It seems like life in general proceeds in fits and starts right now. One need look no further than baseball, which has gotten started, but not without its share of cancellations related to the virus.
Things in the economy are just as tenuous. There are signs of life, but there are also indications that we’ve got a way to go and plenty to figure out.
Parts of this report were put together with analysis by Econoday.1 Let’s dig in and see what happened!
Durable Goods Orders
Durable goods orders continued to rebound in June, up 7.3% from May. When transportation such as vehicles and aircraft were taken out, these orders were up 3.3%, which also matches the gain in core categories.
Despite this, orders still remain 19% below where they were in February before the shutdown.
Digging into the June numbers further, vehicle orders were up 85.7% at $52.8 billion, offsetting a $10.3 billion decline in orders for aircraft that’s primarily driven by a lack of air travel.
There were gains in the mid- to high single digits for primary metals, fabrications and machinery. Meanwhile, there were slightly lower gains for communications and electrical equipment. Computer orders were flat.
Shipments were up 14.9% for the month but still down 10.7% on the year. It’s taken a while to figure out supply lines in this new reality. Meanwhile, shipments of core capital goods were up 3.4%, while unfilled orders, a key measure of demand, dropped 1.4%.
S&P CoreLogic Case-Schiller HPI
In May, the S&P home price index was flat. It’s important to note that this isn’t a measure of current prices because the data runs 2 months behind its release. Also, unlike the Federal Housing Finance Agency index of home prices, this is a 3-month average.
When taking out an adjustment for seasonality, prices were up 0.4% and they’ve gone up 3.7% since the numbers reported last May. Although it’s one reading, it does show the impact of COVID-19 on home prices, however briefly.
In a sign that consumers are worried about persistently high levels of the virus, consumer confidence fell almost 64 points to 92.6 in July. To get an idea of how much COVID-19 played in, there were big declines in California, Florida and Texas, which have been very affected by increasing cases of transmission.
Expectations for the future were down almost 15 points to come in at 91.5, pointing to the idea that consumers are worried about what things will look like 6 months from now. Particular worries stemmed from the employment levels as well as personal finances.
Taking a look at specifics, there’s an 8% downturn in people who see more jobs opening up 6 months from now at 30.6%. Meanwhile, there was a 6% uptick in those who believe there will be fewer jobs available.
The good news is that consumers viewed the present situation much more favorably, with that reading rising 7.5 points to 94.2. There was a 3.3% drop in those who see jobs as hard to get, still elevated at 20%. However, any positive is good.
MBA Mortgage Applications
Mortgage applications were down 0.9% overall across the industry last week, according to the Mortgage Bankers Association. This included a 2% drop in purchase applications, which are still up 21% on the year. Meanwhile, applications to refinance were down 0.4%.
The average rate for a 30-year fixed conforming mortgage was 3.2%, unchanged on the week.
International Trade In Goods
The national trade deficit fell nearly $5 billion last month to $70.6 billion. This is a bit of a boon to GDP, which has net exports as a component.
Speaking of exports, these were up 13.9% including a nearly $5 billion rise in vehicle exports to $8.3 billion. All other major categories also saw a rise with the exception of a downturn in food exports. Still, trade is not where it should be, and exports are down 23.9% on the year.
Meanwhile, imports were up 4.8% on the month, albeit down 17.2% since last year. Vehicle imports again drove this as they were up almost $10 billion.
Pending Home Sales Index
In June, pending home sales were up 16.6% overall and the index level was 116.1. This is a great sign for July existing home sales. What makes the bright spot even brighter is that sales are up 6.3% since last June, prior to everything that’s happening right now.
Gross Domestic Product (GDP)
Anyone who follows the economic reports has known this for a while, but it still doesn’t make the numbers any easier to swallow: We’re officially in a fairly deep recession, often defined by two consecutive quarters of declining economic activity.
Real GDP was down 32.9% on a seasonally adjusted annual basis in preliminary ratings for the second quarter. Moreover, there was a 34.6% drop in consumer spending over the same period.
Nonresidential fixed investment, a key indicator of business activity, was down 27%, while residential investment fell 38.7%. It’ll be interesting to see if the latter category has a significant uptick later in the year given high mortgage application levels, particularly among those looking to buy.
