Inflation Numbers Meet Federal Reserve Expectations – Market Update


It was a short week, but we got some inflation and housing data. Let’s jump right in.
Headline News
MBA Mortgage Applications: Purchase applications were down 5%. These warm temperatures for January aren’t enough to push people to go out and look. Despite this, the rate on a 30-year fixed-rate mortgage fell 5 basis points to 4.27% and helped boost refinance applications. These were up 7%. Applications are up 0.8% overall.
Consumer Price Index (CPI): Inflation was up 0.3% in the month of December and 2.1% on the year. Taking out food and energy, it’s up 0.2% and 2.2% annually. The yearly rate is an important number because Federal Reserve officials, including Chair Janet Yellen, have consistently reiterated that levels of about 2% are where they think the economy could withstand further short-term interest rate hikes to keep prices from rising too quickly.

Turning back to the details, energy prices were up 1.5% and have gone up 5.4% on the year. Medical costs were up 0.2% in December. Housing prices were up 0.3% as was owners’ equivalent rent. Not everything was higher. Food prices were down 0.2% and apparel prices were down 0.7%. The price of clothing has actually fallen 0.1% on the year.
Industrial Production: There was a 6.6% uptick in energy production in December as temperatures cool. This was a big help in boosting overall production 0.8% on the month and is the biggest rise in utility production in more than 26 years. Capacity utilization was up 0.6% to 75.5%. A 1.8% rise in automobile production helped with manufacturing, which was up 0.2%. Mining rates were unchanged in December.
Housing Market Index: Milder January weather doesn’t seem to have helped home builder sentiment. This index is down two points to come in at 67. However, ratings are still strong overall. Traffic of buyers in new-construction homes was down one point to 51. Traffic had been in contraction at the sub-50 level for the entirety of the last decade, so this is pretty good.
Builders are confident about both current and future sales, which are at 72 and 76, respectively. Regionally, the big news is in the Northeast where the market is growing for the first time in a long while, coming in at 52.
Housing Starts: This index has a tendency to jump around a little bit, but starts came in at 1.226 million on a seasonally adjusted annualized basis. This was up 11.2% in December. Multi-unit starts were the cause of this: They were up 57% to 431,000.
In contrast, single-family starts were down 4.0% to 795,000. On the permit side, these were down 0.2% to 1.21 million. Single-family homes are up 4.7% to 817,000. Meanwhile, permits on the multi-family side fell 9% to 393,000.
Jobless Claims: Initial claims were down 15,000 last week to come in at 234,000. The four-week average was down 10,250 at 246,750. On the continuing claims side, things were good as well: Continuing claims were down 47,000, coming in at 2.046 million. The four-week average was at 2.09 million, which was up just 1,750.
Mortgage Rates
Mortgage rates were down for the third consecutive week. If you’re in the market for a mortgage, it remains a great time to lock in your rate.
Thirty-year fixed-rate mortgages (FRMs) averaged 4.09% with an average 0.5 point for the week ending Jan. 19, down from last week when they averaged 4.12%. A year ago at this time, 30-year FRMs averaged 3.81%.
Fifteen-year FRMs this week averaged 3.34% with an average 0.5 point, down from last week when they averaged 3.37%. A year ago at this time, 15-year FRMs averaged 3.10%.
Five-year Treasury-indexed hybrid adjustable rate mortgages (ARMs) averaged 3.21% this week with an average 0.4 point, down from last week when they averaged 3.23%. A year ago, 5-year ARMs averaged 2.91%.
Stock Market
Following the inauguration of President Donald Trump, the markets ended five consecutive days of declines.
The Dow Jones Industrial Average was up 94.85 points on the day to finish at 19,827.25. It was still down 0.29% week over week. The S&P 500 was down 0.15% on the week after finishing up 7.62 points at 2,271.31. The NASDAQ closed the week at 5,555.33 points, down 0.34% for the week but up 15.25 points on Friday.
The Week Ahead

Tuesday, January 24

Existing-Home Sales (10:00 a.m. ET) – Existing-Home Sales tallies the number of previously constructed homes, condominiums and co-ops in which a sale closed during the month. Existing homes (also known as home resales) account for a larger share of the market than new homes and indicate housing market trends.

Wednesday, January 25

MBA Mortgage Applications (7:00 a.m. ET) – The Mortgage Applications Index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
FHFA House Price Index (9:00 a.m. ET) – The Federal Housing Finance Agency (FHFA) House Price Index (HPI) covers single-family housing using data provided by Fannie Mae and Freddie Mac. The HPI is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.

Thursday, January 26

International Trade in Goods (8:30 a.m. ET) – The Bureau of Economic Analysis has begun breaking out the goods from the remaining international trade numbers to get an idea of import and export estimates for GDP calculations.
Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to report the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The four-week moving average of new claims smooths out weekly volatility.
New Home Sales (10:00 a.m. ET) – This measures the number of newly constructed homes with a committed sale during the month.

Friday, January 27

Durable Goods Orders (8:30 a.m. ET) – These are based on new orders placed with domestic manufacturers for factory hard goods.
Gross Domestic Product (GDP) (8:30 a.m. ET) – This measures the monetary value of all final goods and services produced within the U.S. This report is released on a quarterly basis.
Consumer Sentiment (10:00 a.m. ET) – The University of Michigan’s Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending.
There’s a lot of important data this week. GDP and durable goods orders are two of the big ones in addition to the housing data. However, I know economics and mortgage aren’t everyone’s bag. If the idea of those topics makes you want to stare off dreamily into space, we’ve got plenty of lifestyle content to give you a pick-me-up. Just subscribe to the Zing Blog below.
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