Flat. That’s how I would characterize my team’s performance yesterday in the football game and it’s also how I feel on this sleepy, rainy Monday afternoon. Several of the economic reports that came out last week were also just as flat. However, indicators show the economy growing at a strong rate.
Let’s jump into the headlines.
S&P CoreLogic Case-Shiller HPI
Home prices were up only slightly in July, rising 0.1% on a seasonally-adjusted basis in this survey. Prices rose 0.3% overall and are up 5.9% on the year, although the annual pace of appreciation is down 0.5% from where it was in August of last year.
Prices were down 0.5% on the month in New York City, and Chicago was down 0.1% as well. Boston and Dallas were also down on the month. Meanwhile, prices in Los Angeles and San Diego were flat.
Portland and Seattle have been consistent high risers, but they were only up 0.2% and 0.3%, respectively. Las Vegas is the high outlier, up 1.1% on the month and 13.7% on the year.
Speaking of yearly rates, Seattle comes second, up 12.1%, followed by San Francisco, up an annual 10.9%. On the other side, Washington D.C. is up only 2.8%, trailing Chicago and New York, which come in at 3.1% and 3.5%.
FHFA House Price Index
Home price appreciation was also weak in the data gathered by the Federal Housing Finance Agency for July. Prices were up 0.2% on the month, and the annual rate of appreciation was down 0.4% to 6.4%, although it’s a little better than the S&P index.
Four of the nine census regions measured have monthly declines in housing prices. The East South Central region was at the very back, down 0.5%, while the Mid-Atlantic was at a 0.2% monthly decline. New England and the West South Central region both saw prices fall 0.1%.
The South Atlantic region saw a monthly gain of 1.1%. All other regions were flat or had very slight increases.
Turning to annual rates, prices in the Mountain region are highest, up 8.7% on the year. The Pacific has seen a 7.9% yearly increase, followed by the South Atlantic, up 7.3%. New England trails the field, up 4.7% with the Mid-Atlantic just ahead of it at 5.1% annually.
Consumer confidence was up 3.7 points to come in at 138.4 in its September reading. This gain is on top of August readings being revised higher, up an additional 1.3 points to 134.7. The September number represents the highest reading for the index in 18 years.
Where things seem a little more mixed for consumers is in the labor market. On one hand, 45% of consumers say jobs are plentiful, a number that’s up 3.4% on the month. People also think business conditions are good, which brought up the present situation portion of the metric by 0.3 points to 173.1. On the other hand, an additional 1.1% of people think jobs are hard to get, representing a total of 13.2% of the consumers surveyed.
In terms of future expectations, 22.6% of people see their incomes improving over the next six months, but this is down 2.8%. However, 0.4% less people see their incomes falling in the near term. Consumers do see labor and business conditions improving in the near future as this is up 6 points.
Buying plans for homes are up 0.3% to 6.6% who plan to buy in the near future. In terms of car buying plans, that’s up 0.4% to 13.4% overall. Despite being down slightly, buying plans for major appliances are still strong at 52.9%.
In terms of interest rates, 68.2% of people see them increasing in the future, while 6.8% saw them decreasing. (Spoiler alert for the mortgage rates section: The majority were right.) An additional 2.7% of people believe the market will be moving higher, at 42.5%, while the number who see it going down fell 1.3% to 22.4%.
MBA Mortgage Applications
Overall applications were up 2.9% as applications to purchase and refinance were both up 3%.
The increase occurred despite the average interest rate being up nine basis points to 4.97% for a 30-year conforming mortgage. The number of people looking to refinance was slightly higher as a percentage of overall volume, up 0.4% to 39.4%.
New Home Sales
New home sales were up 3.45% overall in August to come in at 629,000 on a seasonally-adjusted annual basis. However, there was a big downward revision in July, which was pushed down to 608,000 from 627,000.
Part of the reason for the gain may have been lower prices, as these were down 2.4% to come in at a median of $320,200. Year on year, prices are only up 1.9%, while there has been a 12.7% uptick in sales of new homes.