Consumer spending had a negative contribution of 25.05% when it came to overall GDP. Meanwhile, inventories pulled it down 3.98%.
Nonresidential investment was responsible for a decline in 3.62% with residential investment dropping at 1.76%. Exports added 0.68% to the number, but that was mostly due to a big decline in imports with overall trade being down. Meanwhile, government spending added 0.82% to GDP as spending at the federal level offset cutbacks in state and local budgets.
Initial jobless claims were up again last week, rising 12,000 to come in at 1.434 million, well above consensus estimates. The 4-week moving average was up 7,000 to 1.369 million.
On the continuing claims side, these were up for the first time in 2 months. They rose 867,000 to 17.018 million, while the unemployment rate was up 0.5% to 11.6%. The 4-week average was down 435,500 to come in at about 17.058 million.
Personal Income And Outlays
Personal incomes were down 1.1% in June after falling 4.4% in May. Despite this, consumer spending was up 5.6% after rising 8.5% the prior month. Consumers are putting 19% of their disposable income toward savings right now, an effect being blamed on the stimulus.
Inflation was up 0.4% overall and 0.2% in core categories. The core categories exclude energy and food. Meanwhile, prices are up 0.8% overall and 0.9% in the core since last June.
In the University of Michigan’s final reading for July, Consumer sentiment was down 0.7 points from the midmonth reading, at 72.5.
Among the key readings, there was a 6-point downtick in expectations at 65.9. Also, there was a 4-point drop in current conditions readings. There are concerns that the end of the enhanced unemployment benefits will mean missed payments on rent and debt.
Inflation expectations in the next year were flat at 3% with a longer-term 5-year outlook up 0.1% at 2.6%.
Before getting into mortgage rates, the Federal Reserve had a meeting last week and it’s probably useful to understand the environment mortgage traders are operating in. I’ll give a brief summary, but we also have a full report.
The Federal Reserve chose to keep short-term interest rates where they were for now at a range of 0% – 0.25%. Although not directly related, mortgage rates tend to follow the same general trends as short-term rates. Additionally, the Federal Reserve pledged to keep buying mortgage-backed securities. More participants in that market mean that the yields on those items tend to be driven down, which drives down rates.
If you’re able to, it’s a great time to get a mortgage right now because rates are in your favor. Feel free to speak with one of our Home Loan Experts.
The average rate on a 30-year fixed mortgage rate was down 2 basis points to 2.99% with 0.8 points paid in fees. This has fallen from 3.75% a year ago.
Looking at shorter terms, the average rate on a 15-year fixed mortgage with 0.7 points paid was down 3 basis points at 2.51%, having fallen from 3.19% last year.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage was down a sizable 15 basis points to 2.94% with 0.4 points paid. This has fallen from 3.46% last year.
A rally in tech boosted the stock market Friday. Amazon, Apple and Facebook all showed solid gains after having overwhelmingly positive quarterly results.
It was enough to offset a 2.7% downtick in Chevron stock after the company reported an $8.3 billion second-quarter loss given COVID-19-related declines in travel and commuting. Banks and retailers were also down given poor GDP numbers.
The Dow Jones Industrial Average was down 0.16% on the week despite rising 114.67 points Friday to close at 26,428.32. Meanwhile, the S&P 500 was up 24.9 points Friday to close at 3,271.12, up 1.73% on the week. Finally, the Nasdaq finished the week at 10,745.28, up 157.46 points and rising 3.69% weekly.
The Week Ahead
Monday, August 3
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, August 5
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.
Thursday, August 6
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, August 7
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.
As usual with the beginning of the month, there aren’t that many reports out, but what is lacking in volume is made up for in substance. We’ll be keeping a special eye on the manufacturing and employment reports for July.
If mortgage rates and economic data don’t get you excited for a new week, we’ve got plenty of home, money and lifestyle content to share with you if you subscribe below.
Are you feeling in need of a java jolt this Monday afternoon? Here are some excellent coffee bar ideas. Have a great week!
1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2020 Econoday, Inc. All rights reserved.
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