The Michigan State Spartans are in the Final Four, and if you’ve seen our commercials, you know we couldn’t be more ecstatic. Being headquartered in Detroit, we have a lot of Spartan grads on staff. It’s an exciting time.
Normally, I would tie that back to the economy somehow, but I’ve got nothing, and I didn’t want to start with a dry summary of GDP. So let’s jump in.
Housing starts for February fell 8.7% and revisions for January were sharply lower. Overall, housing starts fell to 1.162 million on a seasonally adjusted annualized basis in February. However, December numbers were quite a bit higher, making for a net gain of 60,000 starts compared to previous numbers for December and January.
Single-family starts were down 17% to an annual rate of 805,000, while multi-family starts jumped up to 357,000 on a yearly basis. In the West, starts fell 9.4% on the year, while in the South they were up 7.8%.
On the permits end, these were down 1.6% in February to 1.296 million. Revisions to previous months were limited to a slight drop. Permits on the single-family side were unchanged at 821,000 annually. On the multi-family side, these are down to 475,000. In regional data, the key regions were again the West and South where permits were down 22% and up 10.7%, respectively.
In a final positive, completions of homes were up 1.1% on the year after rising on the month.
S&P Corelogic Case-Shiller HPI
In the first of two conflicting reports on the state of home prices, things are looking better for buyers and not as hot for sellers at the moment. In this Case-Shiller report, prices were up just 0.1% on a seasonally-adjusted basis and down 0.2% overall. Additionally, the year-on-year rate of price appreciation slowed sharply, falling to 3.6%. This is the lowest it’s been since September 2012.
As we just saw, housing starts are beginning to slow in the West and prices are also tailing off with San Diego and San Francisco growth down for the month and up only 1.3% and 1.7% each on the year. Meanwhile, Chicago prices are rising only at a rate of 2.3%, while Los Angeles follows up 2.9%.
However, if you move further inland from the West Coast, prices in Las Vegas are up 10.5%, followed by Phoenix at 7.5% annual growth. Cities in other regions are reporting in the mid-single digits in terms of appreciation.
FHFA House Price Index
It may be April Fools’ Day, but they don’t necessarily mess around with housing data, which makes it even harder to rectify the difference between the Federal Housing Finance Agency’s data and that of Case-Shiller.
According to the FHFA, home prices were up 0.6% in January and have risen 5.6% on the year. Prices are only up 0.1% in the West, and 4.3% on the year, so there’s some agreement on the slowing in that market. The annual rate of price growth for the overall index is as low as it’s been in 3 years as well. Still, this shows significantly better numbers than its competitor, despite covering the same data. It’s something to keep an eye on.
Consumer confidence fell a sizable 7 points in January. There is some speculation among analysts that consumers are paying attention to what had been low payroll growth numbers for February. The number of consumers saying jobs are plentiful was down 3.7% to 42%. Meanwhile, 2% more people feel jobs are hard to get, still on the low end at 13.7%.
The good news is the number of people looking to buy cars in the next 6 months was up 1.7% to 14.1%, while homebuying plans were up 0.7% to 6.1%. Further, consumers expect inflation to go up, with their estimate of this reading up 0.2% to 4.5% in the future. This may stimulate buying.
However, this wasn’t enough to stem the tide of unfavorable news in this report. The number of people saying the economy is bad is now at 13.6%, up 2.5% from the last measurement. Meanwhile, in the future jobs outlook, there are more people saying there are less jobs ahead and fewer people who believe more jobs will be available in the future.
MBA Mortgage Applications
Rates dropped 10 basis points and the average rate on a 30-year fixed conforming mortgage last week according to the Mortgage Bankers Association was 4.45%. This has had a positive impact on applications.
There was a 12% increase in those looking to refinance, while purchase applications were up 6%. Overall, the index was up 8.9% on the week.
The international trade report showed that the nation’s trade deficit fell by $8.8 billion to $51.1 billion, a much lower than expected result for January.
The goods deficit in particular fell 10.1% from its December result to come in at $73.3 billion. Meanwhile, our surplus in trading services with other nations rose 2.4% to $22.1 billion.
Food exports were up $1.3 billion, while exports of cars and trucks rose $1.2 billion. Meanwhile, on the import side, industrial supply imports were down $2.3 billion, a development blamed on lower oil prices. Not as good from a long-term business investment perspective with the fact that imports of capital goods were down $3 billion.
Gross Domestic Product (GDP)
GDP grew at a rate of 2.2% in the final reading of the fourth quarter. This was a decrease of 0.4% from the last reading of overall economic growth for the end of the year. It’s still considered strong, though.
Consumer spending on the quarter was up 2.5%, down from a prior measurement of 2.8%. There was roughly equal balance between spending on goods and services. Meanwhile, business investment was up 5.4% in a number that’s slightly lower than initial estimates.
Residential investment was down 4.7% and has been in contraction now for a full year. That’s never a great sign for GDP. Meanwhile, government purchases also fell 0.4% in the quarter inventories. Finally, as mentioned above, the nation is still running quite a heavy trade deficit and that’s always a minus for GDP.
