It’s the third Monday in March, and that means a lot of busted brackets in the big college basketball tournament. If you’ve been following the hoops action this weekend, you know there were a couple of big upsets. We’ll definitely be crowning a new national champion.
The market saw some similar excitement last week. The Federal Reserve did exactly as expected, but the aftermath of the decision did surprise. Thankfully, it was the good kind.
Producer Price Index (PPI): Prices were up 0.3% on the producer side in February. They’ve now risen 2.2% on the year. The headline number matches the 0.3% gain seen when food and energy is taken out. That number is up 1.5% annually. The monthly gain was also 0.3% when trade services were removed. It’s up 1.8% on the year. Energy prices were up 0.6%. Goods prices were up 0.3% with services rising 0.4%. Travel lodging was quite a bit higher.
MBA Mortgage Applications: The average rate on a 30-year fixed-rate conforming mortgage was up 10 basis points to 4.46% last week, the highest it’s been since April 2014. This did nothing to dissuade those in the mortgage market, probably looking to get in ahead of the Fed announcement. Applications for purchase were up 2.0% with refinance inquiries being up 4.0%. These were up 3.1% overall.
Consumer Price Index (CPI): On the consumer side, inflation numbers came in exactly as expected, gaining 0.1% in February. Prices are up 2.7% overall on the year. When food and energy are taken out, prices were up 0.2% and 2.2%, respectively. Energy prices were down 1.0%, with a 3.0% decrease in prices at the pump. While this month’s gas price drops are a welcome respite for the wallet, they’re still up near 31% since last February. Recreation and apparel prices were up 0.6% each. Food and medical care costs were up 0.2% and 0.1%, respectively. Housing costs were up 0.3% and 3.2% on the year.
Retail Sales: Spending at retailers was up 0.1% in February, meeting expectations. January was also revised 0.2% higher to 0.6%. These gains were made in spite of falling auto sales, which were down 0.2%. Sales were up 0.2% when automobiles were taken out. Gasoline prices were also down 0.6% and gains were 0.2% when cars and gas were removed. Sales in a control group of products were up 0.1% in February.
Housing Market Index: After being down a point in February, the housing market index roared back in March, coming in up six points to 71. This is the best reading of the economic cycle. Current sales come in at 78, a gain of seven points on the month. Future sales also were up five points to match that number. Traffic of first-time home buyers in new homes is up eight points to 54. This is big, because this number has been low.
Housing Starts: Starts were up in February for single-family homes at a rate of 6.5% to 872,000, which is up 3.2% in the year. Multifamily housing starts fell 3.7% to come in at 416,000, but they’ve still seen a 13.0% gain on the year. The overall seasonally adjusted annualized rate is 1.288 million. Permits were up 3.1% in February to come in at 132,000, which is up 13.5% on the year. Multifamily permits did fall 22% to 381,000, down 11.2% on the year. Overall permits were at 1.213 million.
Jobless Claims: Initial claims were down 2,000 last week to come in at 241,000. The four-week average did rise slightly to 237,250. Continuing claims were down 30,000 last week to 2.030 million. The four-week moving average was down 11,750 to 2.054 million.
Industrial Production: Production came in flat in February. However, manufacturing saw a huge 0.5% increase. Factory capacity utilization was up 0.1% to 75.4%. January production numbers were also revised 0.3% higher to 0.5%. There were gains in both business equipment and car production. Overall production was held down by warm weather. That meant less energy and less work on the utilities end as production in this category was down 5.7%. Other key numbers included mining, which is up 2.7%. That’s the strongest it’s been since September 2015.
Consumer Sentiment: Sentiment was up 1.3 points in March to 97.6. Consumers think current conditions are very good. This reading was up three points to 114.5, and the highest they’ve been in three years. Expectations are up 0.2 points to 86.7. It’s worth noting that there’s a big gap between Republicans and Democrats in this area. Expectations among Democrats are at 55.3, which is consistent with an eminent recession. Republican expectations settle at 122.5. Independents split the difference at 88.3. The one-year outlook for inflation was down 0.3% to 2.4%. The five-year outlook saw the same drop to come in at 2.2%.
As we alluded to above, the Fed met expectations by raising short-term interest rates 0.25 points. The surprising thing was that mortgage rates dropped after this. The market had expected the rate increase, but some of the things the Fed said afterward actually made the markets happier and rates fell. It’s a great time to lock your rate right now.
It’s important to note that the following data was collected before the rate decision was made, so Freddie Mac shows the rates as being higher.
Last week, 30-year fixed-rate mortgages (FRMs) averaged 4.30% with an average 0.5 point for the week ending March 16, 2017, up from last week when they averaged 4.21%. A year ago at this time, 30-year FRMs averaged 3.73%.
Shorter-term 15-year FRMs this week averaged 3.50% with an average 0.5 point, up from last week when they averaged 3.42%. A year ago at this time, 15-year FRMs averaged 2.99%.
Finally, 5-year Treasury-indexed hybrid adjustable rate mortgages (ARMs) averaged 3.28% this week with an average 0.4 point, up from last week when they averaged 3.23%. A year ago, 5-year ARMs averaged 2.93%.
U.S. stocks were mixed on Friday as financial and health care stocks weighed the market down a little bit. That said, there were still some weekly gains.
The Dow Jones Industrial Average finished Friday at 20,914.62. This was down 19.93 points and up 0.06% for the week. The S&P 500 was down 3.13 points to close at 2,378.25. This was up 0.24% since last Friday. The NASDAQ barely moved on Friday, up 0.24 points to close at 5,901 exactly. The change over the last five days has been a 0.67% gain.
The Week Ahead
Wednesday, March 22
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.
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, March 23
Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to report 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.
New Home Sales (10:00 a.m. ET) – This measures the number of newly constructed homes with a committed sale during the month.
Friday, March 24
Durable Goods Orders (8:30 a.m. ET) – These are based on new orders placed with domestic manufacturers for factory hard goods.
Lots of housing data is on the way next week. Durable goods orders should give us some insight into the manufacturing sector as well.
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