Recently, we had an election. If nothing else, these tend to move the markets around as analysts try to guess how policies might impact business over the next 4 years. Meanwhile, the Federal Reserve made another decision regarding short-term interest rates. And yeah, COVID-19 is still a thing.
We’ll touch on it all, but before we get there, let’s run through what happened in terms of the data.
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Housing Market Index
Home builders had even more confidence in October setting a new record for the index at 85, up 2 points from September. Current sales were up 2 points to settle at 90.
Meanwhile, sales over the next 6 months had their expectations pushed up 3 points to 88. Finally, while traffic of prospective buyers didn’t change, it was revised higher in September at 74 and held that ground.
Housing Starts and Permits
Housing starts were up 1.9% overall to come in at 1.415 million. However, what was truly encouraging was that single-family starts were up 8.5% to 1.119 million. This is important because it accounts for most starts. Meanwhile, on the multifamily side, these were down 14.7% for the month at 296,000.
When looking at permits, these were up 5.2% overall including a 7.2% uptick in single-family permits, which are up 12.6% on the year. On the downside, permits have fallen 0.9% monthly on the multifamily side. Both starts and permits in this area are down almost 20% since the same time a year ago.
Existing Home Sales
Existing home sales were up 9.4% to 6.54 million, again outperforming typical numbers. Sales are up 20.9% on the year. This is a huge increase in the pace of appreciation, although it’s worth noting that part of this is because home buying season usually doesn’t extend this late.
Supply is down 1.3% at 1.47 million and this is the one thing that can hold it back. Prices were up 0.5% on the month and 14.8% for the year at a median of $311,800, a reflection of limited supply. At the current rate of sales, there are only 2.7 months’ worth of supply on the market. It’s very much a seller’s market.
Across the nation, the gains are about even in terms of sales as well. There’s no doubt that low mortgage rates have had an effect. Vacation spots like Lake Tahoe and Myrtle Beach standout as especially strong markets in the new work-from-home reality we find ourselves in.
New Home Sales
In contrast to existing-home sales, new-home sales took a step back in September, but they remained very elevated. After coming in at an initial estimate of more than 1 million in August, that number was revised down to 994,000. September numbers fell a further 3.5% to 959,000. Still, sales are up 32.1% compared to the same time last year.
Prices were up 1.4% on the month at $326,800, which is up 3.5% since last year. However, this is down 1.5% since February at the beginning of this craziness.
In contrast to existing home sales, supply of new homes on the market was up 5,000 at 286,000. Given the sales pace, supply is at 3.8 months compared to 3.4 months in August.
Durable Goods Orders
Durable goods orders were up 1.9% in September, which amounted to $237.1 billion in overall sales, well above expectations. When transportation was taken out, sales were up 0.8%, while capital goods orders were up 1%. The latter is a key proxy of business activity.
Commercial aircraft orders were up $1.8 billion. It’s only the second time orders haven’t gone down with people not traveling anywhere. Overall transportation orders were up 4.1% as there was also a $1 billion uptick in vehicle orders. Meanwhile, inventories were up 0.4% in a sign that businesses expect more ordering soon.
On the downside, the number of unfilled orders is also falling which means that businesses won’t be hiring more people to fill those orders that are backlogged.
Case-Shiller House Price Index
There are a few factors that distinguish this from the Federal Housing Finance Agency (FHFA) index that we’ll talk about next: The first is that it covers 20 cities as opposed to FHFA’s countrywide coverage. However, this covers homes financed with all types of loans as opposed to FHFA which is conventional loans from Fannie Mae or Freddie Mac. Finally, this one is a 3-month average.
All that said, home prices were up 0.5% on a seasonally adjusted basis across the 20 metros covered in August. This amounted to a 1.1% overall increase in prices for the month and 5.2% for the year. It’s the best pace of appreciation in 15 years, which shows the effect that low mortgage rates are having.
FHFA House Price Index
Prices were up 1.5% month-to-month and 8% on the year in August for homes backed by conventional loans. In addition to the strongest monthly uptick ever, the 8% pace of appreciation is the highest in 15 years.
