Friday - October 4, 2019
And the survey says: 136K jobs were created in September which was just below expectations of 145,000. Inside the report it was mostly upside surprises. First, there were solid upward revisions for the previous two months, adding 45,000 jobs to what was originally reported. The unemployment rate fell to 3.5%, the lowest since 1969. The Labor Force Participation Rate was unchanged at 63.2%. The Labor Force Participation Rate is the percentage of the civilian population 16 years and older that is working or actively looking for work.
The U6 rate dropped to 6.9%. The U6 measures total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. This number was 17% back in 2010 and declining to 6.9% is remarkable. The U6 is down from 7.5% in September 2018. The one bad print was hourly earnings which came in unchanged and dropped the year-over-year increase to 2.9%. Overall, it was a solid report and keeps the recession fears on the sidelines for the foreseeable future.
Thursday - October 3, 2019
Mortgage rates inched higher in the latest week and remain at three-year lows which has been a boon for the housing market. Freddie Mac reports that the 30-year fixed-rate mortgage rose to 3.65% this week from 3.64% in the previous week and down from 3.73% in the week ended September 19. Freddie Mac says that while mortgage rates generally held steady this week, overall mortgage demand remained very strong, rising over 50% from a year ago thanks to increases in both refinance and purchase mortgage applications.
The closely watched S&P 500 is down nearly 5% since the high seen on September 19, with most of the damage done this week. The ISM Manufacturing Index on Monday and today's ISM Service Index, both below expectations kicked off the fresh recession talk. However, yesterday, New York Fed President Williams said the baseline economic forecast remains "a positive one." "Right now, the outlook is actually very favorable," Williams said yesterday and added that GDP growth is around 2% rate, with a "very strong" labor market and inflation near a 2% rate. It's hard to imagine the holiday season being a bust with a consumer so willing and able to spend, which bodes well for the 4th quarter Gross Domestic Product.
Wednesday - October 2, 2019
Private employment hiring rose less than expected in September and was down from the August reading though it was still a solid number. ADP private payrolls rose by 135,000 last month versus the 150,000 expected. August was revised lower to 157,000 from 195,000. ADP reports that the average monthly job growth for the past three months is 145,000, down from 214,000 for the same time period last year. Slowing global growth coupled with the US/China trade issues could be holding back hiring here in the US.
Mortgage rates were essentially unchanged in the latest week while mortgage application volume increased. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage was at 3.99% for the week ended September 26, up from 3.82% on September 6. The rate carries 0.38 in points. The MBAs Market Composite Index, a measure of total mortgage loan application volume, rose 8.1%, the Refinance Index was up 14% while the Purchase Index increased by 1%. The MBAs survey covers over 75% of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.
US stocks are plunging today after yesterday's sell-off on fears of slowing domestic growth. Yesterday's weak ISM Manufacturing Index reinforced the slowdown in the sector and it could spread to the broader economy. The Dow Jones Industrial Average lost 350 points on Tuesday and was down near 500 points this morning. With the possibility of a domestic slowdown, the US Federal Reserve will most likely cut short-term rates this month to continue the economic expansion.
Tuesday - October 1, 2019
CoreLogic reports that home prices, including distressed sales, rose 3.6% in August 2019 compared to August 2018 and increased 0.4% month-over-month from July to August. Looking ahead, CoreLogic is forecasting that prices will rise 5.8% on a year-over-year basis from August 2019 to August 2020. The 3.6% annual increase is a big slowdown from a year earlier when the report showed an annual increase of 5.5%. Dr. Frank Nothaft, Chief Economist for CoreLogic said, "This moderation in home-price growth should be welcome news to entry-level buyers.”
Manufacturing across the nation weakened last month due in part to trade issues between the US and China. The September ISM National Manufacturing Index fell to 47.8 last month from 49.1 in August. All components within the report declined including the Employment Index. “Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019. Overall, sentiment this month remains cautious regarding near-term growth,” said Timothy R. Fiore from the ISM. A reading above 50 indicates that the manufacturing economy is generally expanding; below 50 indicates that it is generally contracting.
