Mortgage pricing slipped under the 100 day moving average yesterday. The last time that happened was October 5, and rates moved up about 1/4% over the next six weeks. Pricing has declined again this morning. Although we look at the technical picture only in the absence of “real” news (as opposed to “fake news”), movements like today have a marked impact on direction of interest rates. Evidence of economic growth (or at least the hope for growth) will be required to see interest rates move meaningfully higher from here. Such proof typically comes slowly over time. Here is today’s data:
The Producer Price Index rose 0.5% last month, to a year-over-year increase of 2.5%. Increased manufacturer’s costs do not always lead to increased consumer costs, but we’ll get that number tomorrow. Also, Initial Jobless Claims were reported at 236,000; a slight drop from last week’s 238,000. The employment picture keeps getting better.
Sometimes, flat can be problematic. The Producer Price Index, measuring inflation at the wholesale level, was released today. The PPI shows 0% price growth–totally flat–and when stripping out food and energy nets a -0.2% loss. The anticipated showing was a gain of 0.3%. This month’s loss brings the year-over-year reading to an anemic 0.8% advance. Overall, pretty flat.
The National Association of Home Builders’ Housing Market index remains unchanged this month at a 63–also flat. Stocks and Bonds are pretty close to unchanged so far today. Sometimes flat and unchanged isn’t a big deal, and sometimes flat can be a problem. The question is, who is getting out of the car to see how bad the flat is?
Yesterday I mentioned that rates are trying to stage a tiny comeback, and that can’t happen with a flat.
Retail Sales drop again as more Americans are saving more of their paychecks instead of buying stuff. If you take car sales out of the equation, Retail Sales slipped -0.3% last month. Despite less product being sold, buoyancy to corporate profits should be maintained by a decrease to the cost of the production of goods. The Producer Price Index dropped -0.2%. A temporary slip; not a major fall.
Buy bonds and sell stocks or sell bonds to buy stocks? Sizeable price fluctuation continues today following the announcement of the fourth consecutive month of declining prices at the manufacturing level. The Producer Price Index dropped 0.5%, below the +0.3% expected by the Alex Trebeks of the financial forecasting world. This has all of the contestants asking aloud, in the form of a question, “What is deflation?”. The next pressing issue is whether the Fed will raise rates in June, or September, or? That topic indeed is today’s Double Jeopardy.
Inflation numbers so far this week (as construed by the leading economic indicators of Philly Fed, Producer Price Index, and Retail Sales) have shown it tame at best and could be interpreted by some as a foreshadowing od widespread deflation. Today’s Consumer Price Index shows that the cost of purchasing stuff by households across the country has declined in tandem with the cost of manufacturing said goods by -0.4% since the prior month. In both cases, this is the lowest reading in the last six years and has caused many to call for the Feds to start hiking interest rates.
Contrary to the deflationary decriers, my untrained take is a little (in my biased opinion) more level-headed. It sees obvious enough to me that the costs of manufacturing and distributing goods for sale has declined commensurate to the cost of fuel this last month and not a result of a domestic economic downturn. So while the black clouds brewing overhead might alarm some, I believe we should just take advantage of the beautiful scenery thus created because it won’t last forever. Hence the picture. Translation: interest rates are really good and we should take advantage of that.
I believe that my 10th Grade Creative Writing teacher would be proud right now.
I am doing a lot of no-cost FHA loans at 3.5% and Conventional 30 year no-cost loans at 3.875% this week. I realize that most of you are enjoying interest rates that are already lower than this, but if not, we need to talk.
Perhaps that reason that homebuilders are feeling dour about the new construction industry is indicative in the 16% decline in Housing Starts, now down to an annualized 888K units. Building permits also fell by 5%. Weather of course could play a factor since they generally build homes in the out of doors and most states in our union shut down at the threat of snow.
A brand new Producer Price Index was released this morning by the federal government. Hitherto the present, the PPI just tracked the wholesale cost of goods sold. Henceforth it will also include services as well (banking, healthcare, construction, etc.) The new PPI is a measure of inflation at the level of production and is released a day before the Consumer (retail) iteration. PPI was reported at 0.2%, double the 0.1% expected. Doesn’t sound like much, but it equates to an extra 1.2% of inflation for the year, which is bad news if you like low interest rates.