Over the past month inflation has shown no change, yet consumers seem to be steadily making and spending money. Personal income rose 0.3% in August, and wages & salaries followed suit with 0.5% and 0.6% increases in the last couple of months. As a result, consumer spending rose 0.4% in August. The 4.6% savings rate for the month may be a sign of increasing consumer confidence. Considering the savings rate has been inching lower since the 4.9% rate seen in April, consumers seem to be increasingly more willing to spend while saving less. A rise in rent prices likely affected the consumer savings rate as well.
September consumer confidence is on the rise, despite recent stock market losses. The index rose to a much higher-than-expected 103.0, supported by the present situation component, which jumped more than 5 points to 121.1, and indicates continued strength in the labor market and consumer spending. This is the best reading of the recovery, since all the way back to September 2007. Consumers have assessed the current jobs market as very strong, with 25.1% describing jobs a plentiful, and 24.3% describing jobs as hard to get. Moving to consumers’ economic expectations, 19.1% see an increase for future income, up nearly 3 percentage-points from August.
Jobless claims seem to be pointing to continued tightness in the labor market. Initial claims for the week of September 26 did rise 10,000 to a higher-than-expected 277,000, but the 4-week average is down 1,000 to 270,750, nearly 5,000 below the month-ago comparison. Continuing claims for the week prior dropped even lower, down 23,000 to 2.219 million. The 4-week average of the week of September 19 dropped 10,000 to 2.242 million, nearly 20,000 below the month-ago comparison.
Despite the continued low levels for jobless claims, the September employment report came in weaker than expected. Average hourly earnings remained unchanged with a year-on-year rate of 2.2%, and the labor market tightened due to a 0.2% drop in labor participation to a nearly 40-year low of 62.4%. The manufacturing sector has weakened, as payrolls fell 9,000 in September following an 18,000 decline in August. This is primarily the result of weak foreign markets, and the negative effect of the strong dollar. Mining was also hurt, with payrolls dropping 13,000 in September and 22,000 in August, largely due to low commodity prices. The average work week decreased 1-tenth in September to 34.5 hours, another sign of weakness for employment. This is another area that manufacturing showed weakness, with a 0.6% decline in hours. Unless employment bounces back in a big way in October, an FOMC rate hike continues to look unlikely.
Rate movement was varied between the different loan programs over the past week, although those that did move did so minimally. Both manufactured programs (FHA and conventional) displayed rate increases, although both were by less than 5 basis points. The high balance, jumbo, FHA 203k, and VA loan programs all remained unchanged from the previous week. The remaining loan programs all had slight rate decreases, that largest drop shown by the 30-year conventional, down 10.6 basis points from the previous week to 3.750% (3.809% APR). This is the lowest 30-year conventional rate since April, and is solidly below the year-ago rate of 4.125% (4.140% APR).
Sean Becketti, chief economist for Freddie Mac, noted that the minimal movement by mortgage rates was a “contrast to the volatility in equity markets.” He went on to say,
“This marks the tenth consecutive week of a sub-4-percent mortgage rate. Despite persistently low mortgage rates, the pending home sales index dropped 1.4% in August, suggesting possible tempering in existing home sales in September.”
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