It’s a rainy day in Michigan and there are signs that the economic recovery may be showing a few gray clouds of its own. The flip side is that mortgage rates are lower because people flock to the safety of bonds in times of uncertainty.
Headline News
This was put together with the assistance of analysis from Econoday.1 Let’s dig into what happened since we last were here.
International Trade In Goods
The nation’s trade deficit in goods was up $2.8 billion to $82.9 billion in August. The July deficit was also revised upward. Imports were up 3.1% and exports rose 2.8%.
On the import side, capital goods imports were up 1.4% and have risen 4.1% on the year in a good sign for business investment. Meanwhile, imports of vehicles were up 6.2% in August, but these are down 11.9% on the year. Overall imports are down 4.3% from the same time a year ago in a sign that trade hasn’t really picked up.
Meanwhile, on the export side, capital goods exports were down 3.9% for the month, which is blamed on a slowdown of aircraft orders with people not traveling. These are down 18.2% on the year. Meanwhile, exports of vehicles have fallen 0.7% in August and 14% for the year.
A big part of what made this number of positive for the month was a 9.8% uptick in the amount of food being exported, but even here, it’s still down 3.3% for the year.
Case-Shiller House Price Index
According to the Case-Shiller index, prices were up 0.6% on both a seasonally adjusted and overall basis in the month of July. They’ve gone up 3.9% on the year. Although this points to much less appreciation in home prices than the competing FHFA HPI, it’s still up 0.4% from where it was in February before COVID-19.
When comparing the two indexes, there are a couple of reasons for the variance in the data. For starters, the FHFA index only looks at transactions backed by conventional mortgages and this one looks at every transaction in the 20-city survey. This one is also a rolling 3-month average, and FHFA isn’t.
Consumer Confidence
Consumer confidence was up an astounding 15.5 points to come in at 101.8 in September. This is still 30 points below where it was at the beginning of the year, but it’s marked improvement.
There are still 20% of people who say jobs are hard to get, but this is down 3.6%. There’s also a 1.5% rise in the number of people who say jobs are abundant at 22.9%.
On the expectation side, more people see more jobs ahead with fewer people seeing a decline in the openings in the labor market in the next 6 months.
Because of this optimism, buying plans are up for appliances and cars as well as homes. Meanwhile, the number of people who see the stock market rising in the near future is up 5 percentage points to 41.7% with those seeing a fall down almost 7.5% at 28.5%.
Gross Domestic Product (GDP)
The economy was never going to be in good shape in the second quarter with various states across the nation in some state of lockdown. Nevertheless, there was some small improvement in the numbers as the economy contracted by 31.4% in the final reading in comparison to 31.7%. Meanwhile, consumer spending fell 33.2% vs. 34.1%.
Improvements in the numbers included a less deep contraction in residential investment numbers, which were down 35.6%. Business investment was also better, although still down 27.2%. Net exports were better, with inventories slightly worse. This shrinkage in the second quarter was pretty ugly, so it’ll be interesting to see the rate of bounce back in Q3.
Pending Home Sales Index
Pending home sales were up 8.8% to an index level of 132.8 in August. Pending home sales are now up 24.2% on the year. Meanwhile, all regions had yearly gains, with the West out in front, up 13.1%.
Personal Income And Outlays
In a development largely triggered by the expiration of special unemployment assistance related to COVID-19, incomes were down 2.7% in August. This was pretty much in line with expectations. Meanwhile, personal consumption expenditures were up 1%.
Taking a look at prices, inflation was up 0.3% for the month and has risen 1.4% overall on the year. In core categories, the gain was also 0.3% and 1.6% for the year. It’s worth noting that both of these are below the Federal Reserve’s 2% goals. The biggest gains were in restaurants and the hospitality sector in August.
ISM Manufacturing Index
The pace of improvement in the manufacturing sector slowed a little bit in September as this index was down 0.6 points to 55.4. This is broadly in line with indicators and the rest of the economy showing that the recovery is slower than it could be.
New orders were still very strong and 60.2, but this is down from 67.6 in August. Meanwhile, backlog orders were up 0.6 points at 55.2, meaning that businesses should be hiring to cut into those backlogs. However, if anything, we’re only seeing that the pace of layoffs is slowing is the employment portion of this index came in at 49.6.
As a reminder, a number above 50 indicates growth, so while there might be improvement here, several components still have a way to go.
Employment Situation
Nonfarm payrolls were up 661,000 in September and the unemployment rate fell 0.5% to 7.9%. That’s the good news. On the downside, private payrolls actually added 877,000 jobs meaning 216,000 jobs were cut in the government sector. This is tied to the wind down of temporary hiring of Census takers.
Also, the improvement in the unemployment rate is a bit deceiving because there was a 0.3% dip in the number of people participating in the labor force, meaning that people are either becoming discouraged or leaving the workforce for another reason. For example, the rise of online schooling has put stress on parents of young children, particularly moms.
There were 66,000 jobs added in manufacturing to go along with 318,000 added in leisure and hospitality. Meanwhile, 142,400 jobs were added in retail, which does represent slower growth. Education and health services saw gains slowed to 40,000, from 170,000 in August, while temporary help only added 8,100 jobs.