Freddie Mac released its September Forecast on Monday revealing that housing is to remain strong heading into the fall. The forecast is for Gross Domestic Product to average 2.2% in 2019, with trade tensions likely having an impact on the second half of the year. The 30-year fixed-rate mortgage is expected to remain below 4.0% for the remainder of the year. The house price forecast remains unchanged and is expected to appreciate 3.4% in 2019, in line with long term growth. With continued low mortgage rates and strong refinance activity, expect slightly higher annual mortgage origination levels of $2.1 trillion and $1.8 trillion in 2019 and 2020, respectively. Sam Khater, Freddie Mac’s Chief Economist, says, “Despite fears of an economic slowdown, the housing market continues to be a bright spot in the economy."
Monday - September 30, 2019
It's jobs week with ADP Private Payrolls on Wednesday and the government's Jobs Report on Friday. In addition, the ISM National Manufacturing Index will be released and may give some clues on the current slowdown in the sector. If a trade agreement is reached between the US and China, some of the weakness in the manufacturing will most likely be alleviated. If a trade deal is reached between the US and China, there could be upward pressure on mortgage rates.
The Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have adopted a final rule that increases the threshold for residential real estate transactions requiring an appraisal from $250,000 to $400,000. Given price appreciation in residential real estate transactions since 1994 when the last threshold was last updated, the change will provide burden relief without posing a threat to the safety and soundness of financial institutions.
Manufacturing activity in the Chicago are fell into contraction this month for the third time in four months as the sector continues to be impacted by the trade issues between the US and China. The Chicago PMI fell to 47.1 in September from 50.4 in August. Any reading below 50 shows contraction, above 50, expansion. The GM strike did have a hand in the declining numbers. The more closely watched ISM National Manufacturing Index will be released this week to fully gauge the sector.
Friday - September 27, 2019
Inflation, as measured by the Core PCE, rose to 1.8% annually in August from 1.7% in July, which was revised from 1.6%. The Core PCE is the Fed's favorite inflation gauge and has set a target range of 2.0%. It has been running below that level for some time. Month-over-month, Core PCE rose 0.1% versus the gain of 0.1% expected. Inflation remains subdued and as the Fed has said, it will remain low for the foreseeable future. Inflation is a major driver for home loan rates, not the Fed.
Consumer spending slowed in August after the big surge by the consumer in the second quarter of this year. The Commerce Department reports that personal spending rose 0.1% last month after the big gains seen in the previous months. The US economy is reliant on consumer spending to fuel the economy and so far in 2019, consumers have opened their wallets and spent on goods and services in 2019. August could have been a one-time occurrence with low consumer spending and the markets will look to see if spending will pick up as we head into the crucial holiday season.
Thursday - September 26, 2019
Consumer spending surged in the second quarter of 2019 due in part to a strong labor market here in the US. The government released the final read on second quarter Gross Domestic Product today showing a 4.6% increase in consumer spending, the fastest pace since the fourth quarter of 2014. For the first half of 2019, Gross Domestic Product grew at a solid 2.6% rate. The report revealed that business investment slowed which could be attributed to the trade issues between the US and China.
Mortgage rates edged lower this week and remain near multi-year lows, reports Freddie Mac. The 30-year fixed-rate mortgage fell nine basis points to 3.64% with an average 0.6 in points and fees. A year ago the rate was 4.72%. Sam Khater, Freddie Mac’s Chief Economist, says, “With both the unemployment rate and mortgage rate below four percent and near historic lows, it is no surprise that the housing market regained momentum with home sales and construction at or near decade highs. The fall housing market is poised to continue with steady gains in prices and solid sales activity.”
