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Data Matters - September 15, 2017

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Data Matters - September 15, 2017

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Housing/Real Estate Market
House Prices up 6.7% Year over Year:  CoreLogic Reports national home prices increased Year over Year by 6.7% in July with the highest growth in Pacific Northwest and mountain states. This YoY increase represents the first upward acceleration since 2014. Southern California home prices surged in July; in some places past bubble-era highs. CoreLogic reports that the six-county area’s prices jumped 7.7% YoY in July due to record over-ask sales and low inventory.

Dodge Momentum Index Dips: The Dodge Momentum Index fell 2.4% in August, suggesting that the pace of commercial construction may slow a bit in coming months. This decline was driven entirely by the commercial sector, which posted its first yearly decline in more than a year. On the flip side, institutional projects increased, which helped to offset some of the drag  and leave the year-over-year reading on the index still in the black by 0.3%.

Macro Economy
Service Sector Continues to Drive Growth: With the manufacturing sector currently experiencing a bit of turbulence from the global economy, commodity prices, and the value of the dollar, we are fortunate to have a thriving services sector. The Institute of Supply Management’s (ISM) Services Index increased by 1.4 points last month after a brief pause in July. Overall, service sector jobs and business activity not only account for the largest component of our economy, but also the one that has contributed the most to growth in recent years.

More Signs of Inflation, But Not Worrisome: After dipping briefly in July, the Producer Price Index, a measure of inflation at the wholesale level, increased by 0.2% last month. This is relatively tepid, and does not suggest that the Fed will move quickly raising interest rates, but a colleague of mine once said that inflation is like blood pressure—you need a little bit, just not too much.

Inflation Firms at Retail Level Too: After a relatively tepid increase in July, consumer prices increase more robustly in August growing by 0.4%. Part of this is due to surging energy prices, which rose dramatically in the wake of Hurricanes Harvey and, to a lesser extent, Irma. However, rising housing costs (both rents and prices) are also behind the increase. “Core” inflation, which strips out food and energy, which tend to be highly volatile from month to month, grew by a more modest 0.2%, which suggests that the Fed won’t be in a major hurry to raise rates in their next meeting.

More Job Openings than Ever: The Job Openings and Labor Turnover Survey (JOLTS) showed that we set another record for the number of job openings. In total, there were 6.2 million job openings last month with a healthy portion divided amongst both high- and low-wage categories including construction, manufacturing, and finance. Unfortunately, with unemployment low and a skills mismatch between openings and unemployed workers, the pace of job growth is expected to remain tepid in coming months.

Factory Sector Holds Its Own Despite Losses: Factory orders dipped 3.3% in July, but core factory orders continue to increase, suggesting that manufacturers are seeing stability in demand for their products. Most of the decline was driven by fewer aircraft orders, which jumped in June and then to come in fits and starts. Overall, the factory sector continues to experience upward momentum, but we should not expect a surge in factory orders to ratchet-up quickly; more slow, steady growth is in the cards.

Trade Deficit Deteriorates: The net exports of the U.S. declined in July, which is our first reading on trade in the third quarter. However, many analysts had been expecting a deeper contraction. Still, export growth remains pretty tepid—especially goods exports, which have driven much of the weakness. Still, the volume of exports have been growing, and the dollar has come down a bit in recent months, so the trade deficit is not expected to be a big swing item in the Q3 GDP report, yet.

Consumer Credit Still Going Strong: Despite the recent uptick in auto loan delinquencies and despite the fact (or perhaps because of the fact) that spending has continued to outpace income growth, consumer credit expanded by $18.5 billion in July. This marks the fastest pace this year since March. Non-revolving debt, particularly student loans, formed the biggest portion of the increase. Debt levels have not hit a tipping point yet, primarily because the cost of debt is still so low, but consumers continue to leverage themselves this late in the cycle.

Wholesalers Take a Breather: Wholesale Trade sales were essentially flat in July, declining just 0.1% from June’s levels. On a year over year basis, wholesale trade is still up 5.9% from July 2016. Inventories on the other hand rose 0.6%, which suggests that inventory building could exert upward pressure on GDP growth this quarter.

Birth Pangs of Productivity: Weak productivity growth has been a major part of the lackluster economic environment of late, which is why the 1.5% increase in worker productivity is a positive sign. Although it isn’t enough on its own to spur more hiring and capital investment, it is a necessary prerequisite and as firms begin to make more money from their existing workforce, they will have the encouragement to make larger capital investments that will lead to more robust economic growth.

Small Business Bullishness: The nation’s small business owners remain encouraged as the National Federation of Independent Business reported a 0.1 point increase in their index of small business optimism. Encouragingly, and perhaps related to the bump in productivity, plans to make capital investments increased sharply alongside sentiments that now is a good time to expand. Expectations for sales and credit conditions also improved. That said, job openings and inventory accumulation both fell, so we can’t expect the pace of growth to accelerate too quickly.

Real Estate Finance
Mortgage Rates Lowest This Year, Pt. 4: The average rate for a 30-year fixed rate mortgage remained at its lowest level of the year last week at 3.78%. However, Freddie Mac warns that rates could being to inch back up at the 10-year Treasury yield increased by 11 basis points.

Mortgage Applications Continue Comeback: After several disappointing weeks, mortgage applications continued their turnaround last week as applications rose 9.9% from the previous week. Partially expected because of the slow holiday week last week, this still represents positive news for a mortgage market that has been stuck in the lurch for several months. Both refinancing and new purchase applications were up by healthy percentages last week.

Harvey Could Add 300k New Delinquencies: With many disruptions to work during the recovery efforts as well as the damage done by the storm, 160k borrowers will be seriously past due. Black Knight reports that “Using post-Hurricane Katrina as a model, [they] found that as many as 300,000 homeowners with mortgages in FEMA-designated Harvey disaster areas could become past due over the next few months.”

Mortgage Delinquencies Still Falling: CoreLogic Reported this week that the delinquency rate for existing mortgages dipped below 1% to just 0.8% of all mortgages last month. Perhaps more importantly, the number of new properties falling delinquent on their loans has also fallen, which suggests that there is not a significant shock to the market coming over the immediate term. The housing market still remains vulnerable to shocks, but this is solid evidence that there isn’t an abundance of bad mortgages out there that could spark a crisis absent an external shock.


Previous Weekly Updates
September 1, 2017 - Home Price Index, Job Growth, Mortgage Delinquency
August 25, 2017 - California Home Sales, Consumer Confidence, Distressed Mortgages
August 11, 2017 - Affordability, Consumer Inflation, Mortgage Applications
August 4, 2017 - U.S. Pending, Employment, Mortgage Availablity
July 28, 2017 - New Home Sales, U.S. Economic Growth, Fed Rates