I hope everyone enjoyed the long weekend. My basketball team beat our cross-town rival, so that’s always exciting.
Unfortunately, the federal government has now been shut down for 32 days. Here’s hoping there’s a resolution soon for those looking to get back to work. The shutdown also means less economic data, so in the meantime, we’ll be telling you what we can.
Producer Price Index (PPI)
Prices for producers were down 0.2% in December. When food and energy were taken out, they fell 0.1%. When trade services were further removed, prices were flat. Prices were up 2.3% on a seasonally adjusted basis overall in 2017 and rose 2.8% when taking out food, energy and trade services.
Taking a look at category details, energy prices were down 5.4% in the second consecutive 5% drop. There was also a 0.1% downturn in the price of services and a 0.3% dip in trade services pricing for the retail and wholesale areas.
Consumer indicators in this report aren’t necessarily good as personal consumption is down 0.2% and finished consumer goods demand was down 0.6%.
MBA Mortgage Applications
As we’ve discussed often in recent weeks, the government shutdown is creating a certain amount of uncertainty in the markets and causing money to flow into bonds, which has the effect of keeping mortgage rates low.
The average rate on a 30-year-fixed mortgage was unchanged at 4.74%, the lowest rates have been in some time. Applications to refinance were up 19% while purchase applications increased 9%. Applications moved up 13.5% overall.
The release of December data has been delayed by the government shutdown. We’ll cover it if and when it’s released.
This data has also been put on the back burner until the shutdown is over. I have a feeling we’re going to have quite the backlog to catch up on when the time comes.
The impact of the government shutdown is starting to be felt in this report. Initial jobless claims by federal workers nearly doubled to 10,454 last week. Despite this, overall initial claims were down 3,000 to 213,000. The four-week average of initial claims was down 1,000 to 220,750.
On the continuing claims side, these rose 18,000 to 1.737 million. The 4-week average of continuing claims was up 8,000 to come in at 1.729 million.
Production was up 0.3% in December with manufacturing up 1.1%. Overall capacity utilization in factories was up 0.1% to come in at 78.7%.
Vehicle production was up 4.7%, despite what analysts are calling a fairly flat year in terms of sales. It’s worth noting that this is the time of year that auto manufacturers change over the production lines to begin building vehicles for the new model year, so that undoubtably has something to do with it.
Mining production was up 1.5%, although utility production fell 6.3% due to what’s being called unseasonably warm weather. That’s likely to change if the Arctic blast hitting Michigan and other parts of the country right now continues to hold for the remaining days in January. Stay toasty, people!
Construction supplies were up 1.6% on the month, while business equipment was up 0.5%. In one last positive indication, consumer goods were flat.
December is the time when all these reports get summed up for the year. Production was up 7.8% overall for vehicle and 5% for business equipment. There was a 2.1% rise in construction supplies and manufacturing as a whole was up 3.2% in the energy sector, there was a 13.4% increase in mining activity coupled with a 4.3% drop in utility production.
Early indicators are that consumers aren’t happy with the government shutdown. This forced overall consumer sentiment members to plunge 7 points to 90.7 in preliminary January numbers.
Expectations for the next six months fell nearly 9 points to 78.3 while consumer analysis of current conditions was down more than 6 points to come in at an even 110. In addition to the shutdown, the public has concerns over tariff impacts and the recent ups and downs in the stock and bond markets.
In terms of inflation, the outlook for the next year was flat at 2.7%, while the consumer forecast for the next 5 years was up 0.1% to 2.6%.
Mortgage rates didn’t move very much at all last week. The continuing story seems to be about the government shutdown. As bad as it sounds, market uncertainty tends to lead to lower mortgage rates. If you’re in the market to purchase or refinance, it might be a good time to lock your rate.
The average rate according to Freddie Mac for a 30-year fixed mortgage with 0.4 points in fees was unchanged at 4.45%. At the same time a year ago, the rate was 4.04%.
Meanwhile, looking at shorter terms, on a 15-year mortgage with 0.4 points, the rate was 3.88%, down a single basis point from the week prior. Last year at this time, the rate was 3.49%.
Finally, the average rate for a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) was up 4 basis points to 3.87% with 0.3 points paid. The rate was 3.46% last year.
The stock market appears to be having a real bounce back. It’s been up each of the last four weeks. There seems to be progress on the trade front between the U.S. and China. Chinese authorities are reportedly offering to increase imports from the U.S. with the goal of eliminating the trade imbalance between the countries by 2024. Investors reacted positively to the news.
The Dow Jones Industrial Average was up 3.33% on the week to close at 24,706.35, rising 336.25 points on the day. The S&P 500 finished Friday at 2,670.71, up 3.41% on the week and 34.75 points on the day. Finally, the Nasdaq rose 72.77 points to finish at 7,157.23, edging up 3.64% for the week.
The Week Ahead
Tuesday, January 22
Existing Home Sales (10:00 a.m. ET) – Existing Home Sales tallies the number of previously constructed homes, condominiums and co-ops that were sold during the month. Existing homes (also known as “home resales”) account for a larger share of the market than new homes and indicate housing market trends.
Wednesday, January 23
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.
FHFA House Price Index (9:00 a.m. ET) – The Federal Housing Finance Agency (FHFA) House Price Index (HPI) covers single-family housing using data provided by Fannie Mae and Freddie Mac. The HPI is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.
Thursday, January 24
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, January 25
Durable Goods Orders (8:30 a.m. ET) – These are based on new orders placed with domestic manufacturers for factory goods.
New Home Sales (10:00 a.m. ET) – This report measures the number of newly constructed homes with a committed sale during the month.
It’s important to note that these are the releases that are scheduled. If the government shutdown doesn’t end, Friday’s tallies of durable goods orders and new home sales wouldn’t come out.
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