It’s gotten to the point where it doesn’t matter when I write this or what economic headlines are out that week. The thing that’s dominating the headlines is trade with China. The only thing that might change this a bit is the weather. If you’re currently dealing with the effects of Hurricane Dorian at the moment, please stay safe.
There’s a lot going on in the world in general, but there were economic releases last week. Let’s dig into them.
Durable Goods Orders
Durable goods orders for July came in well above expectations, up 2.1%. The downside of this is that it mostly had to do with a 49% jump in civilian aircraft orders, which is a very volatile category. When transportation was taken out, orders were actually down 0.4%. However, core capital goods were up 0.4%, which was better than expectations for a flat month.
Digging into the numbers a little bit further, orders of primary metals were down 1%, while fabricated metal orders fell 0.9%. Machinery orders were down 0.6%, but making up for that, there was a 1.9% uptick in communication equipment orders and a 1.1% rise in electrical equipment orders.
Outside of orders themselves, shipments of core capital goods were down 0.7% and 1.1% overall, while unfilled orders were up 0.1%. These are considered a negative for potential future manufacturing employment and production numbers.
S&P CoreLogic Case-Shiller HPI
In the first of two reports on pricing in the housing market, prices were flat in June on a seasonally adjusted basis. Meanwhile, prices were up just 0.3% overall. Prices are up just 2.2% on the year. All this data came in well below analyst expectations.
While the report is at a 5-year low in terms of price appreciation, it’s important to note that this data is a couple of months old and was collected before the recent dip in mortgage rates. In general, if borrowing costs are cheaper, people can afford more and may be wanting to spend more on a house.
FHFA House Price Index
Like the Case-Shiller report, the data from this report was gathered in June. On the year, prices are up 4.8% after having gone up 0.2% in June. This represents a 0.3% decrease from the yearly rate of price appreciation reported in May.
It’s the assumption of analysts that lower mortgage rates starting in July will help show a pickup in prices.
Consumer confidence was down 0.7 points in August to 135.1. However, the expectation was for a much bigger drop down to 130. Expectations for the future were down more than five points to 107. However, people were very optimistic about the present situation, which was up more than six points at a 19-year high of 177.2.
Let’s start with expectations and end on the positives. Fewer people see more jobs opening up in the next 6 months and more people see less jobs in the future. Income data holds steady. There are also more people who see the stock market going down and less people who see it going up. There are still more people who see it going up than down, but only by a 36.3% to 30.5% level. Meanwhile, more consumers see interest rates moving lower in the next year.
Along with the downward move in interest rates was an upward tick in inflation expectations which is now at 5%, 0.4% higher than the previous month.
This report really shined in current conditions. Only 11.8% of people see jobs as hard to get versus 12.5% in July. The number of people who think jobs are plentiful was also up 4.6% to 51.2%.
MBA Mortgage Applications
Mortgage applications were down 6.2% on the week as the average interest rate on a 30-year fixed conforming mortgage went up four basis points to 3.94%.
Purchase applications fell 4% and applications to refinance were down 8% last week.
Gross Domestic Product (GDP)
Overall economic growth was at 2%, down 0.1% from the prior estimate for the second quarter. However, consumer spending was up to 4.7% from 4.3% in the prior estimate. Overall price change in the quarter was up 2.4%, unchanged from the previous report. However, core prices were actually down a little bit at 2.3%.
Government spending was up 4.5% as there was increased spending at both the federal and state level. Meanwhile, nonresidential fixed investment was down 6.1% in the quarter as businesses are concerned about the global economy. Meanwhile, residential investment was down 2.9%.
Net exports fell enough that they dropped overall GDP by 0.71%. Meanwhile, inventories being lower meant a reduction of almost a full point in GDP.
International Trade In Goods
The nation’s goods deficit was down $1.9 billion to $72.3 billion. Exports were up 0.7% to $137.3 billion and imports fell 0.4% for the month, settling at $209.7 billion.
Exports of consumer goods were higher as were car and truck exports. There was also a sizable increase in exports of capital goods. Pulling down the gains a bit more were exports of food, feeds and beverages, which fell a sizable 2.4% on the month and are down 2.2% year-over-year.
In what’s considered a bad sign for U.S. business investment, imports of capital goods were down sharply. Imports of cars and consumer goods were up, with the latter coming in at $55.3 billion and serving as a major weakness. Imports of foods were also higher.
Initial jobless claims were up 4,000 to come in at 215,000. The 4-week average was down by just 500 claims to 214,500.
Continuing claims were up 22,000 to come in at 1.698 million. Meanwhile, the 4-week average was down 250 from the previous week at about 1.697 million.
Pending Home Sales Index
Pending home sales were down 2.5% in July to an index level of 105.6, giving up practically all the gains from June. Existing home sales numbers for the month of August aren’t looking good based on this.
Personal Income And Outlays
Personal incomes were only up 0.1% in July, below the consensus expectations for a 0.3% increase. That said, consumer spending did increase by 0.6%. Inflation was up 0.2% both overall and in core categories in July. On the year, inflation in core categories is up 1.6% and inflation overall has increased to 1.6%. Inflation remains very low and well under the 2% target set by the Federal Reserve.
On the income side, there was a 1.8% downtick in personal interest income. Additionally, wages and salaries were only up 0.2% with supplemental income rising 0.3%. There was also an increase of 0.5% in in terms of both rental and business income.
Consumer sentiment was down 2.3 points to come in at 89.8 which is a multiyear low in the final reading of August. Expectations were down 10 points on the month to come in at 79.9 while current conditions were down greater than five points to 105.3.
Digging a little deeper on the numbers, consumers are concerned over the trade war with China, citing tariff worries. Meanwhile, inflation expectations did go up slightly, at 2.7% over the next year and 2.6% in the next 5 years.
Mortgage rates were up just a little bit last week, but they’re still in a very good spot for anyone looking to buy or refinance a home. It’s a great time to lock your rate.
The average rate on a 30-year fixed mortgage with 0.5 points paid in fees was up three basis points to 3.58%. This is down from 4.52% a year ago.
Looking at shorter terms, the average rate on a 15-year fixed mortgage was also up a few basis points to 3.06% with 0.5 points. This is down from 3.97% last year.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) was down a single basis point to 3.31% with 0.4 points. This has fallen from 3.85% at this time last year.
Friday was a slow day on the stock market. Traders didn’t want to make a move one way or another before the holiday, and they’re waiting to see what happens with China. In general, stocks were more positive this week on word that trade talks were back on the table.
The Dow Jones Industrial Average finished the week at 26,403.28, up 41.03 points on the day and rising 3.02% on the week. Meanwhile, the S&P 500 was up 1.88 points and 2.79% on the week, finishing Friday at 2,926.46. Finally, the Nasdaq was up 2.72% on the week despite falling 10.51 points Friday and closing at 7,962.88.
The Week Ahead
Tuesday, September 3
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.
Wednesday, September 4
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, September 5
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, September 6
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.
Although there’s not quite the volume of economic data out this week that there was last week, we do get a key manufacturing report as well as a look at the state of the job market. The international trade report will also take on increased significance given the state of things with China. We’ll have it all covered for you in next week’s Market Update.
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