Every area showed strong gains from 1.9% in the West South Central region to 0.9% in the East South Central region. Low supply means people are willing to pay more for what they can get.
Consumer confidence was down 0.4 points in October to settle at 100.9. This is well below February at 132.6.
On the plus side, current conditions were up almost 6 points to 104.6. Fewer people think jobs are hard to get and slightly more people think jobs are plentiful.
Unfortunately, the downside comes when looking at expectations. These were down 4.5 points and 98.4. More people think plus jobs are going to open up in the next 6 months at 16.1%. Meanwhile, more people also see their incomes decreasing, with the number representing 13% of those surveyed.
Plans to buy homes are up over the next 6 months at 6.6%. However, plans to buy major appliances and vehicles are down. Finally, inflation expectations are at 5.6% in this reading, down from a high of 6.6% in June. When looking at the stock market, 40.6% of people see it rising, but there was also an increase in people who see it dropping in the coming months at 29.4%.
International Trade In Goods
The goods deficit was down $3.5 billion to $79.4 billion this was due to a jump in exports and a drop in imports.
Starting on the export side, food exports were up $12.8 billion or 13.6%. Chinese trade agreements are largely thought to be responsible. Additionally, there was a 3.6% rise in exports of capital goods along with a 2.5% uptick for vehicles. Meanwhile, consumer goods exports were up 1.3%. Overall exports were up 2.7%, which is still down 11.4% from February.
On the import side, these were down 0.2% overall there was an 11.3% increase in vehicle imports, which is up 2% from February. Meanwhile, consumer goods imports over up 9.5% from February despite being down 4% on the month. Capital goods imports were up 1.4% and have gone up 6.7% since pre-pandemic, in a good sign for business investment.
Gross Domestic Product (GDP)
Overall gross domestic product was up 33.1% in initial ratings for the third quarter. Moreover, personal consumption was up 40.7%. This was the anticipated bounce back after the fall precipitated by the second quarter’s local lockdowns to prevent the spread of COVID-19.
Consumer spending alone contributed 25.27% to the growth of GDP as consumers spent a ton more money on both durable and nondurable goods along with services. The growth of residential investment was also strong, adding 2.09% to the GDP number after being up 59.3% compared to the same time a year ago.
Business investment was up 20.3% and added 2.88% to GDP. A downside was government consumption which pulled down GDP by 0.68 points after falling 4.5% in the quarter.
Inventory growth was up 6.62 points, but we imported a lot more than we exported so this pulled GDP down 3.09 points.
Pending Home Sales Index
Pending home sales were down 2.2% to come in at an index level of 130. Importantly, however, this leading indicator of existing home sales was still up 20.5% when compared to last September, so sales should remain strong.
Personal Income And Outlays
Personal incomes were up 0.9% in September, while expenses among consumers were up 1.4%. When looking at inflation, prices were up 0.2% both overall and in core categories for the month. Year-to-year, these metrics have risen 1.4% and 1.5%, respectively.
Looking at spending, it appears that holiday shopping may have started early in anticipation that everything is going to be shipped. This is evident in big gains for apparel spending, although spending on health care and recreation were also up, along with new vehicles.
On the income side, temporary census work was a boost while jobless compensation fell with the expiration of some special benefits related to COVID-19. A lot of this is also dependent on how well we handle the virus.
In the final reading of October, consumer sentiment is up 0.6 points to 81.8 compared to its midmonth rating and has risen 1.4 points since October. It’s noted that this is well below the 101 reading in February.
In terms of inflation, it was unchanged at 2.6% over the next year and down 0.3% to 2.4% in the next 5 years.
ISM Manufacturing Index
In October, data showed that manufacturing grew at a more rapid pace, up almost 4 points to 59.3. New orders were up almost 8 points to 67.9. Meanwhile, backlogs are rising, up 0.5 points to 55.7 in something that should be a good sign for hiring.
Speaking of which, employment measures rose above the breakeven point to 53.2, although this is lower than it could be. Production was strong at 63 with an increase in prices paid of 2.7 points to 65.5, which means demand is strong. Finally, exports were up 1.4 points to 55.7.
