It was quite an exciting weekend around here as we played host to the Rocket Mortgage Classic, the first-ever PGA TOUR®event held in Detroit. Congratulations to Nate Lashley! We already can’t wait for next year!
Nearly as interesting, there’s been some progress in the back and forth with China over the trade war. But first, let’s take a quick look at the economic data that was out last week.
FHFA House Price Index
Unlike the Case-Shiller Index that we’ll talk about in a minute, this measurement from the Federal Housing Finance Agency beat expectations for April by coming in with 0.4% monthly growth. Home prices are up 5.2% since April of last year. However, this is still behind last year’s rates of growth, which were between 6% and 7%.
The Mountain region remains out in front with a 7.8% pace of appreciation, while the Mid-Atlantic trails all other regions with 4% growth. Analysts point out that the growth rate is consistent with recent reports on the sales of both new and existing homes.
S&P CoreLogic Case-Shiller HPI
Home prices in this index were flat in the month of April and came in 0.2% below expectations. This is the worst monthly performance in seven years. However, on a non-seasonally adjusted basis, prices were actually up 0.8% and 2.5% on the year. Still, the annual pace is down 0.1% from March.
A big reason for the downturn? The cities in the West that had been the strength of this index are suddenly taking a big step back. In fact, Seattle, which was posting some of the biggest gains in prices for quite a while, is now flat and in last place among the 20 cities measured in this index. San Diego has only seen price gains of 0.8% year-over-year and is in next-to-last place.
Las Vegas continues to be out in front with year-to-year gains of 7.1%, but this is down from the peak of 13.9% in August.
Consumer confidence has fallen precipitously in June, down nearly 10 full points from May to come in at 121.5. Consumers were worried about issues with trade and tariffs.
In addition to these worries, 4.6% more people say jobs are hard to get, which makes for a total of 16.4%. In addition, fewer people see jobs as abundant and there are more people who think there will be fewer jobs available 6 months from now. Finally, income expectations in the future also took a turn for the worse.
Inflation expectations are up 0.5% to 5.1% in a move that’s being blamed on the trade situation with China. Meanwhile, for the first time in quite a while, more people see the stock market going down in the future rather than going up by a margin of 33.3% to 31.4%.
New Home Sales
New home sales fell about 8.5% in the month of May to come in at 626,000. This is the lowest seasonally adjusted annual sales rate since December. However, the 3-month average for this period is still 91,000 higher than it was at that time in December, which is important to know because this report is notoriously volatile.
In another negative, builders are deeply discounting prices, down 8.1% on the month to $308,000. Prices are now down 2.7% on the year, and sales are down 3.7% for the year.
The regional numbers aren’t any better. Although the Midwest and South both saw sales increases in the mid-single digits, sales in the West were down 36% to 125,000 annually with the Northeast also being down.
Supply was up 0.3% to 333,000 and improved to 6.4 months at the current sales pace as opposed to 5.9 months in April.
MBA Mortgage Applications
Mortgage applications were up 1.3% overall last week, despite purchase applications being down 1% as refinance applications rose 3%.
This momentum is mostly being driven by favorable rates as the average rate for a 30-year conventional mortgage was down eight basis points to 4.06%, according to this index.
Durable Goods Orders
New orders of durable goods were down 1.3% in May. When the transportation was removed, orders were up 0.3%. Finally, there was a 0.4% increase in orders of core capital goods.
There was a big decline in civilian aircraft owners as well as a downtick in requests for motor vehicles. The issues surrounding the Boeing 737 Max are probably the reason for many of the civilian aircraft order issues. It’s something we continue to keep an eye on. Another downside in the reports is a fall in shipments of core capital goods of 0.4%, marking the second straight backward slide.
New orders for fabrication were up 0.5% and machinery orders were up 0.3%, but there was a 1.1% downturn in orders of primary metals, making for consecutive monthly declines.
Ending on a positive note, inventories were up 0.5%, and there was a 0.4% increase in overall shipments.
International Trade in Goods
The U.S. trade deficit in goods increased by $3.7 billion to $74.6 billion in May. This is considered not to be a good sign for second-quarter GDP.
Exports were up 3% to come in at $140.2 billion. Foods, feeds and beverages were up 61% in May to $11.9 billion, though exports in this category are still down 9.1% on the year. Meanwhile, exports of capital goods were up 3.5% to $46.3 billion. This is still down 3.8% on the year. Meanwhile, the vehicle exports were up 4.7% to $13.8 billion and are actually up 1.5% on the year.
