August 31, 2016
Employment growth in the private sector declined from July to August though the sector continues its improving ways. ADP reported that private payrolls rose by 177,000 in August, just above the 170,000 expected, but below the 194,000 recorded in July, which was revised from 179,000. ADP said small businesses added 63,000 jobs, mid-size ones added 44,000 and large companies saw a gain of 70,000. Mark Zandi, chief economist of Moody’s Analytics, said, “The American job machine continues to hum along. Job creation remains strong, with most industries and companies of all sizes adding solidly to their payrolls. The U.S. economy will soon be at full employment.”
The housing sector continues to be a bright spot in the U.S. economy due to low mortgage rates and an improving job sector. The National Association of REALTORS® reported that Pending Homes Sales in July rose 1.3% from June and above the 0.7% expected. The index rose to 111.3, the second highest level in 2016 and 1.4% above a year ago. The gains were led by a sizable surge in the West, which was the highest in over three years.
The Mortgage Bankers Association (MBA) reported on Wednesday that its Market Composite Index, a measure of total mortgage application volume, rose 2.8% in the latest week. The refinance index increased 4%, while the purchase index rose 2%. The MBA also said that the average contract rate for 30-year fixed mortgages with conforming loan balances ($417,000 or less) remained at 3.67% with 0.33 in points. In addition, the average contract rate for 30-year fixed mortgages with jumbo loan balances (greater than $417,000) rose to 3.63% from 3.62% with 0.27 in points.
August 30, 2016
The June S&P/Case-Shiller 20-city Home Price Index rose 5.1% year-over-year, which was in line with estimates and just below the 5.3% recorded in May. The housing market remains steady in a somewhat slowing economy. A spokesperson from Case-Shiller said residential real estate and housing is in good shape. Portland, Seattle and Denver reported the highest year-over-year gains among the 20 cities over each of the last five months.
The Conference Board reported that its Consumer Confidence Index soared in August to the best levels since September 2015 rising to 101.1 versus the 97 expected. “Consumer confidence improved in August to its highest level in nearly a year, after a marginal decline in July,” said Lynn Franco, Director of Economic Indicators at The Conference Board. Those surveyed said current conditions improved, business conditions are “good” and labor market conditions were considerably more favorable than in July.
Shares of Apple Inc. are under pressure today after the European Union (EU) has ordered the tech giant to pay $14.5 billion in back taxes that the company owes to Ireland. The EU stated that Apple was given illegal tax benefits over a span of two decades. Ireland offers a corporate tax rate of 12.5% compared to the 35% in the U.S. but the EU says Apple paid only 1% beginning in 2003 dropping to 0.0005% in 2014. Irish authorities and Apple will fight the finding, while the U.S. Treasury was “disappointed” with the EU’s ruling. Apple says it follows the law and pays all the taxes that it owes.
August 29, 2016
Inflation pressures remained tame in July, despite an uptick in consumer spending. The Core Personal Consumption Expenditures (PCE) rose 0.1% from June to July, which was in line with expectations. The Core PCE on an annual basis rose 1.6%, matching the June number. The Core PCE measures the prices paid by consumer for goods and services, excluding food and energy and is the Federal Reserve’s favorite inflation gauge.
Consumer spending rose in July due to strong demand for automobile’s, which could signal a pickup in economic growth in the near future. The Commerce Department reported that Personal Spending rose 0.3% in July, which was in line with expectations. Consumer Spending is being driven higher due in part to an improving job market, higher home prices and a rising Stock market.
The closely watched Jobs Report for August will be released this coming Friday morning at 8:30 a.m. ET and will be closely watched by investors and traders around the globe for continued signs of a strengthening labor market. In addition, the members of the Federal Reserve will also be dissecting the report in its decision on interest rate movement at the Fed meeting on September 20-21. It is expected that employers added 180,000 new workers in August, below the blowout 292,000 created in July.
August 26, 2016
Fed Chair Janet Yellen spoke at the Fed’s annual economic symposium in Jackson Hole, Wyoming saying that the case for raising rates has strengthened in recent months. Ms. Yellen went on to say that she continues to worry about low business investment and declining productivity. Furthermore, any rate hikes in the future will continue to be data dependent. The chance of a hike to the short-term Fed Funds Rate in September is just 18% with a 53% chance of a hike in December.
