Rates on the Rise – Market Update

We’re in the middle of our Big Game party. Have you seen our commercial yet? We hope you enjoy it!

Anyway, I didn’t want to get up early tomorrow morning and start writing this post, so I figured I would get a jumpstart. If you’re reading this Monday, congratulations to the winners. For the fans of the other 31 professional football teams, there’s always next year, right? Let’s go, Lions!

Taking a look at the market data from last week, the employment numbers came in above expectations, but the stock market didn’t perform as well as it has recently. The Federal Reserve also made a rate decision that impacts your mortgage rates. Let’s jump right in.

Headline News

Personal Income and Outlays

Personal incomes were up 0.4% in December with the help of a 0.5% gain in wages and salaries. There was a matching increase in consumer spending, which was probably helped by holiday shopping season. November spending was also 0.2% higher in revisions, coming in at 0.8%.

In terms of inflation, overall prices were up 0.1% on the month and 0.2% in core categories. On the year, these categories are up 1.7% and 1.5%, respectively.

In one negative, Americans are saving less: The savings rate is down 0.1% to a 13-year low at 2.4%.

S&P CoreLogic Case-Shiller HPI

Home prices went up 0.7% on a seasonally adjusted basis across the 20-city index in November. They were up 0.2% when this adjustment was taken out. They’ve gone up 6.4% overall on the year.

Prices in San Francisco rose 1.8% in November to lead monthly gains. On the year, Seattle is out in front with prices that have risen 12.7% with Las Vegas close behind at 10.6%. Washington, D.C. and Chicago had the smallest year-on-year gains at 3.3% and 3.6%, respectively.

Consumer Confidence

Consumer confidence rose 2.3 points in January to come in at 125.4. There was also an upward revision of one point in December confidence numbers. Expectations were up five points to 105.5. Meanwhile, the present situation component was down just over one point, remaining extremely strong at 155.3.

Part of the downturn in the present situation component is a 0.4% rise to 16.4% in the number of Americans who say jobs are hard to get. However, this is still very low for this reading. Another reading of interest is that 51.6% of Americans are bullish on the stock market, with an increase by more than 5% in January in the number of people who think it will go up in the next year.

Inflation expectations still remained very low. The one-year inflation outlook fell 0.2% to 4.6%.

MBA Mortgage Applications

Mortgage applications decreased by 2.6% overall as both purchase and refinance applications were down 3% on the week.

The decrease in mortgage applications probably has something to do with the fact that in this metric, the average 30-year-fixed conforming mortgage rate was up five basis points to 4.41%, the highest level since March of last year.

Pending Home Sales Index

This index, a metric of how many outstanding purchase agreements for existing homes are out there, was up 0.5% to 110.1 in December.

Taking a look at regional numbers, sales in the South were up 2.6% in December and have risen 4.0% on the year. Sales out West were up 1.5% in December, but still down 3.1% annually. Sales in the Northeast and Midwest fell in December and were either unchanged or down a little bit on the year.

Jobless Claims

Initial jobless claims were down slightly last week, falling 1,000 to 230,000. The four-week average was down 5,500 to 234,500.

On the continuing claims side, these were up 13,000 to 1.953 million. This rise pushed the four-week average up 12,000 to 1.933 million.

ISM Manufacturing Index

This key manufacturing metric was down just 0.2 points, remaining strong in January at 59.1. (Anything over 50 indicates manufacturing growth.)

New orders are at their highest point in almost 10 years, coming in at 65.4. Backlogs are also high at 56.2. In one sign the inflation may be increasing, input costs came in at 72.7, which is the highest they’ve been in 6.5 years.

What’s holding this report down is employment. Hiring growth slowed considerably, down nearly 4 points to 54.2. Analysts speculate that there simply aren’t enough people out there to fill all the available manufacturing jobs that have opened up with the increase in production.

Employment Situation

The number of new jobs added to nonfarm payrolls in December beat consensus expectations by 25,000 to come in at 200,000 in the month of January. The unemployment rate remained steady at 4.1%.

Going a level deeper, 196,000 jobs were added to private payrolls, while the government kicked in 4,000 jobs. The labor force participation rate was unchanged at 62.7%.

Now, let’s look at individual industries. There were 15,000 jobs added in manufacturing and 36,000 added in construction. Retail also added 15,000 jobs, while professional and business services saw 23,000 jobs added in their sector.

Average hourly earnings were up 0.3% in January and have risen 2.9% on the year. One thing to note is that the length of the average workweek decreased by 12 minutes to 34.3 hours.

Consumer Sentiment

Consumers were feeling pretty upbeat in January as evidenced by both the big consumer surveys. Much like consumer confidence, the report on consumer sentiment was up 1.3 points in the final reading of January to come in at 95.7.

Future expectations were up in January, but they’re still in a 4.4% decline on the year. Current conditions actually fell in January and have dropped 0.7% annually. Weak sales for cars and trucks seem to be evidence of this.

In terms of inflation expectations over the next year, these are unchanged at 2.7%. Expectations in the next five years were up 0.1% to 2.5%.

Mortgage Rates

The Federal Reserve chose to not raise short-term interest rates at the conclusion of their January meeting last week. However, market players think it’s a virtual certainty that these will go up in March.

The market has started to price these increases in. That’s part of the reason mortgage rates are continuing to rise recently. If you’re in the market, there are still some good-looking rates out there, but it’s important to jump on it now and lock your rate if you see one you like.

The average rate on a 30-year-fixed mortgage with 0.5 points was up seven basis points to 4.22%, rising from 4.19% at the same time last year.

Looking at shorter terms, the rate on a 15-year-fixed mortgage with 0.5 points was up six basis points to 3.68%. At this time last year, the rate was 3.41%.

Finally, the rate on a 5-year treasury-indexed hybrid adjustable rate mortgage (ARM) was up a single basis point to 3.53%, up from 3.23% a year ago.

Stock Market

There’s no sugar coating the terrible week the stock indexes had. It was their worst week in two years. Investors are apparently worried about higher interest rates, which increase the cost of business investment.

The Dow Jones industrial average plummeted 665.75 points on the day and 4.12% on the week as it closed at 25,520.96. Meanwhile, the S&P 500 was down 3.85% on the week after falling 59.85 points Sunday to close at 2,762.13. Finally, the Nasdaq finished Friday at 7,240.95, falling 144.92 points on the day and 3.53% on the week.

The Week Ahead

Tuesday, February 6

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.

Wednesday, February 7

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, February 8

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.

With no real major economic data hitting in the coming week, the stock market and politics should be the key drivers. We’ll have it all covered for you next Monday in Market Update.

We know that economic data and mortgage rates isn’t at the top of everyone’s reading list to begin the week, so we’ve got plenty of home, money and lifestyle content to share with you if you subscribe to the Zing Blog below. This week, we thought we would help you get a head start on your Valentine’s Day shopping (or at least remind you that it’s 10 days away.) Have a great week!

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