Supply was 1.6% higher, with 318,000 homes on the market. Supply relative to sales was down slightly, coming in at 6.1 months at the current sales pace. Still, the market is pretty much in balance between builders and buyers at this point.
Sales in the West are up 9.1% and 19.1% on the year. Meanwhile, the Midwest was up 2.7% and 13.2% annually. In the South, sales were down 1.7%, but have risen 11.5% on the year. Finally, there were 48% more homes sold in the Northeast than there were last month. However, this is a little skewed because the Northeast is the nation’s smallest housing region.
Durable Goods Orders
Durable goods orders were up 4.5% on the month of August. Most of the increase came from the transportation category. When it was taken out, orders were only 0.1% higher. Worse still, orders for core capital goods were down 0.5%.
A big reason for the gain was a 108% uptick in orders for civilian aircraft. These orders are very volatile though, because they were down 41% in July. Motor vehicle orders were down 1%, while machinery orders were only up 0.1%. Computers and electronics orders were down 0.5% and orders of fabricated metal were flat.
Other gainers included primary metals, up 0.9% and communications, which rose 0.7%. Although core capital goods orders dropped, it was up 1.5% in July. Shipments were up 0.1% in the category for August. There’s also a 0.9% increase in unfilled orders, which should be good for employment prospects in the near future.
Gross Domestic Product (GDP)
The economy grew at a rate of 4.2% on a seasonally-adjusted annual basis in the final reading of the second quarter. Consumer spending was also up 3.8% over the timeframe.
Nonresidential fixed investment was up 0.2% from the last estimate to come in at 8.7% overall, while residential investment was downgraded by 0.3% for a total fall of 1.4% on the quarter. Meanwhile, inventories were in a slightly bigger downturn, while net exports continued to be a major positive in the reading with a small change from prior estimates.
Prices were up 3% over the course of the second quarter on a seasonally-adjusted basis.
International Trade in Goods
The nation’s goods deficit increased by $3.7 billion in August to come in at $75.8 billion. Exports were down 1.6%, while there was a 0.7% uptick in imports.
Exports from the nation’s farmers fell 9.5% to a total of $11.9 billion after they had already fallen 6.3% in July. Industrial supply exports were down 5.9% to $43.8 billion. Meanwhile, vehicle exports were down 2.8% at $12.7 billion. The news wasn’t all bad as exports of consumer goods were up 10.3% to $17.6 billion, while exports of capital goods were up 0.3% to come in at $46.5 billion.
On the import side, there was a 3.2% uptick in vehicle imports to $231.7 billion. Consumer goods imports rose 1.3% to $53.3 billion, while capital goods did fall 0.9% to $57.6 billion. Meanwhile, agricultural products imports were down 1.2% to $12.3 billion.
The first economic effects of Hurricane Florence are now being felt in this week’s economic data. Initial jobless claims were up 12,000 last week to come in at 214,000. A substantial reason for this increase was that claims were up 8,000 from normal averages in North Carolina and 1,900 above the usual levels in South Carolina. Still, these are extremely low levels. The four-week average also increased by only about 250 claims to come in at 206,250.
Meanwhile, continuing claims were up 16,000 to 1.661 million. However, the four-week average was down 13,000 to come in at 1.679 million, which is a low not seen in 46 years.
Pending Home Sales Index
The number of existing homes under contract for sale was down 1.8% in August, according to this metric from the National Association of REALTORS®. The index level is at 104.2.
Purchase agreements were down the most in the West, where they’ve fallen 5.9% on month and 11.3% on the year. The South is the only region with monthly gains, up 1.3%. Even here though, overall pending sales are down 2.3% annually.
Personal Income and Outlays
This report shows mixed news for consumers in August. Personal incomes were up 0.3%. That money was poured back into the economy as consumer spending was up by the same amount in August. Consumers were able to get more for their money though, as prices have increased by only 0.1% overall and remained unchanged in core categories. On an annual basis, prices have risen 2.2% and are up 2% in core categories, which is exactly where the Federal Reserve would like to see it.
Digging deeper, core inflation is the lowest it’s been since last year and overall prices appreciated at a pace below expectations.
