There were lots of economic reports out last week, but the majority of the market was still focused on the reaction to Britain’s exit from the European Union. In that context, many normally very important reports may have gone unnoticed. Don’t worry, though. We’ve got it all covered. It’s time to extract yourself from the post-barbecue coma.
International Trade in Goods: The goods gap was up $3.1 billion, widening to $60.6 billion in May. Exports fell, while imports were up. There was a decrease in both the exports of cars and capital goods. These declines were major factors in an overall export drop of 0.2%. Imports were up 1.6% following strong gains in consumer goods. This is actually great because it points to confidence in U.S. retail. Imports of industrial supplies were also up. However, capital goods imports were a bit lacking.
GDP: In the final GDP estimate for the first quarter, real GDP actually rose 0.3% from the second estimate to come in, which was at 1.1% overall on a seasonally adjusted annual basis. Greater strength in net exports contributed more than 0.1% to the boost, with exports rising and imports falling. There was also an uptick in the revision to nonresidential fixed investment, which made the contraction in this area a little less of a problem and contributed to the upswing. In a negative, the contribution to GDP from personal consumption expenditures fell 0.3% to 1.0% overall after it was found that Americans spent less on services than previously believed.
S&P Case-Shiller HPI: Home prices were up 0.5% on a seasonally adjusted basis and 1.1% overall in April. They’re up 5.4% on the year. Additionally, there were gains in 17 of the 20 cities surveyed. However, declines in both San Francisco and San Diego may point to a moderating of the pace of appreciation in some extremely hot Western markets. Portland leads the way in terms of year-on-year gains, up 12.2%. Seattle and Denver are at 66% and 9.4%, respectively. The areas of slowest price growth are Washington, D.C., up 1.8% on the year, and New York City, at 2.6%.
Consumer Confidence: Consumer confidence was up 5.6 points to a higher than expected level of 98.0. This is the best reading since October of last year. Expectations for the future are up 6.0 points to 84.5. Income expectations were up, as was confidence in the jobs outlook. Meanwhile, the present situation component was up 5.1 points to 118.3. There was a 1.1% dip in the number of Americans who think jobs are hard to get. The negatives were buying plans and inflation. Fewer Americans expect to buy houses and cars in the near future. Inflation expectations were also down 0.2% to 4.7%.
MBA Mortgage Applications: Despite the fallout from Brexit causing mortgage rates to be at or near historic lows, applications were down last week, losing 2.6%. Purchases were down 3.0%, and refinance applications were down 2.0% despite the average rate on a 30-year-fixed mortgage falling one basis point to 3.75%.
Personal Income and Outlays: Personal incomes were up 0.2% to keep pace with inflation as prices rose by that amount both overall and in core categories. On an annual basis, inflation is up 0.9% and 1.6% in core areas. Meanwhile, consumer spending was up 0.4% in May. Much of this has to do with rising gas prices. The savings rate fell 0.1% to 5.3%, the lowest rate of the year. Wages and salaries were up 0.2%.
Pending Home Sales Index: Pending home sales were down 3.7% in May. This means there were fewer purchase agreements for pending sales. The index fell to 110.8, and there were declines in all four regions of the country.
Jobless Claims: Initial jobless claims were up 10,000 last week to a higher than expected 268,000. However, the numbers from the prior week were revised down, declining 19,000 to 258,000. The four-week average was unchanged at 266,750. In a positive, continuing claims were down 20,000 to come in at 2.120 million. The four-week average was also down 13,000 to 2.134 million.
ISM Manufacturing Index: Manufacturing had a good month as this index was up 1.9 points to come in at 53.2. New orders showed a sizable 1.3 point gain to 57.0. Export orders are also a point higher, at 53.5. Raw material costs are up. This cuts into profits but is good for inflation expectations.
Mortgage rates did decline in the wake of Brexit. However, the drop hasn’t managed to keep pace with the 10-year U.S. Treasury, which has been down 24 basis points. Typically, the treasury and mortgage rates are much more closely related.
Thirty-year fixed-rate mortgages (FRMs) averaged 3.48%, with an average 0.5 point for the week ending June 30, 2016, down from last week when they averaged 3.56%. A year ago at this time, 30-year FRMs averaged 4.08%.
Fifteen-year FRMs this week averaged 2.78% with an average 0.4 point, down from last week when they averaged 2.83%. A year ago at this time, 15-year FRMs averaged 3.24%.
Five-year Treasury-indexed hybrid adjustable rate mortgages (ARMs) averaged 2.70% this week, with an average 0.5 point, down from last week, when they averaged 2.74%. A year ago, 5-year ARMs averaged 2.99%.
The stock market rebounded as traders sobered up and adjusted to the post-Brexit reality. Things are essentially back to equilibrium.
The Dow Jones Industrial Average gained 3.15% for the week after being up 19.38 points, finishing the week at 17,949.37. The S&P 500 was up 4.09 points, coming in at 2,102.95, a 3.22% weekly rise. Finally, the NASDAQ was up 19.89 points, finishing the week at 4,862.57, a weekly rise of 3.28%.
The Week Ahead
Wednesday, July 6
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, July 7
Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals who filed 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 8
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.
It was a little bit calmer this week than last week. The employment situation report always has the potential to move markets one way or the other, and we’ll be keeping an eye on the Brexit situation.
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