GDP Unfazed by Soft Housing Data – Market Update

Our thoughts are with the victims of last night’s shooting in Las Vegas as well as their friends and family.

Last week in the markets, we got some housing data and also some information on the overall economy, including GDP and personal incomes.

Headline News

S&P Corelogic Case-Shiller HPI

Home prices were up 0.3% on a seasonally adjusted basis in July. They were up 0.7% overall and 5.8% overall on the year. Dallas was up 7.4% in July, and Tampa was at 7.1%, with Miami at 5.2%. Houston isn’t one of the 20 cities covered in this report, but this will give some point of comparison for the hurricanes’ effect on the market. Prices in Seattle are at 13.5% growth on the year, and Portland is at 7.6%. Chicago and Washington, D.C., are both up 3.4% on the other end. Cleveland and New York City are also very low in terms of price appreciation as well.

New Home Sales

New home sales fell from 571,000 on a seasonally adjusted annual basis to 560,000 in August. As with existing homes, sales were down in the South, falling 4.7%, and it pulled down the rest of the report. Sales also fell 2.7% in the Northeast and 2.6% in the West. Midwestern numbers were unchanged. The median price for a new home fell 6.2% to $300,200. This is up only 0.4% on the year. Meanwhile, sales are down 1.2% on the year. With builders adding 12,000 more homes to the market, the supply of new homes is now at 6.1 months, indicating a market in balance between buyers and builders.

Consumer Confidence

We’ll be talking about hurricane effects for a while, and less confidence in Texas and Florida did play a big role in consumer confidence falling 3.1 points to 119.8 in September. Still, levels are unusually strong. Only 18.1% of Americans view jobs as hard to get, down 0.3% from August. There’s also a rosier outlook for the future, with 2.7% more Americans expecting more jobs to open up in the next six months, with the overall level for this metric coming in at 19.5%. In terms of income expectations, 20.5% of those surveyed say they see incomes rising soon, while only 8.3% see declines. Inflation expectations did rise 0.4% to 4.9%, but this may be tied to rising gas prices in the wake of the storms. There were also downturns in plans to buy houses and cars.

MBA Mortgage Applications

Mortgage applications fell 0.5% overall last week. A 3.0% increase in purchase applications wasn’t quite enough to make up for a 4.0% decline in refinance applications. That decline may have had something to do with rising rates, as the average rate on a 30-year conforming fixed mortgage was up seven basis points to 4.11%

Durable Goods Orders

New orders of durable goods were up 1.7% in August, and they’ve risen 5.1% on the year. Core capital goods were up 0.9% and have risen 3.6% on the year. When transportation was taken out, orders were up 0.2% on the month and 6.1% on the year. There was a 45% increase in civilian aircraft orders that accounted for much of the gain. Defense capital goods orders were down 9.4%. Fabricated metal orders fell 0.4%. Computer orders fell 2.3%, and electrical equipment was down 0.1%. Motor vehicle orders were up 1.5% in August, as was communications equipment, up 4.0%. There was a 0.3% rise in total shipments. One negative was manufacturing production, which fell 0.3% in August.

Pending Home Sales Index

The number of homes under contract for sale was down 2.6% to 106.3. Hurricane Harvey likely had an effect on sales in the South, which were down 3.5%. However, sales are down everywhere, falling 4.4% in the Northeast, 1.5% in the Midwest and 1.0% in the West. Pending sales are down 5.3% on the year, an issue that’s being attributed to higher asking prices and slower wage growth.

Gross Domestic Product (GDP)

The economy grew at a rate of 3.1% for the second quarter. Nonresidential fixed investment was up 7.0%. Consumer spending was up 3.3%. Slightly offsetting this was a revision to durable goods spending that had this category falling slightly. Both imports and exports were down a bit. Housing output fell, dropping 0.3% from the overall GDP number as a result.

