Retail Sales and Consumer Inflation Disappoint – Market Update


I hope all the mothers out there had a wonderful Mother’s Day. Last week’s economic calendar may have been a little light to start the week, but we got some housing data before closing, with a couple of inflation numbers and retail sales. Unfortunately, a couple of these numbers would not have made mom proud if she were looking at a report card for the U.S. economy. Let’s dive in and review what happened.
Headline News
Quicken Loans Home Price Perception Index (HPPI): Homeowners across the country continue to overvalue their properties , with the gap between appraisals and homeowner expectations increasing to 1.9% in April from 1.77% in March. However, there are regional differences. Homeowners in the West overestimated by just 1.65%, but homeowners in the Northeast were off by 2.17%. The South and Midwest are in the middle at 1.83% and 2.02%, respectively.

Turning to individual cities, Denver continues to be the nation’s hottest market, underestimating property value by 2.72%. Philadelphia homeowners are on the opposite end of the spectrum, overestimating by 3.37%. Riverside, Calif., homeowners were closest to par, with their opinions of value coming in just 0.16% above appraisers’.
Quicken Loans Home Value Index (HVI): The good news for homeowners is that home values went up 1.06% in April. They’ve now risen 5.08% on the year. Despite being the region with the slowest year-on-year growth at 3.54%, the Northeast had the biggest monthly gains, up 1.96%. Western home values were up 1.03% monthly and 6.52% yearly. Homeowners in the South saw values rise 0.67% on the month and 5.02% since last April. Values in the Midwest were up 0.80% since last month and 4.08% annually.
MBA Mortgage Applications: Mortgage applications were up 2.4% overall last week. Applications for purchase were up 2% with refinances seeing a growth of 3%. The average rate on a 30-year-fixed conforming mortgage was unchanged at 4.23%.
Jobless Claims: Initial claims for unemployment were down 2,000 last week to come in at the lower-than-expected number of 236,000. The four-week average was up by just 500 claims to 243,500. Meanwhile, on the continuing claims side, these are down 61,000 to 1.918 million. This is the lowest level of continuing claims since 1988. The four-week average was down 27,000 to 1.966 million. This is the lowest level for this indicator since 1974.
Producer Price Index (PPI): On the producer’s side, inflation rose 0.5% on the month and 2.5% annually. The metric was up 0.4% from last month and 1.9% on the year when food and energy were taken out. When trade services were further removed, prices were inflated 0.7% since April and 2.1% on the year. Computer prices were up 1.1%, and cigarettes rose 2.2% in April. The price of lodging in hotels and the like was up 8.2% in April, which probably had something to do with the Easter and Passover holidays and spring break.
Consumer Price Index (CPI): Inflation on the consumer side wasn’t nearly as high, rising just 0.2% on the month and 2.2% on the year. Prices in core categories excluding food and energy rose just 0.1% and 1.9% since last month and last April, respectively. Inflation is rising at a slower pace than the Federal Reserve would necessarily like. When prices remain low for too long, consumers have no incentive to buy now.
Medical care was down 0.2% on the month, and a price war in the communications sector has lowered prices for consumers. The last category to show a decline is apparel, which is down for the second consecutive month. On the upside, Owners’ equivalent rent, a key number in the housing sector, rose 0.2% in April.
Retail Sales: Retail sales were up 0.4% in April, but this was below expectations of a 0.6% increase. Furthermore, sales excluding cars, as well as sales further excluding gas, came in only 0.3% higher. Vehicle sales were up 0.7%. There was strong demand for products from nonstore retailers. Finally, there was strength for electronics and appliances. However, general merchandise sales were down. Turning for a moment to revisions of a previous month, March saw an upward revision to the positive side of the ledger, rising 0.1%. Still, there has been weakness in consumer spending.
Consumer Sentiment: In the preliminary reading for the month of May, consumer sentiment was up 0.7 points to 97.7 points. The current conditions reading held at 112.7. Meanwhile, expectations for the future are up 1.1 points to 88.1. Five-year inflation expectations were at 2.3%. Over the next year, consumers expect inflation of 2.6%.
Mortgage News
Movements in the bond market caused mortgage rates to move slightly higher last week. It’s still a great time to lock a rate .
This week, 30-year fixed-rate mortgages (FRMs) averaged 4.05% with an average 0.5 point for the week ending May 11, up from last week when they averaged 4.02%. A year ago at this time, 30-year FRMs averaged 3.57%.
On the shorter end, 15-year FRMs this week averaged 3.29% with an average 0.5 point, up from last week when they averaged 3.27%. A year ago at this time, 15-year FRMs averaged 2.81%.
Finally, 5-year Treasury-indexed hybrid adjustable rate mortgages (ARMs) averaged 3.14% this week with an average 0.5 point, up from last week when they averaged 3.13%. A year ago, 5-year ARMs averaged 2.78%.
Stock Market
The Dow Jones Industrial Average and S&P 500 both felt the impact of lower-than-expected retail sales and ended a three-week streak of higher weekly closings. General Electric saw the most losses of any Dow company.
The Dow was down 0.53% on the week and closed at 20,896.61, down 22.81% on the day. The S&P 500 was down 3.54 points Friday to close at 2,390.90, down 0.35% from the previous Friday. The Nasdaq was up 5.27 points for the day to 6,121.23 points, up 0.34% weekly.
The Week Ahead
Monday, May 15
Housing Market Index (10:00 a.m. ET) – The National Association of Home Builders produces a housing market index based on a survey where respondents from the organization are asked to rate the general economy and housing market conditions. The index is a weighted average of separate diffusion indexes, including present sales of new homes, sales of new homes expected in the next six months and traffic of prospective buyers in new homes.
Tuesday, May 16
Housing Starts (8:30 a.m. ET) – A housing start is registered when the construction of a new residential building begins. The start of construction is defined as the beginning of excavation of the foundation for the building.
Industrial Production (9:15 a.m. ET) – The Federal Reserve’s monthly index of industrial production – and the related capacity indexes and capacity utilization rates – covers manufacturing, mining, and electric and gas utilities.
Wednesday, May 17
MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Thursday, May 18
Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show 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.
There’s not too much going on next week, but we’ve got lots of housing data and some industrial production numbers to look forward to. We’ll bring it all to you then. If mortgage and economic content don’t get you pumped up for the rest of the week, we’ve got plenty of home, money and lifestyle content to share if you subscribe to the Zing Blog below. The internet has a day for everything, and this Wednesday is “Pack Rat Day.” In honor of that, you can check out our look at some really cool homeowner collections . Have a great week!
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