If your team is in the NFL playoffs, for a few hours this weekend, I’m sure the situation felt a little volatile – win or lose. I feel particularly bad for fans of Houston this morning. That’s not a fun way to lose. However, you still have a chance to win our Rocket Mortgage® Super Bowl Squares Sweepstakes. I hear cash is an excellent salve for the sports blues.
This week in the markets was defined by geopolitical volatility. There were issues in both Iraq and Iran. Before we get there, let’s take a look at the week’s economic data.
MBA Mortgage Applications
Overall, mortgage applications were up 30.2% last week, and without accounting for seasonal adjustments, applications were up 67% from last week. With low rates and a steady job market, purchase application volume hit the highest level in over a decade (October 2009), according to the Mortgage Bankers Association.
On a seasonally-adjusted basis, purchase activity was up 16%, but it’s up 51% overall from last week. Purchase activity was 8% higher than the same week a year ago.
Digging deeper into the data, refinance applications were up 43% on the week and have claimed 109% on the year. Refinances made up 62.9% of overall mortgage application activity. Meanwhile, the average rate on a 30-year fixed conforming mortgage with a down payment of 20% was down 4 basis points to 3.87%. It’s the lowest level since September 2019.
The overall U.S. trade deficit fell $3.9 billion to $43.1 billion in November, a downturn of 8.2%. There was a decrease in the goods deficit matching the overall deficit decrease of $3.9 billion to settle at $63.9 billion. Meanwhile, the services surplus was down less than $100 million to $20.8 billion. The overall deficit is down 0.7% compared to the same time a year ago.
Taking a look at exports first, these were up $1.4 billion from October, an increase of 0.7% overall. Capital goods exports were up $600 million, including a $400 million increase in drilling and oilfield equipment and a $300 million increase in orders of civilian aircraft. Consumer goods exports were up $500 million, including $400 million in jewelry orders with $300 million worth of gem diamonds being purchased. In the automotive sector, exports were up $400 million while all other goods increased $500 million.
Services exports were up $400 million to $71.5 billion overall, including equal $100 million increases for travel, transport and other business services.
On the import side, imports of goods were down $2.9 billion to come in at $201.1 billion. Capital goods imports were down $1.2 billion with imports of civilian aircraft and computers both down $600 million. This isn’t a great sign for future business investment, but it’s something to keep an eye on. Meanwhile, imports of consumer goods were down $1 billion with cell phones and other household goods down $500 million and collectible items down $300 million. There was a $600 million decrease in imports of industrial supplies and an $800 million downturn in imports of other goods. About the only thing that saw an uptick in imports on the goods side was automotive vehicles, parts and engines, which were up $1.1 billion. There was a $500 million increase in imports of automotive parts and accessories and a $300 million increase in imports of trucks, buses and other purpose-built vehicles.
On the services side, these were up $400 million to $50.7 billion, including a $100 million increase for both travel and transport.
Initial jobless claims were down 9,000 last week to come in at 214,000. Meanwhile, the 4-week moving average of initial claims was down 9,500, settling at 224,000.
On the continuing claims side, these were up 75,000 to 1.803 million. The 4-week average was up 33,000 to about 1.745 million.
There were 145,000 jobs added to nonfarm payrolls in December, missing expectations for jobs increases of about 160,000. The unemployment rate remained at 3.5%. Meanwhile, the labor force participation rate was unchanged at 63.2% in December.
Taking a look at selected important industries, retail added 41,000 jobs, which included increased employment at clothing and accessories stores as well as building material and garden supply stores. Health care employment was up 28,000 in December, including increases for ambulatory healthcare services and hospitals. The leisure and hospitality industry added 40,000 jobs in December. Meanwhile, professional and business services were up 10,000. Construction added 20,000 jobs. Government added 6,000 jobs in December.
Not all industries showed gains. Manufacturing was down 12,000 jobs. Meanwhile, mining fell by 8,000 jobs. There were 10,000 jobs lost in transportation and warehousing.
Finally, let’s look at wages and hours. The average hourly earnings for all employees was up $0.03 to $28.32. Overall wages have increased 2.9% on the year. Among production employees and those in nonsupervisory roles, the average wage was up $0.02 at $23.79. The length of the average workweek was flat at 34 hours, 18 minutes.
Mortgage rates were down quite a bit last week. Investors fled to the safety of bonds after two U.S. bases were attacked and the accidental downing of a civilian passenger jet in the aftermath of the drone strike that killed Iranian Major General Qasem Soleimani and an Iraqi militia leader, Abu Mahdi al-Muhandis.
While tensions appear to be dying down for now, the desire for investors to find safety in the bond market meant that mortgage rates fell quite a bit last week. If you’re in the market to purchase a home or refinance, it’s not a bad time to consider locking your rate.
The average interest rate on a 30-year fixed mortgage with 0.7 points paid in fees was down eight basis points to 3.64%. This has fallen from 4.45% a year ago.
Looking at shorter terms, with 0.7 points paid, the average rate on a 15-year fixed mortgage was 3.07%, down nine basis points on the week and falling from 3.89% last year.
Finally, the average interest rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage with 0.3 points paid was down 16 basis points to 3.3%. This has fallen from 3.83% at the same time in 2019.
Stocks were down a bit to close the week, mostly due to employment numbers coming in at lower-than-expected levels. However, Boeing shares were also lower Friday before Iran came out and admitted to shooting down a passenger jet bound for Ukraine. Looking ahead to this week, Phase one of the trade deal with China is scheduled to be signed on Wednesday.
The Dow Jones Industrial Average was up 0.66% on the week after falling 133.13 points Friday to close at 28,823.77. Meanwhile, the S&P 500 closed at 3,265.35, down 9.35 points on the day, but up 0.94% on the week. Finally, the Nasdaq closed down 24.56 points Friday to finish at 9,178.86, up 1.75% on the week.
The Week Ahead
Tuesday, January 14
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.
Wednesday, January 15
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.
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.
Thursday, January 16
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.
Retail Sales (8:30 a.m. ET) – Retail sales measure total receipts from stores selling merchandise and related services to final consumers. Sales are measured by retail and food service stores. Data is collected from the Monthly Retail Trade Survey conducted by the U.S. Census Bureau.
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.
Friday, January 17
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.
Industrial Production (9:15 a.m. ET) – The Federal Reserve’s monthly index of industrial production – and the related capacity indexes and capacity utilization rates – covers manufacturing, mining, and electric and gas utilities.
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.
The economic calendar picks up again this week with inflation data as well as industrial production and housing starts. We’ll have it all covered in next week’s Market Update!
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