Inflation Data Spikes Higher – Market Update


It’s Presidents Day, and we figure what better way to honor America’s leaders than to show some of that hard-working American spirit and that keeps us pushing right on through. The stock market is closed today, but there’s plenty that happened last week to catch you up on.
Headline News
Producer Price Index (PPI): We got both sides of the two-headed inflation data monster last week. On the production side, manufacturers and service providers paid 0.6% more than they did in December. This number is also up 1.6% since last January. Much of the reason for this is a 4.7% increase in energy prices. January was cooler and you have to heat the factory. Service prices are also up 0.3% on the month as were transport services at 1.1% higher. When food and energy were taken out, inflation was up 0.4% on the month and 1.2% on the year. If you further exclude trade services, the monthly reading is down to a 0.2% increase and 1.6% annually.
MBA Mortgage Applications: The average rate on a 30-year fixed-rate mortgage fell three basis points to 4.32%. Despite this, applications were down 3.7% overall after purchase applications were down 5.0% and refinancing applications fell 3.0%.

Consumer Price Index (CPI): Inflation in the consumer sector matched its counterpart on the production side, up 0.6%. More importantly, annual inflation is well above the Federal Reserve’s 2% target, coming in at 2.5% overall. When food and energy are taken out, they’re up 0.3% for January, but still at 2.3% on the year. This has the possibility to make the Fed move higher with interest rates sooner rather than later. Fed Chairwoman Janet Yellen made it clear in testimony before Congress that it would be unwise to wait too long to increase interest rates. Energy prices were 0.4% higher, led by a 7.8% increase in gasoline prices. However, prices for apparel, new vehicles and furniture were also up. Finally, housing cost and medical care are up 0.3% and 0.2%, respectively.
Retail Sales: Retail sales were up 0.4% in January. Sales data for December was also up 0.4% to 1.0% in revisions. Vehicle sales in December were the real strength of the revision, up 0.8% to 3.2%. They were down in January, falling 1.4%. Retail sales without cars were up 0.8% and 0.7% when you take out gas. Turning to individual categories, electronics and appliances were up 1.6% as were restaurants at 1.4%. Department store sales were up 1.2%. Other categories showing gains were sporting goods, as well as clothing, health and personal care, and building materials.
Industrial Production: Production was down 0.3% in January. However, manufacturing was up 0.2%. Capacity utilization was down 0.3% to 75.3% as factories were utilizing less space. Unlike on the producer price side, the weather actually caused a 5.7% drop in utility production. There was also a 2.9% drop in vehicle production. Manufacturing was up 0.5% when automobiles are taken out. Mining also showed a rare uptick, going up 2.8% in January.
Housing Market Index: Home builder sentiment has suffered an unexpected two-point drop in February to come in at 65. Present sales are down one point to 71, marking very little change. Expectations for sales in the next six months are also strong at 73, although this is down three points. However, traffic of first-time home buyers in new homes is down to 46, putting it back in contraction. The West is the strongest region at 79, followed by the South at 67. The Northeast is the weakest region, barely breaking even at 50.
Housing Starts: Housing starts were down 2.6% in January to 1.246 million. Despite this, they came in above estimates. Single-family starts were up 1.9% to 823,000 on a seasonally adjusted annual basis. There was a 10.2% drop in multi-family starts, however. The year-on-year rates are very strong. Meanwhile, permits were up 4.6% to 1.285 million. It’s worth noting that single-family permits were down 2.7% to 808,000 annually. This is still 11.1% higher than this time last year. Multi-family permits were at 19.8% to 477,000.
Jobless Claims: Initial claims were up 5,000 to 239,000. The four-week average is up 1,000 to 245,250. Continuing claims were down 3,000 to 2.076 million. The four-week average is at 2.080 million, up 4,000 from last week.
Mortgage News
Mortgage rates were down just slightly last week. Following Yellen’s congressional testimony, it sounds like the Federal Reserve may not wait much longer to raise short-term interest rates. With that in mind, if you’re in the market to purchase or refinance, it remains a great time to lock that rate.
Interest rates for 30-year fixed-rate mortgages (FRMs) averaged 4.15% with an average 0.5 point for the week ending Feb. 16, 2017, down from last week when they averaged 4.17%. A year ago at this time, 30-year FRMs averaged 3.65%.
Rates for 15-year FRMs this week averaged 3.35% with an average 0.5 point, down from last week when they averaged 3.39%. A year ago at this time, 15-year FRMs averaged 2.95%.
For 5-year Treasury-indexed hybrid adjustable rate mortgages (ARMs), rates averaged 3.18% this week with an average 0.4 point, down from last week when they averaged 3.21%. A year ago, 5-year ARMs averaged 2.85%.
Stock Market
Stocks eked out a record close Friday despite the ongoing uncertainty surrounding the French presidential election.
The Dow Jones Industrial Average was up 4.28 points to 20,624.05. It was up 1.75% on the week. The S&P 500 was up 1.51% on the week after rising 3.94 points Friday to 2,351.16. Finally, the NASDAQ was up to 5,838.58, up 23.68 points. This was up 1.82% for the week.
The Week Ahead
Wednesday, February 22
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.
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.
Thursday, February 23
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.
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.
Friday, February 24
New Home Sales (10:00 a.m. ET) – This measures the number of newly constructed homes with a committed sale during the month.
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.
Lots of housing data is on the way this week. We’ll have it all covered next Monday. If mortgage rates and economic data aren’t your preferred Monday energy booster, we have plenty of home, money and lifestyle content to share with you. If that doesn’t work, I highly suggest cookie bars.
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