The Dow last traded at 16,437 right about where it was a week ago. The S&P 500 is trading at 1,870. Gold is trading at $1,293 an ounce, while oil futures at $102.09 a barrel. Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.89/Gal.
Mortgage Backed Securities or “MBS” yields are interest rates at which banks sell their loans into Fannie Mae and Freddie Mac bond programs. The FNMA 30-year fixed 4.0% coupon, containing 4.25% – 4.625% mortgages, pretty much the benchmark or how rate sheets are priced these days is currently trading at 105.35 about .20 better than where we were last week. We’ve broken out of the past trading range and rates are still trending lower at this point. Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate. The higher the number (price), the better the rate.
In economic news this week; The reader’s digest version is the economy is showing signs of improvement, not great but improvement. Inflation is on the rise, retail sale is slightly higher, small business sentiment is higher while consumer sentiment is lower, manufacturing activity appears to be growing at a moderate pace, home building has slowed and employment is improving.
The government recorded a budget surplus of $107 billion in April. The surplus for April is $6 billion, or 5%, lower than in April 2013. April is usually a surplus month, as Treasury sees a spate of tax payments from individuals and corporations. Though smaller than last year’s, the April surplus contributes to a steady decline in the deficit for fiscal 2014. For the first seven months of the fiscal year that began Oct. 1, the deficit is $306 billion. That is $181 billion, or 37%, lower than it was for the same period in fiscal 2013. In April, the government spent $307 billion and took in $414 billion.
Wholesale prices climbed 0.6% in April, marking the second straight big gain in a government index that underwent a major overhaul at the start of the year. Excluding the volatile categories of food, energy and trade, core wholesale prices rose a smaller 0.3% last month, the Labor Department reported. Personal consumption, a new index designed to foreshadow changes in the consumer price index, rose 0.7% in April. Over the past year overall producer prices have risen 2.1%, up from 1.4% in March and just 0.9% in February. The unusually sharp increase in such a short period raises questions about the usefulness of the fresh-look PPI index, at least in the short term.
Consumer prices posted the biggest increase in April since last summer as the cost of many staples rose, making it harder for Americans to stretch their paychecks to pay for typical household expenses. The consumer price index jumped 0.3% last month to mark the largest gain since June, the Labor Department said. As a result, real inflation-adjusted hourly wages decreased 0.3% in April to mark the biggest decline in 14 months. Over the past 12 months real hourly wages have actually fallen 0.1%, the first negative reading in two and a half years. The yearly pace of inflation rose to 2% in April from 1.5% in the March.
Excluding the volatile food and energy categories, core consumer prices increased 0.2%. The core rate has risen 1.8% in the past 12 months, and it’s been stuck between 1.6% and 1.8% for more than a year. The core rate is viewed as a more useful gauge of underlying inflationary trends, but it remains well below the level the Federal Reserve considers harmful to the economy.
Americans apparently shopped less in April after splurging in March, with retail sales rising a scant 0.1%. The increase in March was originally reported as 1.1%. Excluding the auto sector, retail sales were unchanged. So-called core or control group sales fell 0.2%. That category strips out cars, gasoline and building materials and gives a better sense of retail-sales trends. Retail sales account for about one-third of consumer spending, the main conduit of economic activity. In the past 12 months, retail sales have risen 4%, about two-thirds the historic average. The latest retail report includes the government’s annual benchmark revisions meant to provide more accurate data.
Small-business sentiment in May rose to the highest level in more than six years, the National Federation of Independent Business said Tuesday. Its small-business optimism index rose 1.8 points to 95.2, the first time it’s surpassed the 95 level since Oct. 2007. There were gains in seven of the 10 components, notably a 9-point jump in those who expect the economy to improve.
The preliminary May reading of the University of Michigan and Thomson Reuters consumer sentiment index fell to a reading of 81.8, down from 84.1 in April.
Manufacturing activity appears to be growing at a moderate pace in the second quarter, according to three separate readings released Thursday. The most upbeat indicator was a survey of manufacturers in the New York, which hinting that business owners were less melancholy about the outlook. After barely expanding in April, the Empire state index shot up to 19.0 in May, its highest level since mid-2010, according to a report released by the New York Federal Reserve Bank.
Two other indicators were not as rosy but economists argued that they also hinted at future strength in the sector. The Philadelphia Fed’s manufacturing index retreated slightly to a reading of 15.4 in May from a 16.6 reading in April. The drop in the Philly Fed index retraces only a small part of the sharp gain in April. The index was 9.0 in March.
The Empire State and Philly Fed data are closely watched because they are one of the first readings of the health of the manufacturing sector in May. The softest report was the industrial output data for April released by the Federal Reserve , that showed a 0.6% drop in April. But that came after strong gains in February and March.
On the Real Estate front: Home builders are the most pessimistic they’ve been in a year, with makers of new single-family homes reporting fewer sales. The housing-market index for builder confidence declined to 45 this month, the lowest reading since May 2013, from 46 in April, the National Association of Home Builders/Wells Fargo reported. The index has been below 50 since February, indicating that builders, generally, are pessimistic about sales trends.
While the Overall construction starts on U.S. homes, including apartments rose 13.2%, the fastest pace in five months, according to the U.S. Commerce Department, that jump was led by apartments, as starts for single-family homes only nudged higher. Starts for single-family homes eked out just a 1% gain in April. Data for building permits, which are an indicator of future projects, also indicated that demand for apartments, not single-family homes, is driving growth.
Just last week, Federal Reserve Chairwoman Janet Yellen expressed caution about the housing market. “Readings on housing activity, a sector that has been recovering since 2011, have remained disappointing so far this year and will bear watching,” she told U.S. lawmakers. “The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery.” “The U.S. economy has come far since the deths of the financial crisis but “we have further to go to achieve a healthy economy,”
The good news is that some headwinds for the housing market are abating. Mortgages rates, for example, have declined in recent weeks. Home-price growth is slowing down. And employers are picking up the pace of hiring.
On the Employment front: The number of Americans who applied for unemployment benefits declined by 24,000 falling sharply for the second straight week, touching the lowest level since May 2007, but at least part of the drop probably stemmed from lingering seasonal affects tied to a late Easter holiday. It looks as though Small business is leading the way in hiring as a little more than half of the net number of jobs created since employment began growing in 2010 has been generated by firms with fewer than 250 employees.
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