The inflation reading Employment Cost Index, which is the broadest measure of labor costs, gained 0.2% in the 2nd quarter of 2015. This represented the smallest increase in 33 years, while wage and benefit costs also showed meager gains. Labor costs rose 2% in the year ending in June, below the 3% target that is needed to bring core inflation closer to the 2% level that the Fed is trying to achieve.
The final reading on July Consumer Sentiment showed that the index slipped to 93.1 from the 96.1 recorded in the previous month. The index has averaged 94.5 since December, the highest eight-month span since 2004 as consumers remain positive on jobs and wages. The decline in July was attributed to “the disappointing pace of economic growth” thus far in 2015. The economy grew at an anemic pace of 0.6% in the first quarter of 2015, while the second quarter did show promise with a 2.3% gain in the second quarter.
U.S. economic growth rebounded in the second quarter of this year, led by a rise in consumer spending along with an increase in exports. The Bureau of Labor Statistics reported that Gross Domestic Product, the total value of goods and services produced in the U.S., rose by 2.3%, well above the anemic 0.6% recorded in the first quarter, which was revised from -0.2%. On the negative side, business spending declined during the quarter, led lower by decreasing spending on buildings and plants, while inventories also fell. In addition, the report revealed that inflation remained subdued.
Mortgage rates declined this week slipping just under 4% in a survey out from Freddie Mac. The 30-year fixed conventional rate ($417,00 or less) fell to 3.98% this week from the 4.04% recorded in the previous week. To obtain that rate, a potential borrower would have to pay 0.6 in points and fees. The recent decline in global Stock markets caused a flight to quality into the Bond markets, which drove prices higher and yields lower, and in turn, pressured mortgage rates lower.
The Federal Reserve released its monetary policy statement yesterday leaving interest rates unchanged, which left investors scratching their heads as to the timing of the first rate hike. The statement read that that both the labor market and the housing sector were improving, while inflation continues to run below its long-run objective. There was no hint as to when the first rate hike may take place. The interest rate in question is the short-term Fed Funds Rate, the rate in which banks lend their balances to other banks overnight. The Fed Funds Rate has been at 0.25% since late 2008.
United Parcel Service (UPS) reported earnings this week; the shipping company is considered by many to be a barometer of the U.S. economy. UPS is the biggest member of the Dow transports, which economists feel to have a good pulse of the economy. UPS said it sees the U.S. economy slowing, which is somewhat contradictory of what Fed Chair Janet Yellen a few weeks ago when she said that she sees the economy strengthening in the second half of 2015. The big reason that shipping companies may have their finger on the pulse of the economy is because they are the middle men between what goods are produced, and for what people consume.
Consumers weren’t feeling too confident in July as the weight of the geo-political issues in Greece and the instability in the Chinese Stock markets weighed on their minds. The Conference Board released its July Consumer Confidence Index today, which fell to 90.9, a 10-month low, down from the 101.4 registered in June and below the 100 expected. Consumers were also less optimistic surrounding the labor markets, while business condition optimism declined. The Conference Board is a global, independent business membership and research association working in the public interest.
Home price gains in a selected 20-city index remained solid in May, though the actual numbers fell a bit below what was estimated. The Case Shiller 20-city Home Price Index rose 4.9% from May 2014 through May 2015, though below the 5.6% gain expected. From April to May, prices rose 1.1%. Within the report it revealed that first time homebuyers are still sitting on the sidelines. Without those buyers, there is less activity as existing homeowners aren’t seeing the liquidity and demand that supports selling their homes and trading up for a new purchase.
Black Knight Financial Services reported today that home prices in May rose 1.1% from April as the housing sector continues to gradually improve. The current price was pegged at $251,000, which is 5.1% higher than May 2014 and is up 25% from the market bottom. The price peak came in June of 2006 at $268,000. Black Knight tracks prices as of their transaction dates every month from more than 18,500 U.S. zip codes. New York led the gains in May with a 1.8% appreciation month-over-month.
U.S. Stock markets begin the week on a lower note after a big decline in the Chinese Stock markets. China’s Shanghai Composite fell 8.5% overnight and is down nearly 30% since the June highs. The China market had been up 150% in June before the recent slide, which was deemed to overvalued or in bubble territory. Stock prices here in the U.S. fell last week as the Federal Reserve gears up to begin raising interest this year. This week, Fed members will meet to discuss monetary policy with the meeting centering on as to the timing of rate hikes later this year.
The Commerce Department reported on Friday that June New Home Sales unexpectedly declined by 6.8% from May to an annual rate of 482,000, below the 550,000 expected. The June reading was the slowest pace in seven months. May was revised lower to 517,000 from the original estimate of 546,000. The 482,000 is 18.1% above the June 2014 estimate of 408,000. The decline could be due in part to tight supply and fewer new listings as construction is expanding at a slower pace than the sales of new homes.
The two-day Fed meeting kicks off next Tuesday with the monetary policy statement being released at 2:00 p.m. ET on Wednesday. Federal Reserve members are in a sort of conundrum as they need to get interest rates back to more normal levels, however they don’t want to raise them prematurely and trigger a slowdown in an improving economy. The central bank controls the Fed Funds Rate, which is currently at 0.25% and has been at this level since December of 2008. The Fed Funds Rate is the rate in which banks charge each other for overnight loans to meet their reserve requirements.
