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  4. Manufacturing Confidence Falters, but Jobs Are Strong – Market Update

Sometimes life requires patience. I went to my first Detroit Tigers game of the season on Saturday, and there was a rain delay of over 4 hours before the game ever started. The game did end up being quite exciting, even if they lost in the end.

New economic data might have the Federal Reserve wondering if they need to exercise a little bit of patience themselves when it comes to dealing with short-term interest rates. We’ll get into that a little more, but first, let’s take a look at the data releases for last week.

Headline News

ISM Manufacturing Index

Confidence in the manufacturing sector is the lowest it’s been an almost 3 years, as it fell 0.4 points to come in at 51.7. Although this still indicates growth in the month of June, it’s a slow march toward progress. In fact, new orders are stagnant at a breakeven 50.

In addition, businesses are paying less for materials, which is an indication that growth in the sector is slowing along with the fact that there are fewer orders in the backlog. There’s less inventory buildup and delivery times are improving. Although this last one sounds like a good thing, it means that businesses are having an easier time keeping up with demand which is a sign that demand is leveling off.

There were continuing concerns over tariffs in the month and new export orders are barely increasing at 50.5. Additionally, aerospace manufacturing is down and analysts are worried they’re seeing the effects of the grounding of Boeing’s 737 Max.

There were some strengths here. Notably, production comes in at 54.1 and employment is up at 54.5.

MBA Mortgage Applications

Mortgage applications were down 0.1% last week in this index, but this is definitely a case where the headline number doesn’t tell the whole story. Mortgage applications are now up 10% overall compared to the same week a year ago and low rates have given the industry as a whole a boost. The average rate on a 30-year conventional fixed loan last week was 4.07% among those included in the MBA data.

Purchase applications were up 1% on the week, while applications to refi fell by the same amount.

International Trade

The nation’s trade deficits increased by $4.3 billion in May to $55.5 billion. Additionally, the deficit for April increased by $400 million more in revisions to settle at $51.2 billion. A bigger trade deficit with China is blamed for the May increase.

On the import side, these were up 3.3% to $266.2 billion and there were big upticks in imports of both cars and consumer goods. Imports and exports of food were down. This is one area that’s being closely watched given trade tensions with China.

The good news is exports were also up exactly 2% to $210.6 billion. Additionally, service exports were up 0.5% to come in at $69.8 billion. Meanwhile, goods exports were up 2.8% at $140.8 billion. It just wasn’t enough to make up for the increase in imports.

Jobless Claims

Initial jobless claims were down 8,000 last week to come in at 221,000. Meanwhile, the 4-week average was up just 500 to come in at 222,250.

The number of continuing claims was also up 8,000 to come in at 1.686 million. Meanwhile, the 4-week average was about 1.687 million, down 1,750 on the week.

Employment Situation

After a lackluster May, the employment report in June exceeded all expectations: 224,000 jobs were added to nonfarm payrolls.

Private payrolls added 191,000 jobs, while 33,000 jobs were added to the government sector. There were 17,000 jobs added in the key manufacturing sector, while 51,000 jobs were added in the professional and business services as employers look for contractors to fill jobs.

The unemployment rate did go up to 3.7%, but it wasn’t because more people are losing jobs. Rather, rising wages are causing more people to get back into the workforce as the labor force participation rate was up 0.1% to 62.9% on the month.

Speaking of wages, these were up 0.2% in June, missing expectations for a 0.3% increase. However, earnings numbers for May were revised up to a growth rate of 0.3%. Wages have gone up 3.1% overall on the year. Meanwhile, the average workweek for the labor force as a whole remains 34 hours, 24 minutes.

Mortgage Rates

The markets have seen some conflicting data and both the bond and stock markets have seen traders trying to make sense of it over the last several weeks. For now, mortgage rates seem to be settling a little bit after several weeks of mostly going down. If you’re looking for a mortgage to buy or refinance a home, it’s a good time to lock your rate because no one knows where rates are going from one day to the next.

The average rate on a 30-year fixed mortgage with 0.6 points in fees was 3.75% last week, up two basis points on the week, but down from 4.52% at the same time a year ago.

Meanwhile, the average rate on a 15-year fixed mortgage was also up a couple of basis points from the week prior at 3.18% with 0.5 points paid. This is down from 3.99% last year.

Finally, the average rate on a 5-year treasury indexed, hybrid adjustable rate mortgage (ARM) with 0.4 points paid was up six basis points to come in at 3.45%, which is down from 3.74% last year.

Stock Market

It’s a bit of a weird moment for participants in the markets in general. Essentially, things are behaving a bit upside down right now. On Friday, there was a strong jobs report. Normally, this would send stocks upward. Instead, they fell on Friday. Last month, when the May jobs report disappointed, stocks rose on the news.

How do you explain any of this? The thing the markets seem to be paying the closest attention to right now is the Federal Reserve. Last month, traders were sure that the weak jobs report meant to a rate cut would be coming soon, which would be good for business and intended to stimulate the economy. This month, with stronger labor market indicators, there seems to be less urgency to cut rates. The Fed may also cut them less than anticipated. It’s really anybody’s guess.

Despite being up 1.21% on the week, the Dow Jones Industrial Average was down 43.88 points Friday to close at 26,922.12. The S&P 500 was down 5.41 points on the day to close at 2,990.41, still up 1.65% on the week. Finally, the Nasdaq closed at 8,161.79, up 1.94% even as it fell 8.44 points on the day.

The Week Ahead

Tuesday, July 9

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, July 10

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, July 11

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 four-week moving average of new claims smooths out weekly volatility.

Friday, July 12

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.

There are just a few economic releases this week, but we do get some housing and inflation data. We’ll have it all covered in next week’s Market Update!

If this isn’t the kind of report that gets you pumped up for the rest of the week, not to worry. We’ve got plenty of home, money and lifestyle content to share with you if you subscribe to the Zing Blog below. There’s no doubt that kids enjoy the summer vacation, but having them home from school while you’re working can take a toll on the budget. This week, we thought we would share our best tips for saving money on summer child care. Have a wonderful week!

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