I won’t assume people know this, but Detroit is Hockeytown, USA. Our team had its home opener last night and got down by two goals before making a roaring comeback.
The stock market was a bit like that on Friday as traders digested the meaning of the September employment report. Initial reaction wasn’t great, but as the day wore on and people looked more at the fundamentals, the stock market picked up steam. Let’s get to the headlines.
ISM Manufacturing Index
There are signs of trouble in manufacturing. For the second straight month, it appears that the manufacturing sector is weakening. The shrinkage in the sector is deepening with the sample down 1.3 points to 47.8 in September.
One key thing being looked at is that orders of exports only came in at a level of 41, meaning countries just don’t seem to be showing the usual level of interest in U.S.-manufactured products. With the ongoing tariff battle with China, this is something analysts have been keeping an eye on. However, new orders are also down overall, settling at 47.3. For context, an index level of 50 is considered the breakeven point between contraction and growth in the sector.
Backlogs are down at 46.3. While this is a positive for consumers getting their orders, it’s not good for factory workers because they aren’t as busy. Indeed, production is down at 47.3, even as delivery times are improving. This really points to a slowdown in U.S. manufacturing.
MBA Mortgage Applications
The average rate on a 30-year conventional fixed-rate mortgage was down three basis points to 3.99%. This meant that after falling 15% the week before, the index of refinance applications rose 14%.
Purchase applications were 1% higher on the week and are 10% higher on the year.
Initial jobless claims were up 4,000 to settle at 219,000. Meanwhile, the 4-week average remained flat at 212,500 claims.
On the continuing claims side, these were down 5,000 to come in at 1.651 million last week. The 4-week moving average of continuing claims was down 5,750 to come in just under 1.662 million.
Only 136,000 jobs were added to the nonfarm payrolls in September, missing consensus estimates by 9,000 jobs. However, it may be a case where there are very few available workers in the market right now for the kinds of jobs employers are looking for. The unemployment rate went from 3.7% to 3.5% while the labor force participation rate remains steady at 63.2%. The unemployment rate is the lowest it’s been in 50 years, but economists do wish there was more participation in the workforce overall.
Digging in a bit further, there were 114,000 jobs added to private payrolls with 22,000 jobs coming from the government sector. There was also an increase to the number of jobs added in August in revisions. That number is now up to 168,000 after adding 38,000 in additional new hires.
As I said earlier, the market really didn’t know how to react to this initially, so there was some weakness here. To begin with, there was an expectation for an increase in manufacturing payrolls of 3,000 jobs. Instead, 2,000 people in the sector found themselves out of work. Also concerning was the fact that wages were flat. Having gone up only 2.9% on the year, this is the slowest pace of income appreciation since July of last year. The length of the average workweek remained the same at 34 hours, 24 minutes.
The U.S. trade deficit was up $900 million to $54.9 billion in August. Exports were up 0.2% to $207.2 billion, but this is down 0.9% from a year ago. The petroleum deficit has been going down thanks to increased domestic production of oil. A major problem is that there’s been a global slowdown in trade that’s starting to hit the U.S. Capital goods exports were down by $1.4 billion. This was a big hit for the U.S. aircraft sector as well as a warning sign for the future of global growth.
This slowdown is also showing itself on the import side. While imports were up 0.5% in August to $262 billion, they’re up only 0.5% on the year, which is a bit of a steep fall from 0.9% in July numbers. The overall dip in trade isn’t good because robust global trade is considered a good thing for the global economy.
Another gap that’s being closely watched is the one with China, given the trade dispute. While this was down by $1 billion in August to $31.8 billion, it’s quite a bit higher than the $20 billion gaps earlier in the year. That said, analysts do note that country-level data isn’t adjusted for seasonal or calendar effects.
According to Freddie Mac data, mortgage rates were pretty flat last week. This has supported a consistent increase in mortgage applications across the board.
If you’re in the market for a mortgage of any kind right now, these rates are worth taking a look at. They’re pretty low. If you’re ready, it wouldn’t hurt to consider locking your rate.
The average rate on a 30-year fixed mortgage with 0.6 points paid in fees was up a single basis point to 3.65% last week. This is still down from 4.71% last year.
Meanwhile, looking at shorter terms, the average rate for a 15-year fixed mortgage went down a couple of basis points to 3.14% with 0.5 points paid. This is down from 4.15% at the same time a year ago.
Finally, the average interest rate was flat at 3.38% with 0.4 points paid for a 5-year treasury-indexed, hybrid adjustable rate mortgage. This has fallen from 4.01% last year.
The stock market is a weird place. That’s all there is to it. Traders were very happy to see that the unemployment rate went down to 3.5% as it made them less concerned about a recession. At the same time, they were also pleased to see that the number of jobs added missed expectations.
Why would that ever be a good thing? Essentially, traders are convinced that low jobs numbers will keep the Federal Reserve on track to cut short-term interest rates at their next meeting. Market logic is a special kind of roundabout.
The Dow Jones Industrial Average was up 372.68 points Friday to close at 26,573.72 points. Despite this strong close, the index finished the week down 0.92%. Meanwhile, the S&P 500 was down 0.33% on the week after climbing 41.38 points Friday to finish at 2,952.01. Finally, the Nasdaq finished at 7,982.47, up 0.54% on the week after rising 110.21 points Friday.
The Week Ahead
Tuesday, October 8
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.
Quicken Loans® Home Price Perception Index (HPPI) (10:00 a.m. ET) – Quicken Loans releases data every month comparing what people think their homes are worth compared to appraisals. Similar opinions of value often make for smoother purchase and refinance transactions.
Quicken Loans Home Value Index (HVI) (10:00 a.m. ET) – Quicken Loans also releases data on home values at both the national and regional levels. Homeowners can gain a perception of whether values are increasing or decreasing and get a better idea of where they stand in terms of equity.
Wednesday, October 9
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, October 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.
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, October 11
Consumer Sentiment (10:00 a.m. ET) – The University of Michigan’s Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending.
This week, we’re on the lookout for data on both housing and inflation. We’ll break it down for you in next Monday’s Market Update!
If economics and market data don’t have you feeling very rock ’n’ roll heading into the new week, I completely understand. The good news is that if you subscribe to the Quicken Loans Zing Blog below, we have plenty of home, money and lifestyle content to share. While the start of the hockey season is certainly exciting around here, it does mean that winter is coming sooner rather than later. Check out this post from Rachel Burris on winterizing your AC unit. Have a great week!
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