The government will release Gross Domestic Product (GDP) next week for the second quarter as investors look for a turnaround in the world’s largest economy. The first quarter saw negative growth of -0.2%, but there may not be a big snap back this year with rising health care costs and consumer spending easing a bit due to slow wage growth. In 2014, first quarter GDP was -2.1%, but rebounded strong in the second quarter to +4.6%. The report will be closely watched by investors around the globe.
The number of Americans filing for first time unemployment benefits fell to a 42-year low in the latest week as the job market continues to strengthen. Weekly Initial Jobless Claims fell by 26,000 to 255,000 and has been running below the 300,000 mark since February, the longest such streak in 15 years. However, July is one of the most volatile months of the year due to automakers and other various companies shutting down at different weeks of the year. The labor market is a key metric for Federal Reserve members to gauge the health of the U.S. economy.
Government sponsored entity Fannie Mae released its July housing survey today forecasting that total home sales in 2015 are expected to reach 5.75 million, up from the June forecast of 5.65 million. The uptick in sales comes as most economists are also ramping up their figures for total sales across the nation. A Mortgage Bankers Association spokesperson said the housing market has “shifted into a higher gear” with more sales being refinanced and more applications being approved.
RealtyTrac reported today that its June and Midyear 2015 U.S. Home Sales Report revealed that there were 914,291 single-family and condo sales through April 2015, which marks the highest level for the four month period since 2006. Within the report it showed that first-time home buyers and buyers using Federal Housing Administration loans were at two-year highs in the second quarter compared to a year ago.
The National Association of REALTORS® reported on Wednesday that June Existing Home Sales hit their highest pace in over eight years due to rising demand and limited supply. Sales rose to 5.49 million, above the 5.40 million expected and up 3.2% from May. Year-over-year, sales are up 9.6% and have increased annually for nine consecutive months. In addition, the median price for an Existing Home in June rose to $236,400, 6.5% above last year and above the peak price set in July of 2006.
The National Retail Federation (NRF) cut its retail sales forecast for 2015 to 3.5% from the February forecast of 4.1%, citing an unexpected slowdown in growth the first half of this year. The NRF also expects back-to-school sales to be lower this year, as it forecasts the average family will spend $630 this year as opposed to $669 last year. However, growth should pick up the second half of this year, which should offset the slowdown that occurred in the first half.
iPhones flew off the shelves over the last three months, as reported by Apple in its latest quarterly earnings report. Apple sold a whopping 47.5 million iPhones in its third quarter, and while it was a record, it was below the 50 million that was expected. Apple reported revenues of $49.6 billion with earnings per share of $1.85, above the expectations of $1.81 billion. The iPad saw sales of 10.9 million units, down from 13.3 million in the same period last year.
Corporate earnings reports are dominating the business headlines this week in the absence of any major geo-political headlines or economic reports this week. Yesterday afternoon after the Stock markets closed, tech giant IBM reported a decline in sales for the 13th consecutive quarter. “Big Blue” reported that U.S. sales fell 8%, while sales in Europe, Middle East and Africa declined 17%. Verizon reported and stated that its subscriber growth in its wireless division added one million new customers during the quarter, though down nearly a third from a year ago. Apple will report earnings after the close of trading on Tuesday.
The Bureau of Labor Statistics (BLS) reported today that in June, 21 states and the District of Columbia had over-the-month unemployment rate decreases, 12 states had increases, and 17 states had no change. The BLS said that 42 states and the District of Columbia had unemployment rate decreases from a year earlier, five states had increases, and three states had no change. The job sector has been steadily improving over the last year as the U.S. economy continues to recover from the Great Recession and housing bubble burst back in 2008.
After being put out to pasture after the housing market imploded, interest-only loans are starting to make a comeback in the mortgage market. However, the rules have changed from the housing bubble days. To secure an interest only loan, potential borrowers will now have to make a sizable down payment of 20% and have a 720 FICO score. In addition, borrowers must qualify on what the future payments will be once they are adjusted higher, not just at the starter rate.
Realtor.com reports that in more than one-third of the 300 largest metropolitan areas, homes listed for sale in June had been on the market for a median of less than two months, a signal that indicates rapid turnover in inventory as the demand for homes exceeds supply. Bidding wars are now popping up in many areas due to the shortage of homes. A few reasons for the supply problems are a slower than expected recovery in home construction and owners not listing their homes for sale because they feel they won’t qualify for a new mortgage.
The specter of rising interest rates has pushed the U.S. dollar to the highest levels in three months, which in turn is weighing on gold prices. As the dollar rises against foreign currencies, it pushes the price of gold lower, making it more expensive to buy the yellow metal. This momrning, gold hit a five year low of $1,090 per ounce, which is also due to large sellers from Asia, especially China.
For the first time since 1961, the U.S. Cuban Embassy in Washington D.C. has reopened and the Cuban flag has been raised outside the building. Diplomatic relations have been restored after the Cold War severed ties back in the early 1960s. Since he took office, President Obama has worked to restore relations with Cuba.