June 30, 2016
Manufacturing in the Chicago region unexpectedly picked up in June after nearly a year of downward pressure. The Chicago PMI report surged to 56.8 in June, above the 50.8 expected and well above the 49.3 recorded in May. The gains were led by improving production along with an increase in new orders. Readings above 50 indicates improving conditions, below 50, contraction. The new orders index rose to its highest level since October 2014, while the order backlogs were the strongest since March 2011.
The fallout from last week’s Brexit vote sent investors rushing into safe haven assets such as government Bonds and Mortgage Backed Securities. As the prices of such securities rise, interest rates tend to move lower. Freddie Mac reported that the 30-year fixed conventional mortgage rate fell to 3.48% this week with 0.5 added on top in points and fees. The 3.48% is the lowest since May 2013 and just 17 basis points above the all-time low set back in November 2012. Freddie Mac said that extremely low mortgage rates “should support solid home sales.
First-time unemployment benefits increased in the latest week, though still remained well below levels seen as a healthy job market. The Labor Department reported Weekly Initial Jobless Claims rose 10,000 to 268,000, just above 265,000 expected. Claims have remained below the 300,000 threshold for 69 consecutive weeks.. That is the longest consecutive stretch below 300,000 since 1973. The four-week average of claims, which irons out seasonal abnormalities, was unchanged at 266,750 last week.
June 29, 2016
Despite three-year lows for mortgage rates, applications to purchase and refinance homes fell in the latest week. The Mortgage Bankers Association (MBA) reported on Wednesday that its Market Composite Index, a measure of total mortgage application volume, fell 2.6% in the latest week. However, they are up 38% from a year ago, when mortgage rates were higher. Within the report it showed that the refinancing index decreased 2%, while the purchase index fell 3%. The MBA also said that the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) dropped to its lowest level since May 2013, falling to 3.75% from 3.76% the previous week.
The National Association of REALTORS® reported on Wednesday that May Pending Home Sales fell 3.7% due in part to low inventories of homes for sale on the market. The -3.7% was less than the -.1.4% expected. From May 2015 to May 2016, Pending Home Sales are down 0.2%, the first annual loss since August 2014. Lawrence Yun, NAR chief economist, says pending sales slumped in May across most of the country. “With demand holding firm this spring and homes selling even faster than a year ago, the notable increase in closings in recent months took a dent out of what was available for sale in May and ultimately dragged down contract activity,” he said.
June 28, 2016
The government reported on Tuesday that economic growth in the first quarter of 2016 edged higher from the previous two readings, though still below what is seen as a normal growing economy. Gross Domestic Product (GDP) rose 1.1% from the previous reading of 0.8%, though still weak compared to the past several years. Exports rose modestly, while consumer spending saw its smallest gain in two years. Many economists see a 2.5% gain in the second quarter, but that may be the best we can see in 2016. GDP measures the monetary value of all finished goods and services within a country’s borders in a given period.
In housing news, the S&P/Case Shiller 20-city Home Price Index showed a solid gain of 5.4% from April 2015 to April 2016. Despite a somewhat slowing economy and job market, housing has remained a bright spot for the U.S. economy. On a nationwide basis, home prices rose 5.0% in the 12 months ended in April. Since early 2015, prices have seen a 5% annual increase. Last week’s Brexit vote and ensuing fallout could put a slight dent in consumer confidence, which could make potential buyers a bit more hesitant to make a major home purchase.
Consumer Confidence surged in June ahead of last week’s Brexit vote, hitting its highest level since October. Consumer Confidence hit 98 in June, well above the 93.1 expected and up from the 92.4 recorded in May. The report revealed that consumers’ appraisal of current conditions improved in June, while those stating business conditions are “good” increased and those saying business was “bad” decreased.
June 27, 2016
The fall out from the Brexit vote continues today as global Stock markets plunge as investors rush to the safe haven of the Bond markets. The U.S. Dow Jones Industrial Average fell over 600 points on Friday and is lower by 300 points in Monday’s trading session. The Dow, Nasdaq and S&P 500 are now all in negative territory for 2016. Stock markets hate uncertainty and the exit of the U.K. has driven many questions as to what will happen in the coming months.
