Labor Market Conditions Index
Monthly employment reports have been solid but the labor market conditions index is barely above zero, at a rate of 0.6 percent for the month of February. Besides a series of negative readings that occurred this time last year, the indicator’s current run is the weakest of the recover.
During the Federal Open Market Committee meeting members voted to raise the federal funds target range by 25 basis points to 0.75 and 1.00 percent. The outlook for the rest of the year is unchanged in the FOMC forecasts, still at 1.4 percent for the federal funds rate which works out to two more 25 basis point hikes. Change in statement language is centered in inflation which policy makers see stabilizing around their 2 percent target rate. Total inflation is already close to 2 percent but the core reading which excludes food and energy remains below target. Another change in language is the description of business investment which they said has “firmed somewhat” from the January meeting when it was then described as being soft. Other than those two slight changes in language there are no significant changes with the economic expansion described again as being moderate. The labor market is solid and continues to strengthen. Household spending is on a moderate rise, consumer and business sentiment have improved. There is no direct reference to the timing of the next rate hike but the FOMC is on track for two more rate hikes this year.
The sharply higher rates last week did not hold back home buyers or refinancing homeowners during the week of March 10th. Purchase applications for home mortgage4s rose a seasonally adjusted 2 percent while applications for refinancing increased by 4 percent. Unadjusted , the purchase index rose 3 percent from the week prior and was up 6 percent from levels this time a year ago. The refinance share of mortgage activity rose 0.2 percentage points to 45.6 percent, continuing the previous week’s rebound from the lowest level since November 2008. The strength of mortgage activity for both homebuyers and home refinancers, despite a week of sharply higher rates, applications for both home buying and refinancing increased giving hope during this time of current high interest rates.
Consumer Price Index
Consumer prices are increasing while the key year on year level is getting a special lift from the 2016 comparison. Consumer prices rose only 0.1 percent as was expected, with the core coming in as expected as well at a 0.2 percent gain. The yearly comparison continues to climb, up 2 tenths to 2.7 percent, well above the 2 percent line and was last at this level nearly 5 years ago in March 2012. The core rate, however, which excludes energy remains steady at 2.2 percent. Energy prices fell a sharp 1.0 percent during the month of February with gasoline down 3.0 percent, yet the year on year rates are still very strong at plus 15.2 percent for overall energy and plus 30.7 percent for gasoline. Other components of the report to note are the strong gains for recreation and also apparel both of which rose 0.6 percent in the month and a gain, and a gain of 0.2 percent for food. Medical care rose only 0.1 percent with a yearly rate increase of 3.5 percent. Housing posted a third monthly gain of 0.3 percent monthly gain for a yearly increase of 3.2 percent.
Housing Market Index
The housing market index is up a very sharp 6 points this month of March. It increased to a level of 71 for the best reading of the economic cycle. Home builders’ current sales are at an index level of 78, up 5 points. Traffic has also seen gains with an 8 point increase to a level of 54. This is the third plus 50 score for this reading in the last four months. This score suggests that first time buyers, who had been previously holding down the housing sector during this cycle, are optimistic again and are looking to buy a new home.
The headlines for the February housing starts report were mixed, strength in single family permits leads were favorable at 1.288 million annualized rate for starts. Total permits however were not as strong at a rate of 1.213 million. This compared to economists’ predictions of 1.270 million for both. Permits for single family homes, where building costs and sale prices are the highest, rose 3.1 percent in February to an 832,000 rate that is up 13.5 percent on a yearly basis. This is good news for a thinly supplied new home market. This gain, however, is offset by a downturn in multifamily units where permits fell 22 percent in the month to a rate of 381,000 that is down 11.2 percent on a yearly basis. Starts for single family homes were up 6.5 percent to a rate of 872,000 for a 3.2 percent yearly gain. Multifamily starts fell 3.7 percent in the month to a level of 416,000; however, they are still up 13.0 percent from a year ago. New supply is coming as homes under construction rose 1.3 percent to 1.091 million for the highest reading since the real estate bubble back in October of 2007.
Labor market conditions remain strong and stable as initial jobless claims are holding at trend, down 2,000 in the week of March 11th to a level of 241,000. The four week average has changed very little down nearly 10,000 from mid-February to a level of 237,250. Continuing claims are also favorable down 30,000 in the lagging data for the week of March 4th. The four week average is down 12,000 to 2.054 million. The average is down 27,000 from early February another positive indication of ongoing health in the labor market.
Job openings came in at 5.626 million in January and remaining strong and in line with their 2-year trend. Hiring is showing new acceleration which rose 2.6 percent in the month to 5.440 million for one of the best readings of the economic cycle. The quits rate is up 1 tenth to 2.2 percent, this hints at improved confidence among workers. The layoff rate remains low and unchanged at 1.1 percent. The narrowing of the gap between openings and hirings is welcome but may hint at possible wage inflation if employers have to make better offer to get their new recruits.