Wages were up 0.1% overall in September and 4.7% on the year. The length of the average workweek was 34 hours, 42 minutes. This takes into account full and part-time employees.
Consumer Sentiment
In the final reading of September, consumer sentiment came in at 80.4, which is up 6.3% from the last reading of August. However, this is still down better than 20 points from before COVID-19 hit in February.
Current expectations were up almost 5 full points to 87.8, while expectations were up greater than seven points at 75.6. Inflation expectations are a bit concerning if you’re a policymaker, as the year-ahead expectation of consumers was down 0.5% at 2.6%. Over the next 5 years, the number is flat at 2.7%.
International Trade In Goods And Services
Much like the goods deficit, the overall trade deficit for the U.S. was increased by $3.7 billion to $67.1 billion. Services exports were $52.8 billion in August, but they were $71.2 billion in February. There’s just an overall decrease in demand worldwide. Meanwhile, services imports were up $800 million to $36.1 billion.
On the goods side, imports were up to $203 billion, which means demand from U.S. consumers is up even if the trade balance is negative. Exports of vehicles and food have been higher recently, along with an increase in imports of capital goods.
Consumer Price Index (CPI)
Inflation in this metric was up 0.2% on the month of September and 1.4% on the year. When food and energy were taken out, the gain was still 0.2%, with a 1.7% yearly growth.
Prices for used vehicles are up 6.7% on the month. One has to wonder if the market is hotter with people looking for used vehicles because of budget cuts. New vehicle prices were only up 3% for the month.
Other areas of gains were a bit soft. Shelter prices were up 0.1%, meanwhile, and transportation services were down 0.9%. People aren’t going anywhere.
Energy prices were up 0.8%, while food was unchanged. The cost of food away from home was up 0.6% to 3.8% compared to the same time a year ago.
MBA Mortgage Applications
Mortgage applications were down 0.7% compared to last week. On the refinance side, these were down 0.3%, while purchase applications fell 2%. Refinance applications are still 44% higher than they were a year ago and purchase applications are up 24% from last October.
Producer Price Index (PPI)
On the production side, prices were up 0.4% overall and this matched the yearly rate of growth. When food and energy were taken out, prices have risen 0.4% for September, but they’re up 1.2% on the year. Finally, when sales at wholesalers and retailers are taken out, prices were up 0.4% and 0.7% year-to-year.
Trade and service prices were only up 0.2% overall. Meanwhile, given increased demand for travel accommodations, prices were up 3.9% in this sector and 2.6% for passenger transportation. However, these metrics are down 16.9% and 14.1% year-to-year.
There was a 14.7% uptick in the price of scrap metal, with food rising 0.4%. Energy prices were down 0.3% and have fallen 11.5% since last September.
Jobless Claims
Overall initial jobless claims were up 53,000 at 898,000. There continues to be a backlog in this data and California is also freezing applications while they try to combat fraud in unemployment claims. It’s apparent that the systems weren’t designed to handle this level of applications.
Continuing claims were down 1.165 million to 10.018 million. These are big drops, but it’s still a big number every week running about four times higher than the average on the initial claims side in recent years.
Retail Sales
Retail sales were up 1.9% in September, greatly exceeding expectations. When vehicles were taken out, this number was still 1.5%. The same 1.5% number was achieved when gas was whether removed and in a control group.
Vehicle sales were up 3.6%, as were restaurant sales at 2.1%. Sales of general merchandise was up 1.8% with clothing posting an 11% increase. Department store sales were up 9.7%. However, sales at department and clothing stores are deep in contraction on the year. Meanwhile, e-commerce sales are up 23.8% since last September after rising 0.5% for the month.
Industrial Production
It wasn’t a good month in terms of industrial production. The index was down 0.6% overall and manufacturing output fell 0.3% in September. Utilization of factory space was down 0.5% to 71.5%.
Mining was up 1.7%, but utility production fell 14.4%. On the manufacturing side, there was a 0.4% downturn in machinery production. Vehicle production was also down 4%. Aircraft production actually rose 6.7%, but this market tends to be volatile and it’s been down given travel restrictions.
Total production is down 7.1% since February while manufacturing output fell 6.4% over the same time period.
Mortgage Rates
Mortgage rates again fell to record lows. If you’re in a financial position to do so, it remains a great time to refinance your current mortgage or buy a house.
According to Freddie Mac, the average interest rate on a 30-year fixed mortgage with 0.6 points paid in fees was 2.81%, down 6 basis points on the week. This has fallen from 3.69% a year ago.
Meanwhile, the average rate on a 15-year fixed mortgage with 0.5 points paid was down a couple of basis points to 2.35%, which has dropped from 3.15% last year.
Finally, the average interest rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage with 0.2 points paid was up a single basis point to 2.9%, down from 3.35% at the same time last October.
Stock Market
Tempered by late-day selloffs in tech stocks, the stock market had modest gains on positive retail sales data after suffering losses the majority of last week.
The Dow Jones Industrial Average was up 112.11 points Friday to close at 28,606.31. It’s up 3.43% over the last month. Meanwhile, the S&P 500 was up 4.95% over the same period after rising 0.47 points on the day to close at 3,483.81. Finally, the Nasdaq finished at 11,671.56, down 42.32 points daily, but rising 8.14% on the month.
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1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2020 Econoday, Inc. All rights reserved.
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