Economic activity declined, weak consumer spending, consumer sentiment slipped

April 28, 2017

Economic activity declined in the latest quarter, slowing to its weakest in three years due to lower consumer spending and as businesses spent less on inventories. Gross Domestic Product fell to 0.7% in the first quarter of 2017, below the 1.1% expected and below the 2.1% recorded in Q4 2016. In addition, consumer spending plunged to 0.3% from 3.5% in the fourth quarter, the weakest since Q4 2009.

The weak consumer spending was blamed on the mild winter where consumers paid less for utility costs. However, the inflation reading personal consumption component rose 2.4%, the highest since Q2 2011. Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. It is considered the broadest measure of economic activity.

Consumer Sentiment sipped a bit in April from March, though remained strong as Americans were still generally optimistic during the month. The Consumer Sentiment index slipped to 97.0 from the 98.0 recorded in March. A spokesperson from the index said there was widespread agreement among consumers on their very positive assessments of the current state of the economy as well as widespread disagreement on future economic prospects.

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White House and New Tax Reform Plans, Mortgage rates edged higher in latest week, Purchase of existing homes declines in March

April 27, 2017

The White House unveiled its new tax reform plans on Wednesday, which is expected to usher in a rise in economic growth. The Trump tax plan calls for tax rates on businesses large and small to be slashed to 15% from 35%, while the number of income tax brackets will shrink from seven to three (10%, 25%, 35%). The estate tax and alternative minimum tax would be eliminated. The standard deduction, currently $6,350 for single people and $12,700 for married couples, would double, and would eliminate most itemized deductions. Mortgage interest, charitable contributions and retirement savings would also be left in place.

Mortgage rates edged higher in the latest week, but still remain just above all-time lows. Freddie Mac reported that the 30-year fixed mortgage rate rose to 4.03% in the latest week from 3.97% the previous week with 0.5 in points and fees. Mortgage rates continue to remain low, due to low inflation and weak economic growth. In addition, the U.S. Federal Reserve continues to purchase Mortgage Backed Securities in the open markets, which has a lowering effect on mortgage rates.

The National Association of Realtors® (NAR) reported on Thursday that signed contracts to purchase existing homes declined in March from February due in part to a lack of supply. Pending Home Sales fell 0.8% in March from February to 111.4. Despite the lack of inventory, activity was still strong enough to be the third best in the past year, reports the NAR. “Home shoppers are coming out in droves this spring and competing with each other for the meager amount of listings in the affordable price range,” said Lawrence Yun, NAR chief economist.

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Home Prices hit new highs in February, Mortgage rates continued to improve in latest week, Largest Tax Cut in history

April 26, 2017

Home prices hit new highs in February fueled by an improving job market and low inventories of homes for sale across the nation. Black Knight Financial Services reported this week that home prices were up 0.8% in February from January to $268,000 from $266,000. From February 2016 to February 2017, prices increased 5.7% from $254,000. Texas and New York hit fresh price peaks, while California and Florida lag behind.

Mortgage rates continued to improve in the latest week and have fallen to lows not seen since November 2016. The Mortgage Bankers Association reported that the 30-year fixed conforming mortgage rate ($424,100 or less) fell to 4.20% from 4.22%. The report went on to reveal that the refinance index jumped 7%, while the purchase index declined 1%. In addition,
the 30-year fixed-rate mortgages with jumbo loan balances remained unchanged from 4.15%, while the 30-year fixed-rate mortgages backed by the FHA decreased to 4.03% from 4.09%.

The White House is expected to unveil the largest tax cut in history today with the corporate tax rate decreasing to 15% from 35%, which would include millions of small businesses. Treasury Secretary Mnuchin said on Wednesday morning that the administration wants to simplify the tax code for the average American and create economic growth. The goal is to achieve 3% economic growth through tax reforms and reduced regulations.

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New Homes Sales hit highest in nearly a year, Home Prices pushed higher in February, Consumer Confidence edged a bit lower in April

April 25, 2017

The Commerce Department reported on Tuesday that New Home Sales in March hit their highest level in nearly a year, up 5.8% from February to an annual rate of 621,000 versus the 590,000 expected. Sales were up nearly 16% from a year ago. The median sales price rose 7.5% from February, while inventories edged lower to a 5.2 month supply from 5.4 months in February. Sales were driven by a strengthening labor market along with a shortage of properties.