Now the downside. Imports were up 3.7% to $214.7 billion, which more than offset the export gains. Vehicle imports were up 7.5% to $33.2 billion and have gone up 10.9% on the year. Meanwhile imports of consumer goods were up 2.7% to $55.5 billion. However, a little bit of solace can be taken in the fact that imports in this category are down 2.4% on the year.
Gross Domestic Product (GDP)
The economy grew at a rate of 3.1% in the final reading for the first quarter of 2019. Real consumer spending was up only 0.9% vs. previous readings of 1.3% growth, however. This exactly matched the quarterly change in prices overall, while prices in core categories were up 1.3%.
There was a big upgrade to estimates of the nonresidential fixed investment, which means business growth. This category was up 4.4% compared to 2.3% in the last estimate. While still down, the outlook for residential investment also improved, falling only 2% vs. 3.5% in previous estimates. Government purchases were also up 0.3% to 2.8% in the final reading.
Inventory growth and better-than-expected net exports contributed quite a bit to the growth increase at 0.55% and 0.94%, respectively. Inventories in particular were better than they’d been in previous quarters.
Initial jobless claims for last week were up 10,000 to 227,000. This pushed the 4-week average up 2,250 at 221,250.
On the continuing claims side, these were up 22,000 to come in at 1.688 million. The 4-week moving average was up 6,500 to settle at 1.687 million.
Pending Home Sales Index
Existing homes under contract for sale were up 1.1% in May to an index level of 105.4. The index is still down 0.7% for the year, but the level is the best seen since July.
While the West has seen homes under contract decline 1.8% in May and 3.1% on the year, the rest of the housing industry is generally pointed in the right direction, according to analysts.
Personal income and Outlays
Incomes rose more than expected, going up 0.5% in May. Meanwhile, consumer spending met expectations for a 0.4% increase as prices rose 0.2% in both the overall and in core categories. Prices on the year are up 1.5% overall and 1.6% in key areas.
Wages and salaries were only up 0.2% in May, but much of the gain came from increases for business owners as well as investment and asset transfer income increases. Meanwhile, while a bit higher than expected for the month, inflation is still nowhere near the 2% target set by the Federal Reserve.
In spending categories, increased auto sales meant that spending on durable goods was up, which offset the decrease in spending on nondurable goods. Meanwhile, spending on services rose 0.4%, in line with gains in recent months.
Consumer sentiment was up 0.3 points in the final reading of June to come in at 98.2. This is down from 100 in May. Expectations were down a little more than four points to come in at 89.3, while the current conditions component saw a gain of nearly 2 points from its previous level of 112.5.
Consumers don’t expect inflation to rise very much, with expectations for the next year down 0.2% at 2.7% and falling 0.3% to 2.3% over the next five years.
Mortgage rates continued to fall last week amid continued uncertainty over global events, including not only trade events in China but also events in Britain as the country works toward coming to some sort of resolution in its divorce proceedings with the European Union. That’s right – Brexit remains a thing. We reiterate this every week seemingly, but if you’re in the market to buy or refinance a home, it’s a great time to lock your rate.
The average rate on a 30-year fixed mortgage was 3.73% with 0.5 points paid in fees, down 11 basis points on the week, and falling from 4.55% a year ago.
Meanwhile, looking at shorter terms, the average rate on a 15-year fixed mortgage with 0.5 points paid fell nine basis points to 3.16%, down from 4.04% last year.
Finally, the average rate for a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) was also down nine basis points on the week to 3.39% with 0.4 points paid. This has fallen from 3.87% at the same time in 2018.
The single most important piece of the market-moving news this morning is a late-Sunday announcement that the U.S. and China have declared a moratorium on further tariffs in order to get back to the negotiating table in good faith. However, this did nothing to stem market losses last week.
The Dow Jones Industrial Average was up 73.38 points Friday to close at 26,599.96. Despite this, the index was down 0.45% on the week. The S&P 500 was down 0.29% on the week to fall to 2,941.76, despite being up 16.84 points Friday. Finally, the Nasdaq closed at 8,006.24, down 0.32% on the week, but up 38.49 points on the day.
The Week Ahead
Monday, July 1
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, July 3
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.
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.
Thursday, July 4
Quicken Loans®, along with the nation’s stock and bond markets, will be closed in observance of Independence Day.
Friday, July 5
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.
There are some big economic indicators sandwiched around the holiday in this shortened week. We’ll be keeping a special eye on both the manufacturing report and the jobs number for June. It all be covered in next week’s Market Update.
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