I hope everyone enjoyed Father’s Day with your kids or your dad! It would’ve been nice to see my baseball team put up a fight, but the golf was something to see yesterday.
This week, we’ve got inflation numbers and plenty of other economic reports to look at, so let’s get right into it.
Producer Price Index (PPI)
Inflation numbers for the month on the sell side came in as expected with a 0.1% uptick in May. Prices are up 1.8% overall on the year. Meanwhile, prices in core categories were up 0.2% when excluding food and energy. They’ve risen 2.3% year-over-year. Finally, when further removing trade services, producer inflation was up 0.4% and 2.3% on the year.
Digging deeper into the numbers, trade services – prices at wholesalers and other retailers – were down 0.5%. Meanwhile, food prices were down 0.1% and are up only 1.2% for the year. The food export market is even worse, with prices down 1.4% in May and 4.5% for the year. Energy prices were down 1% on the month and 3% year-over-year. The lone real bright spot was personal consumption expenditures which were up 0.2% and really carried this month toward its minimal gains.
MBA Mortgage Applications
The average rate on a 30-year fixed conventional loan according to this survey fell 11 basis points to 4.12%. And the recent low rates have started to set off a frenzy of activity.
With mortgage rates at their lowest level since September 2017, overall applications were up 26.8% with applications to purchase up 10%. Refinance applications were up an eye-popping 47% for the week.
Consumer Price Index (CPI)
Prices on the consumer side were up 0.1% in May. However, the year-to-year rate came in below expectations at 1.8%, matching the change for PPI earlier on the seller side. The good news is that when food and energy were taken out, prices were up 2% on the year after rising 0.1% on the month.
Going deeper on last month’s data, the price of energy was down 0.6% including a 0.5% drop in the price of gas. This should be something worth keeping an eye on as increased hostilities with Iran disrupted activity along a key shipping route for oil tankers last week. Meanwhile, food prices are up 0.3% and have risen 2% year-over-year. The cost of medical care is up 0.3% and has increased 2.1% since last May. Meanwhile, the biggest portion of the cost index, housing was only up 0.1% on the month and 2.8% year-to-year.
In other categories, there was no change for clothing prices, while airfare prices were up 2%, but is only up 0.9% on the year. New vehicle prices were up 0.1%, but prices for used vehicles were down 1.4%.
The Federal Reserve isn’t seeing inflation rising as quickly as they expect, so it will be interesting to see what they do at this week’s meeting of the Federal Open Market Committee.
Initial jobless claims were up 3,000 last week to 222,000. This put the 4-week average up 2,000 at 217,250.
Meanwhile, on the continuing claims side, these were up 2,000 to 1.695 million. The 4-week moving average was up 7,750, settling at about 1.683 million.
Retail sales were up 0.5% in May, missing overall expectations for a 0.7% gain. However, everything else beat expectations.
When cars and trucks were taken out, retail sales were also up 0.5%. Meanwhile, when cars and gas were removed, sales rose 0.5%. Finally, sales in a control group taking out more volatile month-to-month categories were up 0.5%. Am I the only one starting to notice a pattern here? Consensus expectations in all three of these categories were for a 0.4% monthly sales increase.
General merchandise sales including department stores were up 0.7% in May, while sales at non-store retailers (think e-commerce) were up 1.4% for the month. Restaurant sales were up 0.7% as well.
Car and truck sales were up 0.7%, while building material sales were up 0.1%. Gas sales were up 0.3%. Finally, April numbers were revised up 0.5% to come in at a 0.3% monthly increase.
Industrial production was up 0.4% in May, beating consensus expectations for a 0.2% increase. Meanwhile, monthly manufacturing was up 0.2%, and 0.2% more space was being utilized in factories for a total of 78.1% capacity.
Utility production was up 2.1% after being down 3.1% in April. Mining production was up 0.1%, albeit this was lower than the overall number.
A lower manufacturing increase came in despite a 2.4% uptick in vehicle manufacturing. There was a 0.4% increase in high-tech manufacturing, while business equipment and construction supplies both saw a 0.2% rise in fabrication.
Consumer sentiment was down 2.1 points to come in lower than expected at 97.9 in the first reading of June.
People have concerns over the ongoing tariff battle with China and one thing that may have swayed sentiment downward as well is the fact that when this survey was taken, there was still uncertainty over the trade situation with Mexico. This beat expectations down almost five points to 88.6. A 2.5-point gain for current conditions to 112.5 wasn’t enough to make up for concerns of the future.
One thing that might have the Fed raising an eyebrow is the fact that long-term inflation expectations are the lowest they’ve been at any time during the 40 years this survey has been taken, down 0.4% to 2.2%. Inflation over the next year is expected to be at 2.6%, down 0.3% from last month.
Mortgage rates didn’t move much last week, but the longer-term trends are encouraging if you’re in the market to purchase or refinance. The 10-year U.S. Treasury note is considered an important bellwether for mortgage rates. The lower the yield on this bond is, the lower mortgage rates generally tend to be. As of this writing, activities in the markets, driven by no small amount of unease has pushed the 10-year Treasury down to around 2.1%. This is the lowest it’s been in some time.
What this means for those in the market for a mortgage is that it’s a really good time to lock a low rate.
The average rate on a 30-year fixed mortgage was flat on the week at 3.82% with 0.6 points paid in fees. This is down from 4.62% at this time last year.
Meanwhile, looking at shorter terms, the average rate on a 15-year fixed mortgage was down a couple of basis points to 3.26% with 0.5 points paid. This has fallen from 4.07% at this time a year ago.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) with 0.4 points paid was down a single basis point to 3.51%, down from 3.83% in mid-June 2018.
Stocks fell just a bit to end the week. Weaker than expected revenue results for semiconductor maker Broadcom set off a slide in the stocks of its competitors. Here it’s evident that tensions with China are having an effect as they cited weaker demand, but also the U.S. crackdown on Chinese-based phone maker Huawei. Despite this, stocks rose for the week.
The Dow Jones industrial average closed at 26,089.61, down 17.16 points on the day, but up 0.41% for the week. Meanwhile, the S&P 500 finished down 4.66 points on the day, but up 0.47% on the week after finishing Friday at 2,886.98. Finally, the Nasdaq was up 0.7% on the week after closing at 7,796.66, down 40.47 points on the day.
The Week Ahead
Monday, June 17
Housing Market Index (10:00 a.m. ET) – The National Association of Home Builders (NAHB®) produces a housing market index based on a survey in which respondents from the organization are asked to rate the general economy and housing market conditions. The index is a weighted average of separate diffusion indexes, including present sales of new homes, sales of new homes expected in the next 6 months and traffic of prospective buyers in new homes.
Tuesday, June 18
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.
Wednesday, June 19
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, June 20
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, June 21
Existing Home Sales (10:00 a.m. ET) – Existing Home Sales tallies the number of previously constructed homes, condominiums and co-ops that were sold during the month. Existing homes (also known as “home resales”) account for a larger share of the market than new homes and indicate housing market trends.
There’s not as much going on in terms of key economic data this week, although housing is always a huge indicator for the way things are going. In addition, there’s going to be a Federal Reserve meeting concluding Wednesday to decide the future of short-term interest rates. No changes are expected immediately, but the market will be looking for any indications for the future. Traders are pretty certain there will be a cut to short-term rates at some point this year.
If this report isn’t giving you the adrenaline you need to get through Monday afternoon, that’s totally understandable. Fortunately, we’ve got plenty more home, money and lifestyle content to share with you if you subscribe to the Zing Blog below. This week, we spotlight a new writer, Emma Tomsich, as she shares her tips for a successful garage sale. Have a great week!
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