Home prices pushed higher in February fueled by strong demand and limited supply. The Case-Shiller 20-City Home price Index rose nearly 6% from February 2016 through February 2017 and up 0.7% month-over-month from January to February. Seattle, Portland and Denver sported the largest increases with prices up 11.3%, 9.7% and 0.2% respectively. “Housing and home prices continue on a generally positive upward trend,” said spokesperson David Blitzer.

After a sharp increase in the previous two months, Consumer Confidence edged a bit lower in April, but remained at strong levels, reports the Conference Board. The Consumer Confidence Index slipped to 120.3 in April, down from 124.9 in March, which was the highest level since December 2000. The report showed that consumers were somewhat less optimistic about the short-term outlook for business conditions, employment and income prospects.

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French Elections ignited global stock market rally, Panera Bread Co will be expanding delivery service, Atlanta Fed has GDP falling

April 24, 2017

The French elections on Sunday ignited a global Stock market rally deemed as a pro-Euro vote. French candidate Emmanuel Macron and Marie Le Pen will now advance to a run-off, with Macron seen as the likely to prevail against Le Pen. Macron is a former banker and looks to make big cuts in corporate taxes and to cut into the high jobless rate, all of which are being embraced by Stocks. In addition, President Trump is expected to announce his plan on tax cuts on Wednesday and said on Friday that the plan will include a “massive” tax cut for individuals and corporations. This is also helping to boost Stocks here in the U.S.

The U.S. job market will receiving a boost after Panera Bread Co. said it will be expanding its delivery service and will hire 10,000 drivers by the end of 2017. The delivery plans will be available in nearly 40% of stores across the nation. The deliveries will encompass lunch and dinner between 11 a.m. and 8 p.m. seven days a week with a $5 minimum purchase and a $3 fee tacked on top of the order. Panera operates 2,000 stores throughout the U.S. and Ontario, Canada.

There are no economic reports due for release today, but the rest of the week we will see data on housing, Consumer Confidence and Sentiment, manufacturing and the closely watched Gross Domestic Product (GDP) for Q1 2017. The Atlanta Fed has GDP falling to an anemic 0.5%, not a good number for the Fed members in their quest to raise rates in the near future. Fed Fund Futures show no chance of a hike to the benchmark short-term Fed Funds Rate in May and a 53% probability in April.

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Existing Homes Sales in March were up from Feb, Rate Hikes this year per Vice Chairman Stanley Fischer

April 21, 2017

The National Association of Realtors® reported on Friday that Existing Home Sales in March were up 4.4% from February to an annual rate of 5.71 million units. It was the highest level since February 2007 and up nearly 6% from a year ago. However, demand continues to outweigh supply with inventories down 6.6% from a year ago. “The early returns so far this spring buying season look very promising as a rising number of households dipped their toes into the market and were successfully able to close on a home last month,” Lawrence Yun, a chief economist for the industry group, said in a statement.

Vice Chairman Stanley Fischer of the U.S. Federal Reserve spoke to CNBC this morning saying that he still anticipates three rate hikes this year to the benchmark short-term Fed Funds Rate, despite some recent weakness to the economy. Mr. Fischer feels that the slowdown in the economy and the inflation rate was due to seasonal factors and will pick up as the year progresses. The Vice Chairman finished by saying that the Fed is dependent upon what happens in the economy and that the central bank is not tied to three rate hikes in 2017.

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Mortgage rates continued to decline this week, Manufacturing activity in Philadelphia expand, Weekly Initial Jobless Claims rose last week

April 20, 2017

Mortgage rates continued to decline this week due in part to weak economic data and geopolitical events. This prompted investors to switch assets into Treasury and Mortgage Backed Securities, which pushed mortgage rates lower. Freddie Mac reported that the 30-year fixed conventional mortgage rate ($424,100 or less) fell to 3.97% from 4.08% with 0.5 in points and fees. This is the lowest rate seen since early November 2016.

Manufacturing activity in the Philadelphia region continued to expand in April, though at a slower pace than last month. The Philadelphia Fed Manufacturing Index fell to 22.0 this month from the 32.8 recorded in March. Within the report it showed that indexes for general activity, new orders and shipments remained positive but decreased from March. In addition, the employment component suggested expanding employment in the manufacturing sector.