Economic growth in the U.S. remained on the low side in the second quarter of 2016, while corporate profits declined. The second reading from second quarter Gross Domestic Product (GDP) rose 1.1%, which was in line with expectations and just below the 1.2% from the initial reading. A key metric within the report showed that consumer spending rose by 4.4%, the largest gain in two years. The inflation gauge rose to 2% on an annual basis.
In housing news, housing data analytics firm CoreLogic reported on Thursday that cash home sales in May declined year-over-year and month-over-month during the first five months of the year. May cash sales made up 30% of total sales in May, down 2.5% from May 2015 and -1.7 from April. Cash sales peaked in January 2011 near 47%, while before the housing crisis the number was 25%. CoreLogic says at the current rate of decline, we could see pre-crisis levels by mid-2018.
August 25, 2016
The number of Americans applying for first time unemployment benefits hover near multi-decade lows as the labor market continues to improve. Weekly Initial Jobless Claims fell 1,000 in the latest week to 261,000, the lowest in five weeks, and have trended below the 300,000 threshold for 77 consecutive weeks. That is the longest streak since 1973 when the labor market was smaller. The labor market is now viewed as near full employment, though the quality of jobs is suspect, and wage growth has been on the low side. Freddie Mac reported that mortgage rates were unchanged this week and continue to hover just above all-time lows. The 30-year fixed conventional rate ($417,000 or less) remained at 3.43% with 0.6 in points and fees. The 3.43% marks the ninth straight week that mortgage rates rates have been below 3.5%. The Federal Reserve continues to hold interest rates rates near the lows in an effort to spur on the economy. Fed Chair Janet Yellen will be speaking in Jackson Hole, Wyoming at the Fed hosted economic symposium. Ms Yellen’s speech on Friday morning (August 26 at 10:00 a.m. ET) will be closely dissected by investors and traders around the globe for insight as to the health of the world’s largest economy and as to the timing of future interest rate hikes. Ms. Yellen speech will most likely not make any big surprises to cause the markets to plunge or rally to new heights, but she could begin to lay the groundwork for future rate hikes. Recent talks from some of her underlings have been hawkish, but the market is not pricing in a hike to the short-term Fed Funds Rate next month. Fed Fund Futures show just a 21% chance of a hike next month, with a 41% chance at the November Fed meeting.
August 24, 2016
The National Association of REALTORS® reported on Wednesday that sales of previously owned homes unexpectedly declined in July from June due to low inventories and higher prices. July Existing Home Sales fell 3.2% to an annual rate of 5.39 million units, below the 554,000 expected and down 1.6% from a year ago. Inventories are now at 4.7 month supply, nearly 5% below last year. The median home price was $244,100, a 5.3% increase from July 2015.
The Mortgage Bankers Association (MBA) reported on Wednesday that its Market Composite Index, a measure of total mortgage application volume, fell 2.1% in the latest week. The refinance index decreased 3%, while the purchase index was essentially unchanged. The MBA also said that the average contract rate for 30-year fixed mortgages with conforming loan balances ($417,000 or less) increased to 3.67% from 3.64% with 0.34 in points. In addition, the average contract rate for 30-year fixed mortgages with jumbo loan balances (greater than $417,000) rose to 3.62% from 3.60% with 0.35 in points.
Home prices edged higher from May to June, but are rising at a slower rate, reports the Federal Housing Finance Agency (FHFA) in its Home Price Index (HPI). The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. The FHFA reports that home prices rose 0.2% month-over-month with a 1.2% increase from the first quarter of 2016 to the second quarter. From June 2015 to June 2016, prices were up 5.6%.
August 23, 2016
July new single-family home sales surged to a nine-year high due to a strengthening job market and ultra-low home loan rates. New Home Sales rose 12.4% to an annual rate of 654,000, above the 580,000 expected, while June was revised lower to 582,000 from 592,000. Sales are up 31.3% from July 2015. Sales were led by a whopping 40% surge in the Northeast. The median price for a new home slipped 0.5% from a year ago to $294,600. The housing sector continues to be a bright spot in a somewhat slowing U.S. economy.
Luxury home builder Toll Brothers reported earnings on Tuesday showing that revenues beat expectations on higher home sales. Revenues surged 23.5% to $1.27 billion, above the $1.25 billion expected while earning $0.61 per share, which was in line with estimates. Toll Brothers new orders rose 18% to 1,748 units. The home builder now expects fiscal year 2016 deliveries of 5,900 to 6,200 homes at an average price of between $840,000 and $850,000 for each unit.
