I hope everyone had a good weekend. I saw the big superhero movie that’s out right now. I’m not the spoiler type, so I won’t give anything away. I will say wow! There was a lot packed in. It’s well worth seeing if you haven’t yet.
There was also a ton of economic reports out last week on top of a Federal Reserve decision on short-term interest rates. Let’s jump in.
Personal Income and Outlays (February)
In the final piece of business related to catching up after the government shutdown, the Bureau of Economic Analysis posted data on personal incomes and spending for both February and March last Monday.
Personal incomes were up 0.2% in February and consumer spending rose 0.1%, just enough to keep up with inflation both overall and in core categories. Overall inflation is up 1.3% on the year and 1.7% in core categories as of February.
It’s worth noting that spending on durable goods was down 1.1% in February. This is an important metric to track because it points to Americans perhaps feeling that they have less discretionary income. However, wages and salaries in February were up 0.4%.
Inflation data for February was also quite a bit lower than where the Fed would like to see it. They have a 2% target. While the Fed would like to keep inflation low, a little bit of inflation encourages people to buy things now before prices go up, which helps the economy.
Personal Income and Outlays (March)
Turning to March, wages were up 0.1%, but there was a 0.4% uptick in wages and salaries. Much of the weakness in personal income growth comes from things like not getting as much interest on savings and other nonwage-related income factors.
Americans took that wage increase in March and spent quite a bit, with overall spending up 0.9%. Durable goods orders, which are a key metric for discretionary spending were up 2.3%.
Inflation remained weak. Pricing in core categories was up 0.2% in March, but overall levels were flat. On the year, inflation was only up 1.5% overall and 1.6% in core categories. It’s something to continue to keep a close eye on.
S&P CoreLogic Case-Shiller HPI
In data released for February, prices were only up 0.2% both overall and on a seasonally-adjusted basis. On the year, home prices have risen 3% according to this index.
However, analysts note that because this particular measurement takes three-month averages and is two months behind the current day at any given time, the prices in this index have yet to take into account the uptick in home sales being fed by a turn toward lower mortgage rates that happened starting in late February and early March.
That said, the data in the report definitely came in weaker than expected. Los Angeles home prices saw a 0.1% downtick, as did Portland and Seattle. It’s noted that San Diego is only up 1.1% on the year with San Francisco and Los Angeles at 1.4% and 1.8% rates of growth, respectively. Las Vegas is out front with a growth rate of 9.4%, but even this is down from its high point of 13.8% price growth in August. The West Coast is a key focus because it had previously been the epicenter for home price growth.
Consumer confidence was up five points to come in at 129.2 in April. The number of Americans thinking jobs are hard to get was down 0.5% to 13.3% in one key reading.
Americans’ assessment of the present situation of the economy was up 5.3 points to 168.3 and expectations were up 4.7 points to come in at 103.
The report wasn’t without its negatives. Only 13.6% of Americans plan to buy a vehicle in the next six months, down 0.6%. There was a 3.4% drop in the number of people expecting to buy major appliances at 48.4%. Finally, just 5% of Americans expect to buy a house in the next six months, which is down 1.4%.
Finally, when it came to inflation expectations, these were down 0.1% in April to 4.5%, which is on the low side for this reading. People expect the stock market to continue to rise and interest rates to move lower. But it’s noted that if the job gains number that consumers are expecting comes to fruition in the coming months, the Federal Reserve probably won’t feel it’s necessary to cut rates.
Pending Home Sales Index
Pending home sales were up 3.8% to a level of 105.8. This metric, which looks at the number of homes with a purchase agreement in place for sale, easily beat expectations for a 0.7% monthly increase in March.
Regions of note included the West which was up 8.7%, and the nation’s biggest sales region in the South, which was up 4.4% on the month.
MBA Mortgage Applications
Mortgage rates across the industry have gone up over the past month or so due to movements in the market and it appears consumers have taken notice. Overall applications were down 4.3% with applications to purchase down 4% and applications to refinance falling 5%.
Despite this, at least in this analysis put out by the Mortgage Bankers Association, rates for 30-year fixed conventional loans divide consumer expectations at least for a week and fell 4 basis points to 4.42%.
ISM Manufacturing Index
Manufacturing is still growing as a sector, but the pace of growth was slightly slower in April, coming in at 52.8, which brings the index level down 2.5 points from March.
New orders were down 5.7 points in the month with export orders falling 2.2 points, meaning export orders are actually shrinking at 49.5. The breakeven point for all of these metrics is 50. Moving on, employment growth is slowing, down 5.3 points to 52.4. Prices paid for materials were also down 4.3 points to an even 50.