Analysts are a bit surprised by just how low inflation is running as it was down 0.1% from the previous fourth quarter estimates to 1.7%. Inflation is pretty low internationally right now as well.
Despite decreased confidence in either the current or future jobs outlook, it’s not showing up in last week’s unemployment data. Initial jobless claims were down 5,000 to come in at 211,000. Meanwhile, the 4-week average was down 3,250 to come in at 217,250.
On the continuing claims side these were up 13,000 to 1.756 million. However, the 4-week average was down 4,250 to come in at about 1.751 million.
Pending Home Sales Index
Pending home sales were down 1% according to this report from the National Association of REALTORS® to come in at an index level of 101.9 for February. Slightly offsetting this, final sales for the month of January were up 11.8% in the existing home market.
However, the total number of existing homes with a purchase agreement in place for sale is now down 4.9% on the year. The drop is steepest in the West, where despite being up 0.5% on the month, the number of contracts for sale is down 9.6% annually.
Personal Income and Outlays (January)
The government is still trying to make up for lost time in releasing economic data after the government shutdown. January numbers for incomes and outlays didn’t necessarily look all that pleasant. Although personal income was unreported, spending was up just 0.1%. People were spending less on durable goods as vehicle sales were down quite a bit.
Inflation continues to be weak, with prices down 0.1% overall and rising just 0.1% in core categories. Meanwhile, the year-on-year rate for inflation in January overall is just 1.4% and 1.8% in key categories.
Personal Income and Outlays (February)
While there was no personal income data released for January, February only showed personal income data. Here, we at least see that things are picking up.
Personal income was up 0.2% in February, which is a little low, but wages and salaries were up 0.3%.
In the final reading of March, the University of Michigan’s consumer sentiment report was up 0.6 points to 98.4. The current conditions index was up almost 5 points to 113.3 in a good sign for future retail sales reports. Meanwhile, the expectations index is up better than 4 points to 88.8, which in contrast to the consumer confidence report seems to point to increasing confidence in the outlook for both jobs and income.
Looking at inflation, consumers expect this to increase 2.5% over the next 5 years, up 0.2%. However, expectations for the next year were also down 0.1% to 2.5%, so things were a bit mixed on that front.
New Home Sales
Sales of new homes were up 4.9% in February to a seasonally-adjusted annual rate of 667,000. Furthermore, despite revisions that took away 35,000 sales from January and December, the 3-month average is 630,000, which is considered very good and the best the average has been since June of last year.
Supply in the market fell from 6.5 months to 6.1 months. This may have helped push the median price for a new home up to $315,000, a price that is still down 3.6% on the year. On the year, sales have increased 0.6%.
The West has slowed in this report as well, with sales down 2.9% on the year. Meanwhile, the Northeast and Midwest had strong months. The South, the nation’s biggest housing region, was up 1.8% a month and sales have risen 6.8% on the year.
According to Freddie Mac, mortgage rates dropped by more basis points in a one-week period last week than at any time in the last 10 years. This is largely based on the Federal Reserve’s concerns about slowing economic growth that we touched on last week.
If you personally feel good about where you’re at and you’re ready to take advantage of these low rates to buy or refinance a home, it’s a great time to lock your rate.
The average rate on a 30-year fixed mortgage was down 22 basis points to 4.06% with 0.5 points paid in fees. This is down from 4.44% a year ago.
Meanwhile, the average rate for a shorter term 15-year fixed mortgage with 0.4 points paid in fees was down 14 basis points to 3.57%. Last year at this time, the rate was 3.9%.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) was down 9 basis points to 3.75% with 0.3 points paid. This is up from 3.66% last year.
The S&P 500 had its best first quarter since 1998. There was renewed optimism for a trade deal with China.
The Dow Jones Industrial Average was up 211.22 points to close at 25,928.68, up 1.67% on the week. Meanwhile, the S&P 500 closed at 2,834.40, up 1.2% on the week and 18.96 points on the day. Finally, the Nasdaq finished the week up 1.13% to close at 7,729.32, up 60.15 points on the day.
The Week Ahead
Monday, April 1
Retail Sales (8:30 a.m. ET) – Retail sales measure total receipts from stores selling merchandise and related services to final consumers. Sales are measured by retail and food service stores. Data is collected from the Monthly Retail Trade Survey conducted by the U.S. Census Bureau. Starting today, there will be a special breakout for sales of magic wands.1
ISM Manufacturing Index (10:00 a.m. ET) – 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.
Tuesday, April 2
Durable Goods Orders (8:30 a.m. ET) – These are based on new orders placed with domestic manufacturers for factory goods.
Wednesday, April 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, April 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 4-week moving average of new claims smooths out weekly volatility.
Friday, April 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.
There are a couple of big reports out this week, including the monthly jobs report and manufacturing. It will all be covered in next week’s Market Update!
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1 Did you honestly think we wouldn’t sneak in a slight April Fools’ joke? However, as a big fan of all things “Harry Potter,” I’ll speak seriously for a second. I’d like to think my wand would be a nine-inch beechwood with a dragon heartstring core.
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