With the rising interest rates, currently at a four-year high, purchase applications for home mortgages fell by a seasonally adjusted 6.0 percent in the week of February 9trh. Unadjusted, the year on year gain in the volume of purchase applications fell 4.0 percentage points to 4.0 percent. Applications for refinancing fell as well but their decline wasn’t as dramatic decreasing by just 2.0 percent in the week. This puts the refinancing share of mortgage applications up 0.1 percentage points to 46.5 percent.
Consumer Price Index
Consumer prices for January increased a stronger than expected 0.5 percent. The core, excluding food and energy, is also up 0.3 percent hitting economists’ high end of estimates. Despite this strength, neither of these measurements were able to increase on a yearly basis; as thee overall index was at 2.1 percent and the core was at 1.8 percent. Transportation led in the month, increasing a sharp 1.8 percent with all components up in what looks like beginning of the year increases in price. Medical care which had been flat in recent months rose 0.4 percent. Apparel, a weak sector in the price index report, has been sinking at a fast pace, but suddenly jumped 1.7 percent in January. Gasoline prices were up 5.7 percent in the January report, resulting in a 3.0 percent rise for energy. Food prices were somewhat flat rising only 0.2 percent. Housing, the largest component of this report rose only 0.2 percent though the owners‘ equivalent rent sub-component of the sector rose 0.3 percent for a second straight month. Consumer prices are showing some emerging life with early acceleration in the year that could perhaps be tied to the emergence of the underlying wage pressures.
Business inventories came in as expected in December, up 0.4 percent with November unrevised and also at 0.4 percent and with October unrevised as well at no change. December’s increase was centered among manufacturers where inventories rose 0.5 percent and also wholesalers at 0.4 percent. Retailers held down the total as they were up 0.2percent for the fourth straight softy reading. The build in inventories slowed in the fourth quarter of last year according to these numbers.
Claims remain near historic lows consistent with the strong demand for labor. Initial claims came in at 230,000 for the week of February 10th with the four-week average at 228,500. These levels are approximately 15,000 lower than they were last month at this time. This month on month increase points to strength in the February employment report. Continuing claims, in lagging data for the week of February 3rd rose 15,000 to a still very low level of 1.942 million. The four-week average is down 6,000 to 1.941 million and the unemployment rate remains at 1.4 percent.
There are visible but still limited signs of pressure in January’s producer price report where total prices hit the high end of expectations for a 0.4 percent monthly gain. The two core readings, one excluding food and energy and the other also excluding services, also increased, up 0.4 percent which is at the high end of expectations. Energy was up a very sharp 3.4 percent in the month. Services also improved bouncing back from December’s minus 0.1 percent, up 0.3 percent in January. Year on year rates are still flat despite increases in the report, they are flat at 2.7 percent overall and 2.2 percent excluding food and energy in the month.
Housing Market Index
Home builder confidence continues to be extremely upbeat at an expected 72 in February. Traffic remains the highlight in this report at a steady 54 which is very strong for this reading and suggests first time buyers are entering the market. Assessments of current and future sales remain unusually strong as well at 79 and 78 respectively. The supply of homes continues to lag behind the high demand.
Housing finished last year on the uptrend and is continuing to follow this trend in the new year as housing remains very strong. Housing starts surged in January to the second highest rate of the expansion at 1.326 million annualized vs. an upward revised 1.209 million in December. This strength in housing is centered in multi units, which had been lagging, the single-family component also includes a strong monthly rise. Permits, in confirmation of optimism for the demand of housing, have been outperforming starts and this report is no different. Permits surged in January to a rate of 1.396 million from 1.300 million; for the best showing of the expansion. Multi-units are catching up though, as they rose very sharply in the month to one of the highest readings of the expansion and offset a small decline in single-family units, which, despite their decrease, still remain near their expansion highs.
Import and Export Prices
Import prices surges to a much higher than expected 1.0 percent in January. This gain is not tied entirely to the upswing in energy as prices rose an unusually strong 0.5 percent. A jump of 0.5 percent in the imported vehicle sector, is an unusually high increase and a key detail of the report along with the higher prices for imported foods and beverages. The export side shows similar strength, up 0.8 percent overall. Capital goods were up 0.5 percent in the month and consumer and vehicle export prices up 0.3 percent which our outsized gains for these readings. Year on year rates are back near their best readings of the expansion, at 3.6 percent for imports and 3.4 percent for exports. Import prices are the special focus of this report as expected gains in this sector, tied to last year’s yearlong decline in the dollar, will act inflate the economy.
The consumer sentiment index jumped sharply top 99.9 in the preliminary report for February. Besides October of last year this is the highest score in 14 years. Strength includes current conditions at 115.1 and could be an early indication of a rebound for February consumer spending. Expectations are at 90.2 and pointing to confidence in the income outlook. Showing no life are inflation expectations unchanged at 2.7 percent for the year ahead outlook and 2.5 percent for the five-year outlook.