Mortgage Applications

As interest rates continue to rise, purchase applications for home mortgages fell 6.0 percent on a seasonally adjusted basis in the week of February 16th. The unadjusted year on year gain in the Purchase Index at 3.0 percent, this is down 1 percentage point from the week prior. Applications for refinancing, typically more sensitive to changes in mortgage rates, fell 7.0 percent from the week prior, with the refinancing share of mortgage activity declining to only 44.4 percent, the lowest level since July of 2017.

PMI Composite Flash

A surge in services and continued strength in manufacturing pushed the PMI composite level to a 27-month high of 55.9 for the February flash data. Services rebounded from their recent softness, the index rose 2.6 points to 55.9. This beats economists’ expectations of a level of 53.5 and is a six-month high. Manufacturing is considered a leading indicator for the economy in general; it rose 0.4 points to 55.9, a 40-month high. New work received by service providers boosted the service sector activity, registering the largest rise since March 2015. Business confidence in the outlook for the next 12 months picked up to the strongest level since May of 2015, it also provides some answers as it possibly is evidence that suggests sales volumes were driven by high confidence among both consumers and businesses. A sharp rise in incoming new business also helped to boost the manufacturing sector, with new orders posting the steepest rise in three and a half years! Production growth however, remained little changed. Cost pressures intensified in February, especially input prices, which showed the sharpest increase recorded in since July 2013. Cost burdens and improving demand also took prices charged inflation to its highest level in nearly three and a half years. The strength in all aspects of this report point to rising inflationary pressures and gives the Fed support for further tightening.

Existing Home Sales

An uptick in supply combined with lower prices failed to boost existing home sales in January, which spell an unexpected 3.2 percent versus December’s downward revised December rate of 5.380 million, well below expectations of a 5.650 million rate, this is the lowest its been since January of 1999. Year on year home resales were down 4.8 percent for the largest decline since August 2014. The lack of supply continues to affect sales volumes, supply in January’s market increased 4.1 percent from December’s level 1.520 million homes. While this is down 9.5 percent from January last year, inventory rose from December’s 3.2 months, a 19 year low to 3.4 months, still extremely low. Because of these new lows in existing housing inventory the lack of choice remains a serious problem in the resale market. Prices have softened considerably in January, which will not attract many new homes onto the market in the future. The median selling price fell by a sharp 2.4 percent to $240,50 or a yearly increase of 5.8 percent. Sales were down compared to December in all four regions of the country. The soft news in this report may cast some doubt on the housing strength seen in last week’s report on permits which surged to the best level of the expansion.

FOMC Minutes

The Federal Reserve published minutes of its January 31st FOMC meeting. At Janet Yellen’s last meeting as chairman, it was decided that the Fed would leave the benchmark interest rate range unchanged between 1.25 and 1.5 percent; the assessment of the economy was upgraded as confidence that inflation is moving towards its 2.0 percent target increases.  Committee members were more positive about the outlook, expecting that with the further gradual adjustments to monetary policy, economic activity would expand at a moderate pace and labor market conditions will remain strong. They are optimistic about achieving their 2 percent inflation target rate. The committee now expects 20108 economic growth to exceeds their December forecast estimates. A number of participants indicated that they had revised their economic growth forecasts upward in the near term relative to those forecasts made in the previous meeting back in December. Members expect economic conditions would evolve in a manner that would require further gradual increases in the federal funds rate. They judged that a gradual approach to raising the target range would sustain the economic expansion and balance the risks to the outlook for inflation and unemployment. Members agreed that the strengthening in the near term economic outlook increased the likelihood that gradual upward revisions of the federal funds rate will still be necessary and appropriate.

Jobless Claims

Initial jobless claims continue to post very favorable readings that remain near historical lows, at 222,000 in the week of February 17th down 7,000 from the previous week’s downward revised level, taking the four week average to 226,000, just shy of the 45-year low seen two weeks ago. The average is down about 13,500 from this time last month. Further pointing to strength in the February employment report, continuing claims, in lagging data for the week of February 10th, fell by 73,000 from the previous week to a level of 1.875 million. The four week average is down 16,250 to 1.927 million, with the unemployment rate for insured workers falling 0.1 percentage point to just 1.3 percent.

Leading Indicators

The index of leading economic indicators points to robust economic growth ahead, accelerating in January to rise 1.0 percent following a 0.6 percent gain in December. Contributing to this unexpected large gain in January were building permits, stock prices, and once again ISM’s new orders index, where unusually strength has not yet been translated to similar gains in government data. Steady contributions continue to come from average initial claims, consumer expectations, the interest rate spread and the report’s credit index; all of which are positive and showing great strength.