Mortgage Applications

Purchase applications for home mortgages rose a seasonally adjusted one percent in the week of March 16th; this raises the year on year gain in the unadjusted Purchase Index by three percentage points to six percent. But applications for refinancing continued their decline driven by rising rates, the fell 5 percent from the week prior and took the refinance share of mortgage activity down 1.6 percentage points to 38.5 percent; the lowest level since September 2008.

Existing Home Sales

A jump back to higher levels for single family homes leads a positive existing home sales report for the month of February. Total sales rose 3.0 percent to a higher than expected 5.540 million annualized rate to lift the year on year rate out of the negative column to plus 1.1 percent. Sales of single family homes rose 4.2 percent in the month to a 4.960 million rate with the yearly reading at a positive 1.8 percent increase. This offsets the continued weakness for condo sales, which fell a sharp 6.5 percent in the month for a yearly rate of negative 4.9 percent. The overall message of this report is positive including a 4.6 percent rise in supply to 1.590 million. Yet on a sales basis supply, reflecting February’s strong gain in sales, is unchanged at a very thin 3.4 month. The gain in sales didn’t come at the expense of prices where the median home price rose 0.4 percent to $241,000, a 5.9 percent increase from this time last year. Home sales are struggling to move higher as they are held down by lack of choice for buyers along with higher prices. Rising mortgage rates are also a negative factor.

FOMC Meeting Announcement

Three rate hikes are still the FOMC’s call for 2018; now one down and two more to go. At this month’s meeting the FOMC raised the federal funds target rate by 25 points as was expected, to a midpoint of 1.625 percent within a range of 1.50 and 1.75 percent, the FOMC forecasts still have 2.1 percent as the median projection for the end of they year. The statement emphasizes “moderation” with descriptions of the economy generally moved down from the “solid” category of the prior FOMC statement from the January meeting. The labor market is still described as strong but economic activity is now downgraded to “moderate” with both household and business fixed investments also down to “moderated.” The description for inflation is unchanged, the 12 month rate is expected to move up in the upcoming months and stabilized around the committee’s two percent goal over the medium ter. The statement also repeats that near-term risks to the economic outlook “appear roughly balanced.” Though the rate outlook for this year is unchanged, the FOMC projects that one more rate hike in 2019 at 2.9 vs. 2.7 percent in December’s quarterly projections, and at 3.1 vs. 3.1 percent for 2020. The projections for this year’s GDP is upgraded two tenths to a median 2.7 percent with projections for core inflations, holding unchanged at 1.9 percent for this year, increased by 1 tenth to 2.1 percent for both 2019 and 2020. The results of this meeting suggest that the policy makers do not see a risk of falling behind the inflation curve and are content to wait for the economy to accelerate through the year. The votes to raise rates at this meeting was unanimous at 8 to 0.

Fed Chair Press Conference

Fed chair, Jerome Powell is downplaying the significance of the FOMC projection holding at three rate hikes this year and not moving up to four as many had expected. He said that the rise in the FOMC’s forecast for GDP now at 2.7 this year vs 2.5 percent in the December forecast, is well above long term projections and may or may not, given the members’ separate individual assessments, reflect any expected boost from fiscal st6imulus and tax cuts. Powell noted that it would take significant gains in productivity and also further growth in the labor market to reach the three percent level. On inflation, Powell stated the committee continues to seek a two percent goal and downplayed the significance of increased projections for the core, now at 2.1 percent for 2019 and 2020. He said members are seeing only moderate increases in wages and price inflation and as of right now, not seeing any acceleration in inflation. Powell said high asset prices, including equities and commercial real estate in some markets, are a vulnerability to policy but he stressed housing, a key sector, is not overheating. On the administration’s imposition of tariffs on primary metals, Powell noted that members do not as of right now see them having any effect on the current outlook, though it was noted the Fed’s business contacts are citing these tariffs as a concern. Among the final details, Powell said that he is thinking about increasing the number of chair press conferences, currently at only four a year. Also it was noted that Powell has no inclination, despite the risk of higher borrowing needs from the government, to make any changes to the balance sheet unwinding.

Jobless Claims

The monthly employment report again appears to be strong, based on initial jobless claims which, in the sample week for the monthly report, remain low and favorable. Initial claims in the week of March 17th inched 3,000 higher to a level of 229,000 with the four week average up to 223,750. A comparison wit5h the sample week of February employment report shows no significant change. Continuing claims, in the lagging data for the week of March 10th, fell 57,000 to 1.828 million for a new multi decade low! Employers appear to be holding onto their employees like never before; an indication that labor demand is unusually strong.

FHFA House Price Index

The house price index shot up a far stronger than expected 0.8 percent in data for January with yearly rate jumping 6 tenths from an upwardly revised December and hitting a three and half year high at 7.3 percent.  Low supply of homes on the market is a key factor giving prices a boost though strength in the labor market and high levels of consumer confidence are also at work.

PMI Composite Flash

Solid growth for manufacturing highlights an otherwise soft PMI flash report for March. The manufacturing PMI came in at 55.7 which is right at the three year high. But the report’s service sample is showing volatility, shooting higher in February and now falling back to a more moderate 54.12. together they make for a 54.3 composite score which is nearly two points lower than February. Strength on the manufacturing side includes orders, production and employment but price pressure are perhaps the most telling result. A number of survey respondents cited higher prices for metals and increased charges by suppliers amid strong demand for raw materials. While, at the same time, selling prices rose at the strongest pace in over 6 ½ years. Despite the service side slowing, orders and employment remain strong. Price pressures are evident in this report.

Durable Goods Orders

Significant strength is the verdict for February’s durable goods orders and with it, significant strength is now the outlook for this year’s factory sector. Durable goods orders jumped 3.1 percent in February to top economists’ high end of estimates; ex-transportation orders, the gain was 1.2 percent which was also very near the high end of estimates. The core capital goods were the largest strength in the report where orders surged 1.8 percent, well beyond the high estimates. The related factor, shipments, jumped 1.4 percent in what will give a major boost to business investment in the first quarter GDP report. Total shipments rose a very sharp 0.9 percent with ex-transportation shipments up 1.0 percent. Unfilled orders, which have been, weak, showed improvement with a gain of 0.2 percent. Inventories rose a healthy 0.4 percent, but relative to shipments need to be refilled as the inventory to shipments ratio fell one notch to 1.64. The dip in this reading points to the need for restocking which will be a special plus for factory payrolls. Orders for primary metals, which are now in special focus given the prospect of trade tariffs, surged 2.7 percent in the month in a gain that may reflect rising prices for steel and aluminum. Fabrication orders rose 0.8 percent in the month with machinery, which is the heart of the capital goods group, rose 1.6 percent. The year on year rate of growth are moving from the mid single digits to the high single digits led by 8.9 percent overall with ex transportation up 8.1 percent and capital goods up 8.0 percent.

New Home Sales

New home sales came in near expectations at 618,000 annualized rate in February with upward revisions in the prior tow months totaling 39,000. February sales are up only 0.5 percent on a yearly basis. Prices, however, are showing traction up 0.6 percent in the month to a median of $326,800; this is up a very solid 9.7 percent on a yearly basis. Supply is moving into the market as well, up a monthly 2.0 percent to 305,000 units for a yearly increase of 16.0 percent. On a sales basis, supply is at a healthy 5.9 months vs. 5.8 in January. Sales, for both new homes and existing homes have been struggling to gain traction so far this year; although they did end last year on an up note; and the heavy winter weather makes this time of year a tough time to judge for housing. Rising supply and strong jobs market are pluses for the new home market going into the spring selling season which will help offset drag from the rising mortgage rates.