Unfortunately the only real positive news being reported these days is that corporate profits overall are up across the U.S. Because of all of the cost cutting measures that big corporations have been taking for the last 2 to 3 years, companies have been able to increase returns for stockholders and increase profits.
Outside of corporate profits, I am sorry to say that the majority of economic news is not where we would like to see it. The first half of the week we saw the stock market rising nicely based upon corporate profits and the fact that many of these same companies have been able to sock away lots of cash for a rainy day. Overall sales have not been increasing which is the driving force to a recovery however investors are focused on profits more than on sales right now.
Thursday the stock market did an about face dropping 144 points as weekly first time jobless claims were reported much higher than expected. The 500,000 claims reported are the highest we have seen since November of 2009. Additionally, the 4 week moving average, which has been rising as well, hit the highest number since December.
Companies, especially in the private sector, are not hiring as fear of a faltering recovery is taking hold. More and more people are believing that once again the economy is heading in the wrong direction and that recovery is much further away than originally anticipated.
The housing market has not been fairing much better these days. The Housing Market Index reported a 3rd monthly decline as builders see tight credit, lousy appraisals and distressed properties as a hindrance to selling new construction.
On a positive note, Housing Starts increased 1.7 in July which was a nice respite from June's 8.7% decline. Multifamily construction was the key to leading the index higher. Single family construction continues to struggle as that part of the index declined by 4.2%.
Fortunately mortgage rates continue to remain at record lows. The Mortgage Bankers Association reported that applications for mortgage are rising. Refinancing is the driving force in the application increase. Refinances currently represent 81% of all applications. Applications for home purchases continue to falter as they dropped 3.4% from the prior week despite the record low interest rates. The bottom line is that with the unemployment picture remaining very unstable, consumers are afraid to make a commitment to purchasing a new home.
Industrial Production increased 1%, which was higher than expected, showing that there is at least some positive activity in the manufacturing sector. Additionally, the Producer Price Index increased .2% which was in line with expectations. The PPI was driven higher primarily by an increase in food prices on the wholesale level. However, last week's report on CPI showed that the increases in prices on the wholesale lever are not being passed on to consumers.
Economic reports due out next week are:
• Tuesday August 24th - Existing Home Sales
• Wednesday August 25th - MBA Applications
• Thursday August 26th - Weekly Jobless Claims
• Friday August 27th - Consumer Sentiment and GDP
Your Mortgage Consultant,
JJ Mack
916-517-1800
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