International Trade in Goods

The nation’s goods gap fell by $1.0 billion to $62.9 billion in August. Exports were up 0.2%, and imports were down 0.3% in August. On the export side, there were rises in orders for consumer goods and also capital goods. Consumers imported less in industrial supplies, capital goods and food items.

Jobless Claims

Jobless claims were up 12,000 to 272,000 last week. Claims in Texas came in at 20,169, roughly double what they normally are, after Harvey. That said, they’re falling steadily for peak levels. Claims in Florida rose to 18,212 from 10,052 last week, and they’re up by about 3,000 in Georgia as well. Claims in Puerto Rico and the Virgin Islands also rose slightly. Continuing claims were up 45,000 to come in at 1.934 million, with the four-week average at 1.950 million, down 2,750 from last week’s average.

Personal Income and Outlays

Personal incomes were only up 0.2% in August. Consumer spending rose 0.1%. Prices were up 0.2% overall, while they rose 0.1% in core categories. Year-on-year inflation is only up 1.4% overall and 1.3% in core categories. There was also a downward revision to July spending numbers. The August savings rate was unmoved at 3.6%. Some of the spending weakness is blamed on Hurricane Harvey. There was a 1.1% drop in auto sales. Meanwhile, spending on services and nondurable goods did increase. Inflation likely would have been weaker if it weren’t for a weather-related increase in gasoline prices. Wages and salaries were unchanged.

Consumer Sentiment

Consumer sentiment fell just slightly in the final reading of September to 95.1. The hurricane likely affected the downturn in optimism among respondents in Florida and Texas. Overall, sentiment is 1.7 points behind where it was in August. There was a 3.3 point decline in expectations to 84.4, but that’s still up 2.1% compared to where it was last year. There was a 0.8% increase in the current conditions reading to 111.7, up 7.2% on the year. Inflation expectations are unchanged at 2.7%.

Mortgage News

Rates for fixed-rate mortgages were unchanged last week, according to Freddie Mac data. They remain very low, so if you’re in the market to get a mortgage, it’s a great time to lock your rate.

The average rate on a 30-year fixed-rate mortgage last week remained at 3.83% for 0.6 point in fees. At this time last year, the average rate was 3.42%.

In shorter terms, the 15-year fixed-rate mortgage came in at an average of 3.13% for 0.5 point in fees. The rate was 2.82% at this time last year.

Finally, the 5-year treasury-indexed hybrid adjustable rate mortgage (ARM) was up an average of three basis points to 3.20% for a 0.5 point in fees. Last year at this time, the average rate was 2.81%.

Stock Market

Most Fridays are good Fridays, but the stock market had an exceptional one to close out the third quarter. The S&P 500 closed at a record, and the Dow Jones industrial average posted its eighth straight quarterly gain, something it hasn’t done in the last 20 years.

The Dow Jones closed at 22,405.09, up 23.89 points. It rose 0.25% on the week. The S&P 500 was up 9.30 points to 2,519.36, up 0.68% on the week. The Nasdaq was up 1.07% on the week after closing at 6,495.96, up 42.51 points on Friday.

The Week Ahead

Monday, October 2

ISM Manufacturing Index (10:00 a.m.) – This index measures the general direction of manufacturing within the U.S. The qualitative survey of purchasing managers looks at production, new orders, order backlogs, inventories and supplier deliveries, among other factors.

Wednesday, October 4

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.

Thursday, October 5

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.

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.

Friday, October 6

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.

We get the biggest manufacturing report of the month today. We’ll cover it in next week’s Market Update along with the always important jobs report on Friday.

If the idea of the economic news and mortgage reports acts more like a sleep aid than the caffeine boost I’m sure we could all use this Monday, we have plenty of home, money and life content we can’t wait to share with you when you subscribe to the Zing Blog below.

It’s October, and that means Halloween is just around the corner. This is an underrated food holiday, particularly if you’re willing to get a little creative. For those of you looking to get a jump on the party planning, here’s a list of recipes that should provide a treat for ghosts and ghouls of any age. Have a good week!

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