I put a lot of things in terms of sports, I know. But it feels like the economic data coming out right now is on a wild ride not dissimilar to the football teams I like. There are some days when you’re winning by 52 and others where you’re coming up just a touch short, but there’s still some optimism.
Substitute football scores for inflation and trade wars. It works, I swear. Before I dig myself a deeper hole with this analogy, let’s just get into it.
Headline News
S&P CoreLogic Case-Shiller HPI
Data showed that home prices were flat in July, at least according to Case-Shiller’s 20-city index. When seasonal adjustment is taken out, prices were up 0.1% for the month and have gone up 2% since July of last year. This is the lowest rate of annual appreciation in 7 years for this data.
One thing analysts point to is that home sales are picking up, so there is likely to be some pick up in prices in future readings, but for now prices haven’t gained much traction this year.
FHFA House Price Index
Rates of appreciation were a little better according to the Federal Housing Finance Agency. Prices have gone up 5% on the year after being up 0.4% on the month of July.
It’s important to note that there are differences in the samples. While Case-Shiller looks at 20 metropolitan areas, FHFA looks at prices across the country on a regional basis. However, FHFA only measures prices for homes backed by conventional mortgages from Fannie Mae or Freddie Mac. Still, the 5% annual rate of growth is the lowest for this index in almost 4 years. It’s consistent with a broader trend toward slower price growth.
There’s still wide variability from region to region. In the Mountain states, prices were up 7.6% since last July, while they’re up only 3.6% over the same time frame in the Mid-Atlantic.
Consumer Confidence
This index of consumer opinion on the state of the economy was down quite a bit in September, falling 9.1 points to come in at 125.1. It’s still very high, though.
Labor market signals were up and down. On one hand, the number of people saying jobs are hard to get was down 0.4% to 11.6%. However, there was a 5.5% downtick in the number of people who felt jobs were plentiful at 44.8%. There are also fewer people saying more jobs will be available at 17.5%, while there was a 2% increase in the number of people saying fewer jobs will be available at 15.7%.
There was also a 5.7% drop in the number of people who see their income improving in the near future at 19%. More people now believe the stock market will go down at 35.3%, than the 31.6% who think it will go up in the foreseeable future. Finally, not as many people plan on buying homes or cars in the next 6 months.
In terms of inflation, this is down 0.1% in this reading to 4.8% in the near future. Inflation expectations have been low for both this and the consumer sentiment index.
MBA Mortgage Applications
Mortgage applications were down 10.1% overall last week after applications to refinance fell 15%. Although mortgage rates were only up 0.1% for a 30-year conventional fixed mortgage last week, 4.02% is a bit higher than where rates were at the beginning of the month.
Purchase applications, which are less sensitive to changes in rates, were only down 3%. There have been 9% more purchase applications than there were at the same time last year.
New Home Sales
New home sales for August came in at an impressive 713,000 on a seasonally adjusted annual basis. The closely tracked 3-month average was up to 703,000, which is the best it’s been since October 2007 after there was also a big positive revision for July, which finished on pace for the building of 666,000 homes this year.
Demand picked up the most in the West where sales were up 16.5% on the month. Sales were up 6% in the South, which is the biggest region overall for housing. Sales in the Midwest and Northeast were down, but not as many new homes are being built in these areas.
This demand ate into the supply of new homes, which was down 1.2% on the month. Supply relative to sales fell from 5.9 months in July to 5.5 months at the current sales pace in August. Increased demand and supply that couldn’t keep up meant builders could charge more and prices were up 7.5% to a median of $328,400.
Gross Domestic Product (GDP)
The economy grew at a rate of 2% in finalized numbers for the second quarter. Although this points to only moderate growth, consumer spending was up 4.6% in the quarter on a seasonally adjusted annual basis. The strength had little to do with inflation, because prices were only up 2.4% during the quarter.
The other big booster was government investment, which was up 4.8% and points to government spending to keep the economy going at both the federal and state levels.
Of more concern was the fact that there seems to be lessening appetite for business investment as evidenced by a decline in nonresidential fixed investment, which was down 1%, concluding quite a few gains in previous quarters. There’s also less residential investment, which was down 3% this time around. Unlike the nonresidential side, this has been down for a while now.
Exports continue to be a weakness while inventories were also down, but this does mean that retailers were working hard to put more stock on the shelf.
International Trade In Goods
The trade deficit in goods increased by $300 million for the U.S. in August to come in at $72.8 billion. This beat the $73.4 billion consensus trade deficit in the category.
On the export side, these were up 0.1%. There were 4.2% more exports of foods, feeds and beverages in August, and the category is up 8.4% since the same time a year ago. Industrial supply exports were also up as were exports of vehicles. However, capital goods exports were down 3.1%.
