The sport of basketball is known for March craziness with high drama and epic performances. In a couple of weeks, there will no doubt be a segment of the population that calls in sick to work to binge on hoops at the opening of a big tournament.
Economists had a different kind of binge last week as several backlogged reports from the government shutdown finally came out. Because of this, last week was unusually busy. Let’s jump in without further delay.
Housing starts were very weak to close out the year, missing expectations by quite a bit in December and falling 11.2% to 1.078 million on a seasonally-adjusted annualized basis. This is the weakest showing since from September 2016.
Wildfires may have been at least partially responsible for a 26.3% drop in starts in the West, but they were also down in the Midwest by 13.2% and the South was down 6%.
Breaking things down further, starts for single-family homes were down 6.7%, while starts of multifamily properties fell 20.4%.
It isn’t all bad. Permits were up 0.3% to 1.326 million overall. While single-family permits were down 2.2% to 129,000, multifamily permits were up 4.9% to come in at 497,000.
S&P CoreLogic Case-Shiller HPI
On a seasonally adjusted basis, prices were up 0.2% in this index despite falling by the same amount overall. On a seasonally-adjusted basis, prices are up 4.2% on the year as of December. This does represent a significant slowing in the pace of overall appreciation.
The city of San Francisco has posted three straight price declines. San Diego is also in contraction, while Los Angeles and Seattle are unchanged. The only Western city that continues to really show momentum is Las Vegas. In fact, that sitting now leads yearly gains, up 11.4% annually.
New York City is also starting to show strong gains. Other cities highlighted in the report include Phoenix, up 8% annually, while Chicago is at the bottom, with homes that have only risen 2.9% in value on an annual basis. Numbers like this have helped contribute to the fact that the nation’s overall price appreciation, which at 4.2%, is the lowest seen since November 2014.
FHFA House Price Index
House prices were stronger, according to the Federal Housing Finance Agency, than the Case-Shiller numbers, but they’re still low for the index. They were up 0.3% on the month of December and 5.6% annually.
Prices in the Pacific were up 0.5% and the Mountain region was up 0.6%. Mountain states saw 7.7% annual growth while the South Atlantic is at 6.3%, with the West South Central behind at 4.0%.
It’s not a moment for panic, because with low inflation, analysts expect to see some slowing in the pace of home price growth. However, 5.6% is the slowest pace of annual growth since February 2016.
Coming off the government shutdown, consumer confidence numbers were the highest they’d been in a while. Overall numbers were up almost 10 points to 131.4 in February.
The expectations component was up 14 points to 103.4. Meanwhile, current conditions was up 3.3 points to 173.5 and people are feeling good about the job market. There are less people saying jobs are hard to get as this number fell 0.8% to 11.8%, only slightly upset by a decrease in the number of people saying jobs are plentiful.
A few other readings are mixed. There’s greater optimism in the strength of the labor market, but future income expectations are a little more pessimistic. Finally, people continue to expect lower inflation, which they anticipate being up only 4.3% in the next year, which despite being well above the Federal Reserve’s 2% target is extremely low for this particular survey.
MBA Mortgage Applications
Mortgage applications were up 5.3% overall on the week as purchase applications rose 6% and applications to refinance moved forward 5%.
This is being driven by lower mortgage rates and the trend continued with them falling one basis point to 4.65% last week.
International Trade in Goods (December)
In data for December, the goods deficit rose by nearly $6 billion to $79.5 billion. Exports were down 2.8%, while imports were up 2.4%. This was a much higher deficit than anticipated. Agricultural exports were down 1.9% and have fallen 5.5% on the year. A lot of this is blamed on the Chinese trade dispute.
Imports came in at a total of $215.2 billion. Imports are now up 3.2% on the year, while exports have fallen 0.3% annually. Consumer goods imports were up 4.4% to $55.5 billion, while capital goods imports were up 0.9% on the month and 4.9% on the year. However, the capital goods numbers are considered a good sign for future economic productivity.
Pending Home Sales Index
The number of existing homes under contract for sale was up 4.6% in the month of January according to the national Association of REALTORS®. The uptick is largely credited to lower mortgage rates and the overall index level is at 103.2.
Pending home sales in the West were up 0.3%. It had been weak in this report, and the number of homes under contract is still down 10.1% on the year. Meanwhile, the number of existing homes pending sale in the South was up 8.9%, but it has still fallen 3.1% annually. Despite negative annual numbers, there are signs of life because an annual fall of 2.3% works much better than the double-digit declines of a couple months ago.
Greatest Domestic Product (GDP)
In a preliminary reading for the fourth quarter, the economy grew at a rate of 2.6% on a seasonally-adjusted annual basis. Meanwhile, consumer spending was up 2.8%, a full percentage point higher than inflation for the quarter.