Americans filing for first-time unemployment benefits continued to run at 50-year lows in the latest week as the labor market continues to be a bright light for the US economy. Weekly initial jobless claims came in at 213,000 in the week ended September 21, up marginally. The four-week moving average of claims, which irons out seasonal abnormalities, fell modestly to 212,000.
Wednesday - September 25, 2019
Low mortgage rates fueled sales of new single-family homes in August signaling a positive sign for the sector after strong Housing Starts and Existing Homes Sales in the past three weeks. August new home sales surged 7% from July to an annual rate of 713,000 versus the 659,000 expected. It was the second time sales rose above the 700,000 level since 2007.
New home sales in July were revised higher to 666,000 from 635,000. Sales were up 18% from August 2018. Strong gains in the West and South offset losses in the Northeast and Midwest. The median price of new homes sold in August was $328,400, up 2.2% from a year ago. Inventories to a 5.5-month supply. Overall, a solid report.
Mortgage application activity plunged in the latest week after the steep rise in rates in the previous week. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage inched higher to 4.02% with 0.38 in points. The Market Composite Index, a measure of total mortgage application volume, fell 10%, the Refinance Index fell 15% and the Purchase Index declined by 3%. The MBA also reports that low mortgage rates will spur on total originations in 2019 to $1.9T, the highest since the $2T recorded in 2016.
Tuesday - September 24, 2019
Home price gains continued to slow in July and are way below the annual gains seen a year ago. The July S&P Case-Shiller 20-City Home Price Index rose 2% year-over-year, down from 2.2% in June. It was the slowest pace since 2012. The national index rose 3.2%, matching June's number. On a monthly basis, prices were unchanged. Home price gains have been on the decline since March 2018 but in this low rate environment, signs are pointing to a re-heat.
The heightened tariff and trade issues in late August and early September pushed consumer attitudes lower this month. The Conference Board released its Consumer Confidence Index showing a decline to 125.1 from the 134.2 recorded in August. The Present Situation and Expectations Index components also decline. In addition, those saying jobs are “plentiful” declined while those claiming jobs are “hard to get” declined slightly. The US economy is dependent on confident consumers to spend their hard-earned dollars, which fuels economic expansion.
The global markets continue to be gripped in the trade headlines and it will continue until some type of complete deal is struck.
China granted waivers to several Chinese companies to purchase soybeans from the US, tariff free, while Treasury Secretary Mnuchin announced that talks will resume the week of October 7. That news coupled with the fact that the US economy remains resilient is pushing stocks higher today though the gains are marginal, at best.
Monday - September 23, 2019
Foreclosure starts fell to their lowest level in 18 years while low interest rates have increased prepayments by 5% from July to August, a three-year high. There were 36,200 foreclosure starts in August, down 23% from August 2018. August’s prepayment rate was up 62% from the same time last year and 2.5 times the 18-year low hit in January. Black Knight said the month's prepayment activity reflects June/July interest rates; as rates fell further in August and September, the peak in refinance-driven prepayments is likely still to come.
The decline in homes for sale on the market continued in August with inventories falling 5.5% from a year ago and down 1.5% from July, in 53 metro areas. Months Supply of Inventory decreased to 2.8 compared to 2.9 in July 2019 and eclipsed the previous August low in the report’s 11-year history. In addition, inventory has remained below four months in 39 of the last 42 months, dating back to March 2016. Six months is considered a market balanced between sellers and buyers. “The modest inventory growth that started last fall has been swallowed up by demand as buyers have returned to the market, likely spurred on by attractive interest rates,” said RE/MAX CEO Adam Contos.
There were no economic reports due for release today. The rest of the week's calendar features housing, consumer attitudes and spending, Gross Domestic Product, and the inflation reading Core PCE. The Treasury will be selling a total of $113 billion in Treasury notes this week beginning tomorrow, the results could impact bond prices and rates. Mortgage Bond prices begin the week near unchanged while US stocks are modestly higher. This week is typically the weakest week of the year for the S&P 500 stock index but it is getting off to a positive start.