Meanwhile, on the income side, wages were up 0.5%, but this was 0.2% when inflation and taxes were considered. There was also a decline in interest income and only a small increase in dividend income. The savings rate remained at 6.6%, unchanged from July.
Spending on durable goods was down 0.1% due to decreases in car and truck sales, while nondurable goods were up 0.5%. Higher energy prices were the culprit there. Services spending was up 0.4%. Spending was up 0.2% after inflation.
Consumer sentiment was down slightly from the midmonth reading, coming in at 100.1 to end September. However, this is almost four points higher than where consumers ended August.
Income expectations are the highest they’ve been since 2004. In part, this is due to lower inflation expectations. Consumers believe their dollars will go further. Although consumers are concerned about the long-term effects of tariffs, they generally see the economy growing and unemployment on the run at the moment.
Consumers expect inflation to be about 2.7% over the next year, down 0.1% from midmonth levels. On the other hand, five-year expectations were up by the same amount to come in at 2.5%.
Mortgage rates continued to climb last week as the Federal Reserve raised short-term interest rates 0.25% to a range of 2% – 2.25%. The committee also stopped saying the current monetary policy was “accommodative,” meaning they view interest rates starting to normalize. The short-term interest rate is expected to be around 3.4% in 2021, according to the most recent projections in the closely tracked dot plot, before coming back to around 3% in the long term.
Although short-term rates aren’t directly related to longer-term rates for things like mortgages, the rate on a 30-year fixed conforming mortgage tends to run around 2% higher than the short-term rate.
Although last Wednesday’s rate hike was well telegraphed and already accounted for when it came to setting interest rates, the increase didn’t help. Mortgage rates continue to move higher. If you’re in the market to purchase or refinance, it’s not a bad idea to lock your rate at this point.
The average interest rate on a 30-year fixed mortgage with 0.5 points paid in fees was up seven basis points to 4.72% last week. This is up from 3.83% a year ago.
Taking a look at shorter terms, a 15-year fixed mortgage with 0.5 points paid was up five basis points to 4.16%. Last year at this time, the average rate was 3.13%.
Finally, on a 5-year treasury-indexed hybrid adjustable-rate mortgage (ARM) with 0.3 points paid for its average rate increase five basis points to 3.97%. Last year, the average rate was 3.2%.
The S&P 500 was up 7.2% in the third quarter, the best quarterly gain it’s seen since 2013. Strong quarterly results across the index were given credit for the increases.
In terms of market movement on Friday, stocks didn’t move around too much. Traders are still concerned over ongoing trade tensions. There’s still negotiation to try and get Canada to sign a new North American Free Trade Agreement (NAFTA).
With the markets being in such good shape, if you’re in our Fantasy Stock League, your portfolio is probably doing pretty well at this point. If you’re not in yet, it’s not too late to get started. There are prizes given for the best gains every other month and for the best overall gains at the end of the year.
The Dow Jones industrial average was up 18.38 points on the day to close at 26,458.31. This was down 1.07% on the week. The S&P 500 closed at 2,913.98, down 0.02 points on the day and 0.54% on the week. Finally, the Nasdaq gained 0.74% on a weekly basis, closing at 8,046.35 after rising 4.39 points on the day.
The Week Ahead
Monday, October 1
ISM Manufacturing Index (10:00 a.m.) – This index measures the general direction of manufacturing within the U.S. The qualitative survey of purchasing managers looks at production, new orders, order backlogs, inventories and supplier deliveries, among other factors.
Wednesday, October 3
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, October 4
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, October 5
Employment Situation (8:30 a.m. ET) – The employment situation report measures unemployment in the labor force as well as the sentiments of workers about the job market.
In terms of volume of economic data, this week has nothing on last week, but there are a couple of heavy hitters in terms of the manufacturing report and the always closely-watched employment situation report. We’ll have it all covered for you in next week’s Market Update.
This post is always a ton of numbers for a Monday afternoon. If it’s not your idea of light reading, I can’t say I blame you. Fortunately, we’ve got plenty of home, money and lifestyle content to share with you if you subscribe to the Zing Blog below. As the leaves change, here are some fall decor tips from the pros. Have a great week!
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