In good news, there was a 3.5-point uptick in backlog orders to 53.9. Of the 18 industries in this report, 12 of them reported monthly growth, while five are in contraction. Apparel makers and makers of primary metals fell in this bucket as did manufacturers of transportation equipment.
Initial jobless claims were unchanged last week, coming in at 230,000. This is after a sizable increase the prior week, so there was some expectation that they would move lower. The 4-week average was up 6,500 to 212,500.
Continuing unemployment claims were at 17,000 to come in at 1.671 million. However, the 4-week average was down 13,750 to come in at about 1.674 million.
The economy added 263,000 jobs to nonfarm payrolls in April, well above consensus expectations for a 180,000-job increase. The unemployment rate also fell from 3.8% to 3.6%, the lowest it’s been in 49 years.
Digging deeper into the numbers, there were 236,000 jobs added to private payrolls, leaving 27,000 jobs added in the government sector. There were 4,000 jobs added in manufacturing which came in under consensus estimates. There was a 33,000-job increase in construction, while professional and business services added 18,000 jobs in April.
There were some downsides. The labor force participation rate fell from 63% to 62.8%. While this does help decrease the unemployment rate, it also means that fewer people are working or looking for work. Wage growth also continues to be slow, up 0.2% in April and 3.2% on the year. The length of the average workweek among all employees was down six minutes to 34 hours, 24 minutes.
International Trade in Goods
The nation’s trade deficit in goods increased by $500 million to $71.4 billion in March. However, the expectation had been for a much deeper deficit of $74 billion. Goods exports were up 1%, while imports increased 0.9%.
On the export side, food, feeds and beverages were up 6.5%, giving overall numbers a key shot in the arm. However, on the import side, foods were also up 8.1%, causing these numbers to increase even as imports of consumer goods fell 2%. Consumer goods imports are still relatively high at $55.6 billion.
Mortgage rates fell quite a bit for the first time in several weeks, according to Freddie Mac. Before we get there though, let’s briefly cover last week’s Fed decision on short-term interest rates.
The Fed chose to leave short-term interest rates unchanged. This is important to note because although longer-term rates like mortgages aren’t directly correlated to their shorter-term daily bank borrowing counterparts, they do tend to follow the same general trend. If one goes up, the other will often follow and vice versa. For more analysis, check out an analysis of the Fed’s statement from Quicken Loans President Bob Walters.
Mortgage rates continue to be in a really good spot. If you’re looking to purchase a home or refinance your current one, it’s a good time to lock your rate.
The average rate on a 30-year fixed mortgage with 0.5 points paid in fees was down 6 basis points to 4.14% last week. This is down from 4.55% at this time last year.
Looking at shorter terms, the average rate on a 15-year fixed mortgage with 0.4 points paid was down 4 basis points to come in at 3.6%. This has fallen from 4.03% a year ago.
Finally, the average rate for a 5-year treasury-indexed, hybrid adjustable rate mortgage was down 9 basis points to come in at 3.68% with 0.4 points paid. This has dropped from 3.69% a year ago.
A strong employment report helped stocks bounce back. This was also important because they had fallen the previous two days after comments by Federal Reserve Chairman Jerome Powell that he viewed low inflation as a temporary problem, which lowered investor expectations for the rate cut some investors had been hoping for.
The Dow Jones industrial average was up 197.16 points to close at 26,504.95 Friday. This was down 0.14% on the week. Meanwhile, the S&P 500 closed at 2,945.64, up 0.2% on the week and 28.12 points on the day. Finally, the Nasdaq was up 0.22% on the week after rising 127.22 points Friday to close at 8,164.
The Week Ahead
Wednesday, May 8
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, May 9
International Trade (8:30 a.m. ET) – International trade is composed of merchandise (tangible goods) and services. It’s available by export, import and trade balance for six principal end-use commodity categories and for more than 100 principal Standard International Trade Classification system commodity groupings.
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.
Producer Price Index (PPI) (8:30 a.m. ET) – The Producer Price Index measures the average change over time in prices received by domestic producers for the sale of goods and services.
Friday, May 10
Consumer Price Index (CPI) (8:30 a.m. ET) – The consumer price index measures changes based on the price of a fixed basket of goods and services purchased by consumers.
It’s not nearly as busy as last week, but we do get some key inflation data and a look at overall international trade this week. We’ll have it all covered in next Monday’s Market Update.
This isn’t the most scintillating reading on a Monday afternoon. Not to worry. If you subscribe to the Zing Blog below, we’ve got plenty of home, money and lifestyle content to share with you. Consider this your friendly reminder that Mother’s Day is this coming Sunday. If you feel like you’re behind the 8 ball, here are 10 gift ideas to get you started. Have a great day!
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