Government-sponsored entity Freddie Mac released its June 2016 outlook on Monday revealing that low mortgage rates are keeping the housing sector on track, despite rapidly rising prices. On the jobs front, Freddie sees the unemployment rate averaging at 4.9% in 2016 and 4.8% in 2017. Freddie went on to say that economic growth or Gross Domestic Product is forecasted at 1.9% for all of 2016 and 2.3% in 2017.
With the July 4 weekend quickly approaching, gas prices at the pumps are at the lowest level in a decade as a glut of cheap oil is flowing through the pipelines. The national average price for a regular gallon of gasoline is at $2.30. That is $0.47 lower than last year this time. It is expected that more than 43 million Americans will take to the roads, rails, seas and skies between Thursday, June 30 and Monday, July 4, 5 million more that of Memorial Day weekend. Of that number, 84% are expected to drive to their destinations.
June 20, 2016
Polling over the weekend showed greater support for Britain to stay in the European Union. And investors took notice. Leading up to the June 23 “Brexit” vote, The Stoxx Europe 600 Index headed for its biggest gain in nearly a year. Oil and sterling also jumped. Leaders around the world have been quite vocal expressing concern that a U.K. exit from the EU would devastate global markets. Campaigning on both sides of the divisive vote was temporarily suspended late last week following the senseless death of a British lawmaker.
Will animated flicks help rack up ticket sales at the box office this summer? “Finding Dory” certainly set the bar high this past weekend with a record-breaking opening weekend of $136.2. The Disney-Pixar sequel beat the previous record holder, “Shrek the Third,” which grossed $121.6 million in 2007. Competition in the kids’ market will be from Disney’s “The BFG,” which comes out on July 1 and “The Secret Life of Pets” on July 8.
In housing news, distressed sales accounted for 10 percent of homes sold nationally in March 2016, according to data analytics firm CoreLogic. Distressed Sales are expected to return to pre-crisis levels in 2018, the firm reported. Distressed sales, which include Real Estate Owned and short sales, accounted for 9.9 percent of total home sales, down 2.7 percent from March 2015. At its peak in January 2009, distressed sales totaled 32.4 percent of all sales. When the share of distressed sales is high, it can pull down the prices of non-distressed sales. The pre-crisis share of distressed sales was traditionally about 2 percent. If the current year-over-year decrease in the distressed sales share continues, it will reach that “normal” 2-percent mark in mid-2018, the firm reported.
June 17, 2016
Groundbreaking on single-family homes was a bright spot in today’s Housing Starts report from the Commerce Department. Although U.S. housing starts slipped in May as multi-family housing units dropped, groundbreaking on single-family homes, the largest segment of the market, rose 0.3 percent to 764,000 last month. All regions of the country experienced an increase in single-family Housing Starts, except the Midwest, which had a 14.7 percent drop. Building permits rose 0.7 percent to 1.14 million.
Campaigning for the European Union Referendum vote in Britain, scheduled for June 23, has been put on hold following the death of lawmaker Jo Cox. The mourning period has temporarily quelled some investor anxiety around the “Brexit” vote, allowing for gains in European markets. The Stoxx Europe 600 Index posted its biggest gain in three weeks, while Sterling rebounded from a two-month low.
June 16, 2016
The Labor Department reported consumer inflation slowed. The Consumer Price Index increased 0.2 percent last month, from April’s 0.4 percent rise. In the 12 months through May, the CPI gained 1.0 percent after advancing 1.1 percent in April. Stripping out volatile food and energy, core CPI increased 0.2 percent after a similar gain in April. Year-over-year core CPI rose to 2.2 percent from 2.1 percent in April. Gas, housing, apparel and medical costs all rose last month, while the cost of food, prescriptions and vehicles declined. The Fed said Wednesday it expected inflation to remain below its target 2 percent through 2017.
Regional manufacturing data from Philadelphia followed suit with the Empire State Index and expressed growth expectations over the next six months. That being noted, broad indicators of current conditions of the state of manufacturing are not so hot. Little growth and lots of weakness was reported this month in the Index. Employment conditions and work hours were negative. New orders, shipments, delivery times and other indicators remained negative. Optimism is focused on third quarter.
In housing news, builder confidence in the market for newly constructed single-family homes rose two points in June to the highest reading since January 2016, according to the National Association of Home Builders Housing Market Index (HMI). And home builder confidence is up across the board. Confidence in current sales conditions rose one point to 64, sales expectations in the next six months increased five points to 70, and the component measuring buyer traffic climbed three points to 47. The Housing Market Index (HMI) is based on a monthly survey of NAHB members.