Imports were up 0.3%. Among the areas that saw increases were capital goods, which were up 3.2%. Consumer goods are also always a key source of the trade imbalance. Imports in this area were up 2.6% and have risen 6.5% on the year. Meanwhile, imports of vehicles and industrial supplies were down.
Jobless Claims
Initial jobless claims were up 3,000 last week to come in at 213,000. However, the 4-week average was down 750 to settle at 212,000.
On the continuing claims side, these were down 15,000 to 1.65 million. Finally, the 4-week moving average of continuing claims was down 12,750 to come in at about 1.666 million.
Pending Home Sales Index
In a good sign for September existing home sales, the number of existing homes under contract for sale increased 1.6% in August according to data from the National Association of REALTORS®. This brings the overall index to a level of 107.3.
The increase in purchase agreements was led by the West, although there were gains in all regions.
Durable Goods Orders
New orders of durable goods were up 0.2% overall in August. When transportation was excluded, these were up 0.5%. However, orders of core capital goods were down 0.2%, which is not a good sign, particularly when coupled with a major downtick for July in the category.
There are concerns that business investment is slowing. Electrical and communications equipment were both down. So were computers and electronics themselves. This was enough to completely offset gains for the primary metals, fabrication and machinery categories. There was also a 17.1% drop in commercial aircraft orders and a 0.8% downturn in motor vehicle and part orders.
There was a 0.3% uptick in inventories and a 0.1% rise in shipments along with a similar increase in unfilled orders, but overall, it wasn’t a good report.
Personal Income And Outlays
Personal incomes were up 0.4% overall, but spending was soft, up only 0.1% in August. This was up just enough to keep up with inflation in core categories, but overall inflation was flat. Inflation has risen 1.8% in these core areas, but it’s up only 1.4% overall since last August.
Spending on services was flat and there was only a 0.1% increase in spending on nondurable goods, but there was a 0.9% increase in spending on durable goods, so it’s kind of a mixed bag. However, spending on durables means consumers have more access to discretionary income.
On that note, wages and salaries were up 0.6% last month. Meanwhile, the income of sole proprietors also showed strength as did dividend income. This led to gains in the category despite interest income being lower and rents rising somewhat.
While inflation is increasing, it’s still pretty soft overall, which is something the Federal Reserve is no doubt paying attention to when they debate the next move for rates.
Consumer Sentiment
In contrast to the consumer confidence reading, consumer sentiment was up 1.2 points in the final reading of September to come in at 93.2. However, this represents among the lowest readings of the last 3 years, despite a 3.4-point improvement from the end of August.
Current conditions were up more than three points from the previous month at 108.5. Expectations for the future were up more than three points as well to 83.4.
The story on inflation is a bit up-and-down again. Over the next year, inflation is expected to increase by 0.1% to 2.8%, while inflation over the next 5 years is only expected to increase by 2.4%, which is down 0.2% from midmonth readings.
Mortgage Rates
Mortgage rates seem to have been all over the place in the past couple weeks and whether they’re up or down seems to depend largely on when the data is collected. However, as the data below from Freddie Mac shows, we remain in a really good spot if you’re in the market to purchase or refinance. Consider locking your rate.
The average rate for a 30-year fixed mortgage with 0.6 points paid in fees was down nine basis points last week to come in at 3.64%. This is down from 4.72% a year ago.
Meanwhile, looking at shorter terms, the average rate on a 15-year fixed mortgage with 0.5 points paid was 3.16%, down five basis points on the week and falling from 4.16% last year.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) fell 11 basis points last week to finish at 3.38% with 0.4 points paid. Last year at this time, the rate was 3.97%.
Stock Market
Trade disputes, whether you’re talking about China and the U.S. or Britain’s exit from the European Union, seem to be everything right now. Friday was no exception. The White House is apparently considering removing Chinese stocks from U.S. stock exchanges in order to limit the U.S. financial exposure to China. This is probably a good indication that no trade deal is imminent, but beyond that, the markets struggled to come to grips with what that might mean from an investment perspective. Delisting involves billions of dollars’ worth of investments.
The Dow Jones Industrial Average was down 0.43% on the week after falling 70.87 points Friday to close at 26,820.25. Meanwhile, the S&P 500 fell 15.83 points Friday to close at 2,961.79, down 1.01% for the week. Finally, the Nasdaq closed the week at 7,939.63, down 2.19% weekly after falling 91.03 points Friday.
The Week Ahead
Tuesday, October 1
ISM Manufacturing Index (10:00 a.m. ET) – 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 2
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 3
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.
Friday, October 4
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.
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.
It’s the beginning of a new month, and what the reports that come out this week lack in quantity, they make up for in importance. We begin the week with a key look at manufacturing and end it by examining the job market and international trade, which will take on increased importance given the situation with China.
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