I came in this morning thinking the lead story in this update would be the coronavirus, and in a way, it still is, but the knock-on effects are what’s starting to concern markets more. We’ll get into how this is affecting oil prices later on, but I feel like some of this could be a bit alleviated by not panicking and remembering a lesson I learned from “Barney and Friends” eons ago. “Everybody wash your hands, wash your hands, wash your hands.”
Yeah, that’s where we’re at this morning. Market news is moving so fast that an announcement the Federal Reserve made last Tuesday seems like months ago at this point. Let’s see how economic data came out.
As always, summary assistance was provided by Econoday.1
ISM Manufacturing Index
This key manufacturing index didn’t slow in February, but it didn’t grow very much either, coming up just above the breakeven point at 50.1.
Delivery times were slower with this metric being up 4.4 points at 57.3, which is tied to disruptions in Chinese supply due to the COVID-19 outbreak. New orders were down 2.2 points to 49.8. However, there’s good news in the fact that backlogs were higher, up to 50.3 from 45.7 in January. This helps hiring because if there’s a backlog of orders to fill, businesses need more employees. New export orders are at 51.2.
Turning back to employment for a second, this metric was up 0.3 points to 46.9. This means the manufacturing workforce may still be shrinking, but not as fast. Prices paid for materials were down more than seven points to 45.9, which is a sign that there’s not as much demand. Production is still growing, but not as quickly, down four points to 50.3.
MBA Mortgage Applications
Mortgage applications were up 15.1% overall, led by a 26% increase in refinance applications. Purchase applications were down 3% but are still up 10% on the year.
What’s driving all this? The average rate on a 30-year fixed mortgage were down 16 basis point to 3.57%, according to this survey.
Initial jobless claims were down 3,000 last week to 216,000. Meanwhile, the 4-week moving average was up 3,250 to settle at 213,000.
Continuing claims were up 7,000 to 1.729 million. However, the 4-week average of continuing claims was down 7,500 to about 1.721 million.
The economy added 273,000 jobs in February, blowing away consensus estimates for a 177,000-job increase. The unemployment rate also fell 0.1% to 3.5%. There were 228,000 jobs added to private payrolls including 15,000 in the manufacturing sector. The government added 45,000 jobs. There’s been strong spending at the federal and state level. The labor force participation rate remained at 63.4%.
Average hourly earnings were up 0.3% and 3% since February of last year. Meanwhile, the average workweek was up just a bit to 34 hours, 24 minutes.
Construction payrolls were up 42,000 in February, which is a good sign for housing start. Professional and business services was another strong area of growth, up 41,000. Contractors are filling long-sought positions. It’ll be interesting to see how this unfolds because these numbers were collected before the coronavirus hit the U.S.
The overall U.S. trade deficit in January shrank by $3.3 billion to $45.3 billion. However, there are signs that this may not be good for the long-term future of the global economy. Imports were down 1.6% to $253.9 billion, while exports were down 0.4% to $208.6 billion.
One thing that analysts will continue to watch is the impact of the coronavirus outbreak. The deficit with China was $26.1 billion as opposed to $24.8 billion in December, so as of January, we were still importing a ton from the country. We’ll see how that progresses in the months ahead.
In response to the coronavirus, the Federal Reserve chose to cut rates on an emergency basis in between meetings last Tuesday, dropping the benchmark federal funds rate by 0.5 points to a range between 1% – 1.25%.
While longer-term rates for things like mortgages aren’t falling as fast as the short-term interest rates on which this is based, they do follow the same directionality in general. Mortgage rates have fallen to historic lows at this point, based on Freddie Mac data. It’s an excellent time to lock your rate.
The average rate on a 30-year fixed mortgage was down 16 basis points to 3.29% with 0.7 points paid in fees. This has fallen from 4.41% last year.
Meanwhile, looking at shorter-term mortgages, a 15-year fixed mortgage with an equal number of points also fell 16 basis point to 2.79%. This is down from 3.83% last year.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage with 0.2 points paid was down a couple of basis points to 3.18%, having dipped from 3.87% a year ago.
It’s been kind of a crazy day so far on the stock market. Essentially, the S&P 500 went down 5.5% this morning, causing trading to be paused for 15 minutes in a measure to prevent stock selloffs from causing a crash. The Dow Jones Industrial Average has also been down 2,000 points at one time today with the S&P dropping as much as 7%.
The coronavirus itself is certainly causing some of this is there are now 500 reported cases in the U.S. and 22 deaths. However, the bigger issue is that a deal to prop up the oil market in the wake of the outbreak between Saudi Arabia and Russia felt through this weekend. As a result, Saudi Arabia has decided to massively cut oil prices in order to gain market share at the expense of their Russian counterparts. The glut of oil is causing stocks to drop.
Stocks have been very up and down in recent days, so while the Dow was up 1.79% on the week, falling 256.5 points Friday to 25,864.78, there was a 51.57-point drop on the S&P Friday to finish at 2,972.37. Finally, the Nasdaq finished Friday at 8,575.62, up 0.1% on the week, but down 162.98 points on the day.
The Week Ahead
Wednesday, March 11
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.
Consumer Price Index (CPI) (8:30 a.m. ET) – The consumer price index measures changes based on the price of a fixed basket of goods and services purchased by consumers.
Thursday, March 12
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.
Producer Price Index (PPI) (8:30 a.m. ET) – The Producer Price Index measures the average change over time in prices received by domestic producers for the sale of goods and services.
Friday, March 13
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.
There’s not that much data coming out next week, but we do get inflation. It’ll all be covered in next week’s Market Update!
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