June 14, 2016
The Mortgage Bankers Association (MBA) reported on Tuesday that mortgage applications to purchase new homes fell 6% from April, but remain 8% higher than last year this time. The MBA said that despite new home purchase applications being down in May, it expects modest growth in housing starts to be reported later this week as the spring building season continues. The MBA’s Builder Application Survey tracks application volume from mortgage subsidiaries of home builders across the country.
After a slowdown in the beginning of the year, the consumer spending was alive and kicking in April and May for the second straight month of gains. Retail Sales rose 0.5% in May, above the 0.3% expected. Sales at clothing stores, online retailers, restaurants and bars all grew solidly. Retail Sales were up 2.5% from a year ago. Retail Sales measure the total receipts of retail stores from samples representing all sizes and kinds of business in retail trade throughout the nation.
The U.S. Stock markets are on the decline today and have closed lower for three straight trading sessions. Concerns of global instability, the Brexit fears and slowing job growth here in the U.S. are some of the key factors causing the recent sell-off. In addition, the monetary policy statement from this week’s Federal Open Market Committee meeting is sending jitters through U.S. markets. The closely watched S&P 500 has decreased 2.2% in the past four trading days. Brexit refers to the possibility that Britain will withdraw from the European Union with a vote on the issue coming on June 3.
June 13, 2016
The two-day Federal Open Market Committee meeting kicks off tomorrow and will end on Wednesday with the monetary policy statement being released at 2:00 p.m. ET. There is almost a zero percent chance of a hike to the Fed Funds Rate at this meeting after the weak May Jobs Report. In addition, the Brexit referendum later this month and the midst of negative Bond yields around the globe are holding Fed members back from raising interest rates. Traders don’t see at least even odds for a rate increase before February. The Fed Funds Rate is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight, on an uncollateralized basis.
The millennial generation has been a hot topic as far as the housing sector is concerned. The big question is when the generation will begin to purchase their first homes. There have been a few hurdles for millennials to overcome, such as a lack of inventory and rising prices. A third hurdle has now appeared … weak credit scores. A recent survey by credit scoring company TransUnion found that 33% of millennials, aged 18 to 34, want to purchase homes in the next year, but 43% of them have subprime credit scores. The study went on to say that 30% of this age group have credit scores between 300 and 600.
The financial world has been abuzz about the “Brexit” topic, which has put global Stock markets on edge. Brexit refers to the possibility that Britain will withdraw from the European Union. A referendum is being held on June 23 and will be voted up by British, Irish and Commonwealth citizens over 18 who are residents in the United Kingdom. A referendum is basically a vote in which everyone (or nearly everyone) of voting age can take part, normally giving a “Yes” or “No” answer to a question. Whichever side gets more than half of all votes cast is considered to have won.
June 10, 2016
This week, the World Bank cut its outlook for global growth citing declining business spending as it now forecasts 2.4% growth from the near 3% projected in January. In addition, low commodity prices, weak global trade and diminishing capital flows were also key factors. Here in the U.S., it is expected is also expected that growth will fall to an annual 2016 rate of 1.90% from the 2.0% originally forecasted. The World Bank says a steep decline in the U.S. energy sector was the reason behind the slide.
Next Tuesday, the two-day Fed meeting kicks off, where it expected that there is nearly a zero percent chance of a Fed Funds Rate hike at the meeting. Clues as to when the Fed will move on interest rate hikes in the future will be the key element in the statement. The Federal Funds Rate is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight, on an uncollateralized basis. The Federal Reserve is the central bank of the U.S. The Fed, as it is commonly known, regulates the U.S. monetary and financial system.
Consumer Sentiment edged lower in early June as Americans grew more cautious, though sentiment remains solid and could lift household spending and the broader economy in the summer months. The Consumer Sentiment Index fell slightly to 94.3 from May’s reading of 94.7. May was the highest reading in 11 months. “Consumers rated their current financial situation at the best levels since the 2007 cyclical peak largely due to wage gains,” said Richard Curtin, the survey’s chief economist. But “On the negative side of the ledger,” he added, “consumers do not think the economy is as strong as it was last year nor do they anticipate the economy will enjoy the same financial health in the year ahead as they anticipated a year ago.”