environment.
The average rate for a 30-year fixed mortgage with 0.4 points paid in fees was down 10 basis points this week to come in at 4.31%. This is down from 4.44% at the same time a year ago.
Working on shorter terms, the average rate on a 15-year fixed mortgage was down seven basis points to 3.76% with 0.4 points paid. This has fallen from 3.9% last year.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) fell 3 basis points to 3.84% with 0.3 points paid. This is up from 3.67% at this time in 2018.
After quite the fall last week, things were much more optimistic on the stock market last Friday. There was more optimism of a deal between the U.S. and China on trade. The S&P 500 had its best weekly gain since November.
The Dow Jones Industrial Average was up 138.93 points on the day to close at 25,848.87 for a weekly gain of 1.57%. Meanwhile, the S&P 500 rose 2.89% on the week to close at 2,822.48, up 14 points on the day. Finally, the Nasdaq closed at 7,688.53, up 57.62 points on the day and 3.78% on the week.
The Week Ahead
Monday, March 18
Housing Market Index (10:00 a.m. ET) – The National Association of Home Builders produces a housing market index based on a survey in which respondents from the organization are asked to rate the general economy and housing market conditions. The index is a weighted average of separate diffusion indexes, including present sales of new homes, sales of new homes expected in the next six months and traffic of prospective buyers in new homes.
Wednesday, March 20
MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Thursday, March 21
Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The four-week moving average of new claims smooths out weekly volatility.
Friday, March 22
Existing Home Sales (10:00 a.m. ET) – Existing Home Sales tallies the number of previously constructed homes, condominiums and co-ops that were sold during the month. Existing homes (also known as “home resales”) account for a larger share of the market than new homes and indicate housing market trends.
It’s a little bit lighter week in terms of economic data. However, there is a Federal Reserve meeting. No one expects them to raise short-term interest rates this time around, but if there’s anything to report, we’ll cover it in next week’s Market Update!
If you’re feeling a little sleepy this Monday, maybe you’re on the wrong bed. Check out the ultimate guide to mattress shopping from Molly Grace. Have a great week!
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