I went to a smaller local university, but we do have a Division I basketball program. I was able to attend as my Oakland University Golden Grizzlies took on the Michigan State Spartans in Detroit on Saturday. We didn’t win, but we sure made it exciting until the end, being within four points with about five minutes left in the game.
It was an exciting week in the markets as well. The Federal Reserve had a meeting on short-term interest rates, and we had lots of inflation data in addition to the tax bill to watch. Let’s jump in.
Producer Price Index (PPI)
Producer prices rose 0.4% in November. They’re up 3.1% on the year. This metric is important because if producers of goods and services are paying higher prices for inputs to make those items, this eventually trickles down to consumers and inflation rises overall.
Higher gas prices, up 15.8%, did have an effect. Prices for fruit were up 3.9%, and vegetable pri
ces rose 2.4%. When food and energy are taken out of the equation, prices were up 0.3% and 2.4% yearly.
Trade services were down slightly. When these are further removed, inflation was up 0.4% and 2.4% annually.
Service prices were mostly flat, and the cost of hospital care was down 0.2%.
On the other hand, light truck prices were up 1.1%, as were legal services. November prices for consumer goods were up 1.7% and have gone up 5.3% yearly.
MBA Mortgage Applications
Mortgage applications were down 2.3% as the average interest rate on a 30-year fixed mortgage was up one basis point to 4.20%.
Purchase applications were down 1.0%, and refinance applications were down 3.0% on the week.
Consumer Price Index (CPI)
Inflation on the consumer side was up 0.4% in the month of November and has risen 2.2% on the year, just north of the Federal Reserve’s 2% target. However, much of this gain came from rising energy prices, with gasoline being up 7.3%. When food and energy are taken out, inflation has risen just 0.1% in November and it’s up 1.7% on the year.
Looking at individual categories, food prices were unchanged, as were prices for medical care. Apparel prices were down 1.9%. There’s some holiday discounting going on. Housing was also increasing very slowly, up 0.2% on the month.
Rising a little faster are wireless services, which were up 0.3%, and prescription drug costs, up 0.6%.
Initial claims were down 11,000 to 225,000 last week. This pulled the four-week average down 6,750, coming in at 241,500.
On the continuing claims side, they were down 27,000 to 1.886 million. The four-week moving average was just shy of 1.919 million, up 4,500 from the week before.
Retail sales were up 0.8% in the month of November, beating expectations for a 0.5% gain. October numbers were also revised upward 0.3% to 0.5%.
Auto sales were down 0.2%, and when this is taken out, sales are up 1.0% on the month. However, when both cars and gas are taken out, sales increases are back down to 0.8%. There was a 2.5% increase in non-store sales. People were doing a ton of online shopping before the holidays. Electronics and appliance sales were up 2.1%. Apparel sales were also up 0.7%, as were restaurants.
Industrial production was up 0.2% in November, with a manufacturing increase to match. This was a little below the 0.3% consensus estimate.
Still, it’s worth noting that production was up 0.3% to 1.2% in revised numbers for October. Manufacturing was up 0.1% to 1.4% in revisions.
Vehicle production was up 0.1% and high-tech production rose 0.3%. Business equipment was up 0.5% and manufacturing rose 0.6%. Overall factory capacity utilization was up 0.1% to 77.1%.
On the negative end, consumer goods production was down 0.4%. Utilities were down 1.9%. On the energy side, only mining was up 2.0% for a 9.4% yearly increase.
The Federal Reserve went forward with another increase in short-term interest rates last week. The good news is mortgage rates didn’t move much because the market had pretty much anticipated this.
The good news is rates are still pretty good right now. If you’re looking to get a mortgage, it’s a great time to lock your rate.
First up, the 30-year fixed-rate mortgage was down one basis point to 3.93% with 0.5% in fees and prepaid interest points. This is up from 3.70% at this time last year.
In shorter terms, the rate on a 15-year fixed mortgage with 0.5 points was flat for the week at 3.36%. At the same time a year ago, the rate was 3.35%.
Finally, the rate on a 5-year treasury-indexed hybrid adjustable rate mortgage (ARM) with 0.3 points in fees was up one basis point to 3.36%. Last year, the rate was 3.19%.
The stock indexes hit record highs as it looked like the passage of the tax bill was gaining momentum. Among the major provisions of the bill is a cut in corporate taxes.
The Dow Jones industrial average finished the week at 24,651.74, up 143.08 points and having risen 1.33% on the week. The S&P 500 was up 23.80 points on the day and 0.92% on the week after closing at 2,675.81. Finally, the Nasdaq finished the week up 1.41% after gaining any 0.06 points Friday to close at 6,936.58.
The Week Ahead
Monday, December 18
Housing Market Index (10:00 a.m. ET) – The National Association of Home Builders produces a housing market index based on a survey where 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 six months and traffic of prospective buyers in new homes.
Tuesday, December 19
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.
Wednesday, December 20
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.
Existing Home Sales (10:00 a.m. ET) – Existing Home Sales tallies the number of previously constructed homes, condominiums and co-ops in which a sale closed 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.
Thursday, December 21
Gross Domestic Product (GDP) (8:30 a.m. ET) – This measures the monetary value of all final goods and services produced within the U.S. This report is released on a quarterly basis.
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 four-week moving average of new claims smooths out weekly volatility.
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.
Friday, December 22
Durable Goods Orders (8:30 a.m. ET) – These are based on new orders placed with domestic manufacturers for factory hard goods.
Personal Income and Outlays (8:30 AM ET) – This is a measurement of how much consumers are taking in as well as their corresponding spending. This also gives insight into how much is being saved.
New Home Sales (10:00 a.m. ET) – This measures the number of newly constructed homes with a committed sale during the month.
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.
Everyone is trying to release their economic data before everyone leaves for the holidays next week. While we’re on the subject, Market Update won’t be out next Monday because Quicken Loans is closed for the Christmas holiday. I’ll have Market Update ready for you next Tuesday. Happy holidays!
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