Americans filing for first-time unemployment benefits increased in the latest week though remain at lows not seen in decades. Weekly Initial Jobless Claims rose 10,000 last week to 244,000 following three straight weeks of declines. First-time unemployment claims have now remained below the 300,000 level for 111 straight weeks, the longest stretch since 1970 when the labor market was smaller. The four-week moving average of claims, which irons out seasonal abnormalities, fell 4,250 to 243,000 last week.

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For-Sale Inventories at lowest level in 10 years, Mortgage rates lowest since November 2016, Gas prices continue to increase

April 19, 2017

Freddie Mac released its April outlook this week revealing that for-sale inventories of homes, especially starter homes, are currently at their lowest level in over 10 years. If inventories continue to decrease, home sales will most likely decline from the 2016 levels. Freddie went on to say that low unemployment and increasing inflation are still ongoing trends. As far as rates, Freddie predicts that the 30-year fixed conforming rate will top out at 4.5% later this year.

The Mortgage Bankers Association (MBA) reported this morning that despite mortgage rates at their lowest level since November 2016, the MBA’s Market Composite Index, a measure of total application volume, fell 1.8% in the latest week. The MBA’s purchase index fell 3.4%, due in part to the Passover and Easter holidays last week. The refinance index was essentially unchanged. The MBA also reported that the 30-year fixed conforming mortgage rate fell to 4.22% from 4.28%, while 30-year jumbo rates declined 9bp to 4.15%.

As more drivers take to the roads this spring and early summer months, the price of gas continues to increase across the country. In addition, refineries switch to a more expensive summer blend of gasoline. The national average price for a regular gallon of gasoline is at $2.40, up from $2.29 a month ago and $2.11 from a year ago. The national average is at its highest price this year and has now increased for 20 consecutive days. The highest recorded price was $4.11 hit back on July 17, 2008.

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Housing Starts fell in March, Corporate Earnings mixed reviews, US Stocks lower today due to missed earnings from Goldman Sachs

April 18, 2017

Inclement weather during March in the Midwest and Northeast sent a chill in residential new home construction after the unseasonably warm weather in February. The Commerce Department reported that Housing Starts in March fell nearly 7% from February to an annual rate of 1.215 million annualized units, below the 1.256 million expected. February was revised higher to 1.303 million from 1.288 million. From March 2016 to March 2017, Housing Starts were up 9%.

On the corporate earnings front, investment banking giant Goldman Sachs missed expectations on both earnings and revenues. Goldman said that its operating environment was mixed, while client activity was challenged. Bank of America beat on both earnings and revenues led by an increase in loans and banking deposits. CEO Moynihan said the “U.S. economy continues to show consumer and business optimism.”

U.S. Stocks are lower today due in part to the rare miss on earnings from Goldman Sachs and a possible delay in tax reforms. Treasury Secretary Steve Mnuchin told the Financial Times yesterday that the August deadline for tax reform is “not realistic at this point.” Secretary Mnuchin said that the reason for the delay is because of problems with getting a new health care bill passed. Mr. Mnuchin went on to say that he still expects tax reform proposal to pass by the fall.

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Manufacturing activity in New York State, Home Builders remained optimistic, Retail sales declined

April 17, 2017

Manufacturing activity in the New York State region declined in April from March, further indicating that economic growth continues to decrease. The Empire Manufacturing Index fell 11 points to 5.2 and below the 13 expected. Within the report it showed that the new orders index declined, while the employment component continued to signal strength in the labor market. Looking ahead, the report showed fairly widespread optimism about future conditions.

Home builders remained optimistic, but cooled a bit in April, though they reported strong interest among potential home buyers. The National Association for Home Builders Housing Market Index, a measure of home builder sentiment, fell three points in April from March to 68 and below the 70 expected. Any number over 50 indicates that more builders view conditions as good rather than poor. “The fact that the measure of current sales conditions has been over 70 for five consecutive months shows that there is continued demand for new construction,” said NAHB Chief Economist Robert Dietz.

The Commerce Department reported on Friday that Retail Sales declined for the second month in a row in March, posting their worst two-month stretch in two years. Lower sales for automobiles and gasoline led the 0.2% drop in March. February also was revised lower to -0.3% from 0.1%. The negative numbers for Retail Sales in the last two months will be a key metric when first-quarter 2017 Gross Domestic Product (GDP) is released on April 28 because consumer spending makes up two thirds of overall economic activity. The latest estimate from the Atlanta Fed’s GDPNow Forecast sees first-quarter GDP coming in at an anemic 0.6%, down from the previous estimate of 1.2% on April 4.

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