Nonresidential fixed investment was up 6.2% in what’s considered a good sign for business spending. However, residential investment was down 3.5% and it’s not considered a promising sign for the housing sector.
Consumer spending contributed 1.92% to the growth of overall GDP including about half that number being spent on services. Meanwhile, business investment kicked in 0.82% of the overall number. Inventories grew and made up 0.13% of GDP. The trade deficit pulled down numbers a little bit, subtracting 0.22%, while government purchases produced a small uptick in GDP.
International Trade in Goods (January)
Although no report was released with the details, the Census Bureau did release the international trade in goods numbers for January. However, things are a little fuzzy here, because they exactly match the numbers just released the prior day for December.
The goods deficit was apparently $79.5 billion. Exports fell 2.8%, while imports were up 2.4%.
Initial jobless claims were up slightly, coming in at 225,000, an increase of 8,000 from the prior week. Meanwhile, the 4-week average was down 7,000 to come in at 229,000.
On the continuing claims side, these were up 79,000 to 1.805 million, while the 4-week average is up to 1.762 million, an increase of 6,750 from the week prior.
Personal Income and Outlays (December)
Personal incomes were up 1% in December. Despite this, consumer spending actually fell on the month by 0.5%. Meanwhile inflation was up 0.1% overall and 0.2% in core categories. On the year, inflation has risen 1.7% overall and 1.9% in key areas.
Wages and salaries were up 0.5% on the month of December while income for sole proprietors and the return on consumers’ assets in the bank both dropped.
The December savings rate was up 1.5% to 7.6%. The spending drop affected durable and nondurable goods equally – both were down 1.9% on the month. Meanwhile, spending and services was up only 0.1% since November.
Personal Income and Outlays (January)
Only personal incomes were released for January at this point as a result of data delays due to the government shutdown. While incomes were up 1% in December, they fell 0.1% in January.
ISM Manufacturing Index
Growth in the manufacturing sector slowed a bit in February, with this index down 2.4 points to come in at 54.2. There was a 2.7-point drop in new orders, while there was a 3.2-point slide in employment growth. Finally, production fell 5.7 points.
Despite the downtick, manufacturing growth is still solidly in the mid-50s. Delivery times for manufactured goods improved. Meanwhile, the cost of making items is actually lower.
Backlogs are building up, which means good things for future employment readings as people will have to be hired to cut into the backorders. Finally, export sales were also up slightly.
In the final reading of February, consumer sentiment was down nearly two points to come in at 93.8. While this is still 2.6 points higher than where we were in January, it’s 4.5 points lower than December before the government shutdown.
Much of the weakness is in the current conditions section, which, at 108.5, are eight points shy of where they were in December. In the expectations component, things aren’t quite as bad, coming in at 84.4, just short of three points from December numbers.
Looking at inflation, expectations over the next year were down 0.1% to 2.6%. Meanwhile, anticipation of inflation over the next five years was down 0.3% to 2.3%.
I’ve been saying this for the last several weeks now, but mortgage rates really are in a very good spot. They were either flat or down again last week. If you’re in the market to buy or refinance your home, it’s a really good time to lock your rate. It wasn’t long ago that we were talking about rates consistently trending higher. Take advantage of the current direction while you can.
The average rate on a 30-year fixed conforming mortgage with 0.5 points was flat at 4.35% last week. This is down from 4.43% a year ago at this time.
Looking at shorter terms, the average rate on a 15-year fixed mortgage with 0.5 prepaid interest points or fees was 3.77%, down a single basis point on the week and falling from 3.9% last year.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage was unchanged at 3.84% with 0.3 points. This is up from 3.62% last year.
The stock market was up on Friday as the S&P 500 reached its highest level since November. This is being referred to as the strongest start to the year in almost three decades.
The Dow Jones Industrial Average was up 110.32 points to close at 26,026.32 points, falling just 0.02% on the week. The S&P 500 rose 0.39% on the week, finishing Friday at 2,803.69, rising 19.2 points on the day. Finally, the Nasdaq closed at 7595.35, up 62.82 points on the day and 0.9% on the week.
The Week Ahead
Tuesday, March 5
New Home Sales (10:00 a.m. ET) – This report measures the number of newly constructed homes with a committed sale during the month.
Wednesday, March 6
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.
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.
Thursday, March 7
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 8
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.
Housing Starts (8:30 a.m. ET) – A housing start is registered when the construction of a new residential building begins. The start of construction is defined as the beginning of excavation of the foundation for the building. These numbers will cover January as they were delayed by the government shutdown.
There’s not nearly as much going on next week, but what is coming out is consequential. We’ll have it all covered in Market Update next Monday!
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