International Trade In Goods And Services
The overall trade deficit was down $3.1 billion to come in at $63.9 billion. There was a 2.6% uptick in exports to go along with a 0.5% rise in imports. However, it’s worth noting that exports are down 15.9% since February, while imports have only fallen 2.6%. However, on the year, imports are down 24.1% and exports have fallen 24.7%, about even.
Food exports were up 13.6% at $12.9 billion, as soybean exports were way up. There was a 1.5% increase in imports of capital goods, which is a good sign for business investment despite adding to the deficit.
There were 638,000 jobs added to nonfarm payrolls in October and the unemployment rate fell 1% to 6.9%. Breaking down the numbers a bit further, 906,000 jobs were added to private payrolls with 268,000 jobs being removed from government payrolls, mostly due to a wind down of the census.
There were 38,000 jobs added in manufacturing, which was below expectations. On the construction side, payrolls were up 84,000 there were also 271,000 jobs added in leisure and hospitality. Meanwhile, there were 108,700 jobs added to temporary payrolls. Retail gains were 103,000 and healthcare and social assistance were up 79,000.
In another helpful sign, the labor force participation rate was up 0.3% at 61.7%. Average hourly earnings were up just 0.1% in the have risen 4.5% on the year. The average workweek stayed the same at 34 hours, 48 minutes.
MBA Mortgage Applications
Applications remain high for mortgages, supported by low mortgage rates, which were down to the lowest level ever seen in this index at 2.98% for a conforming 30-year fixed.
Applications to purchase were up 16% compared to a year ago, while they’ve increased by 67% on the refinance side.
Consumer Price Index (CPI)
Prices were flat both overall and when taking out food and energy for the month. On the year, prices are up 1.2% overall and 1.6% when excluding those categories. This is well below the 2% inflation goal set by the Federal Reserve.
The cost of the shelter was up 0.1%, while medical services fell 0.3% in October. Motor vehicle insurance was down 2.3%, and the cost of apparel fell 1.2%. Tobacco prices fell 0.2%. Meanwhile, food and energy were up 0.1 and 0.2%, respectively.
Producer Price Index (PPI)
Prices on the production side were up 0.3% on the month and have only risen 0.5% on the year. When food and energy were taken out, the level was up 0.1%, but has risen 1.1% since last October. Finally, when excluding retail and wholesale sales, prices were up 0.2% on the month and 0.8% on the year. This is all very soft growth.
There were multiple things coming together to create movements in the markets last week. There was the Federal Reserve meeting at which nothing really changed in terms of short-term interest rates. However, there was also an election last week and it was one in which we didn’t get a result right away. Anything like that causes volatility.
All that said, mortgage rates did move higher last week on the heels of what appears to be more optimism in the stock market and money moving out of bonds. They still remain incredibly low if you’re looking to purchase or refinance.
The average interest rate on a 30-year-fixed mortgage with 0.7 points paid and 20% down was 2.84%, up six basis points to 2.84%. At this time last year, the rate was 3.75%.
With the same down payment and 0.6 points paid in fees, the average 15-year fixed mortgage was up a couple of basis points to 2.34%. This has fallen from 3.2% a year ago.
Finally, a 20% down payment on a 5-year treasury-indexed, hybrid adjustable rate mortgage with 0.4 points paid was 3.11%, up 22 basis points on the week, but down from 3.44% last year.
Investors are placing some bets. One of them is the fact that the economy will recover in a big way next year following the availability of a vaccine. That was the explanation for Friday’s gains, and more broadly, the reasoning behind an uptick in the markets in the past month.
The Dow Jones Industrial Average was up 3.05% for the month after rising 399.64 points Friday to close at 29,479.81. Meanwhile, the S&P 500 finished at 3,585.15, up 48.14 points Friday and 2.91% for the month. Finally, the Nasdaq was up 119.7 points at 11,829.29, up 1.35% month to month.
1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2020 Econoday, Inc. All rights reserved.
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