It’s that time of year again when parents and guardians rejoice as September draws near … Back to school! This year brings a slightly different slant to purchasing supplies. Expect fewer discounts and a bigger bill for the kids on their way back to school. Consumers should expect to shell out an average of $674 per household this season, up 7% from last year according to the National Retail Federation. Back-to-school is the second biggest shopping period for retailers outside of the holiday shopping season.
August 22, 2016
Despite mortgage rates being near all-time lows, homeowners are not refinancing their homes. Black Knight Financial Services reports that the number of borrowers eligible to refinance rose to 8.7 million at the end of June, yet prepayment speeds, which measures refinancing activity, fell in July. On a positive note, the number of foreclosure starts in July fell 12% from June and was the second lowest month.
U.S. Stocks are lower to begin the week after Federal Reserve Vice Chair Stanley Fischer made some hawkish comments saying “we are close to our targets” in regards to full employment and 2% inflation and he expects GDP growth to pick up in coming quarters. Even though Mr. Fischer did not discuss the timing of an interest rate hike, his words signaled that a hike could come by the end of 2016. In addition, the dollar gained strength after Fisher’s remarks, which is pushing oil prices and oil related shares lower.
The annual economic symposium hosted by the U.S. Federal Reserve will take place in Jackson Hole, Wyoming at the end of this week. Dozens of bankers, policy makers, academics and economists from around the world will meet to discuss important economic issues facing the U.S. and world economies. All those attending will be awaiting Fed Chair Janet Yellen’s speech on Friday August 26 to gain clues as to when and if an interest rate hike will be coming in the near future to the world’s largest economy. Ms. Yellen may also give a long-term outlook on the state of the U.S. economy.
August 19, 2016
A number of Fed members spoke yesterday with various conflicting statements surrounding the timing of interest rate hikes. San Francisco Fed President Williams (non-voter) said the central bank should raise rates sooner rather than later. On the other hand, Dallas Fed President Kaplan (non-voter) said that the Fed had limited room to maneuver in hiking rates given the U.S. economy’s sluggish momentum. In addition, the St. Louis Fed President Bullard (voter) said on Wednesday that he sees a single rate hike in the next two years. The current chance of a hike to the short-term Fed Funds Rate is just 15% at the September Fed meeting.
Government sponsored entity and mortgage provider Fannie Mae released its August 2016 Economic and Housing Outlook this week revealing that economic growth is expected to rebound in the second half of 2016. Gross Domestic product, or economic growth, is expected at 1.8% for all of 2016, which is above the 0.8% and 1.1% recorded in the first two quarters of 2016, though below the 2.5% that is seem in a normal economic environment. Fannie Mae went on to say that it expects the Federal Reserve will hold the Fed Funds Rate steady this year at current level given global uncertainties and anemic output growth.
Fannie Mae went on to say that homebuyers will benefit from improving job and wage growth, more favorable lending standards, and continued low mortgage rates through the rest of the year. It forecasts that the 30-year fixed-rate mortgage rate projected to average 3.40%. In addition, the homeownership rate dropped to below 63% in the second quarter, but Fannie Mae is seeing some tentative signs of older Millennials moving toward homeownership.
August 18, 2016
The percentage of U.S. homeowners who owe more on their mortgage than their homes are worth continues to decline, though the numbers are still above normal levels. Nearly 6 million borrowers owe more on their mortgages than their homes are worth. The negative equity rate fell to 12% of all mortgaged homeowners, down from 14% a year ago, reports online real estate data base company Zillow. In addition, the 12% is well below the 30% seen at the height of the housing crisis. Negative equity has been one of the factors to higher home prices as homeowners in a negative equity state are less likely to sell at a loss, which pushes inventories of homes available for sale lower, and in turn pushes home prices higher for prospective buyers.
The number of Americans applying for first time unemployment benefits hover near multi-decade lows as the labor market continues to improve. Weekly Initial Jobless Claims fell 4,000 in the latest week to 262,000, trending below the 300,000 threshold for 76 consecutive weeks. That is the longest streak since 1973 when the labor market was smaller. The labor market is now viewed as near full employment, though the quality of jobs are suspect, and wage growth has been on the low side.
Manufacturing activity in the Philadelphia region ticked up in August and turned positive for only the third time in 2016. The August Philly Fed Index of manufacturing rose five points to 2.0, above the 0.5 expected. However, several key components of the index did not fare as well. The new orders index declined to -7.2 from the +11.8 in July. In addition, the employment component fell 18 points to to -20, the largest decline in 2016.