National Market Review – May 2019
After dipping 15 months in a row, Pending Home Sales rebounded 3.8% in March, up in the West, Midwest, and South, down a tick in the Northeast and now at its highest level in roughly eight months. Regionally, the only decline was in the Northeast, down -1.7%, while we saw increases in the Midwest by 2.3%, the South by 4.4%, and the West up by 8.7%. “We are seeing a positive sentiment from consumers about home buying, as mortgage applications have been steadily increasing and mortgage rates are extremely favorable,” wrote Lawrence Yun, chief economist for the Realtors in a release. "Lower mortgage rates and more inventory won out," as one economist explained.
Plus, home price gains slowed in the latest Case-Shiller Home Price Index. First American says, "declining mortgage rates, ongoing household income growth and moderating unadjusted home prices have boosted affordability."
Their Real House Price Index reports that when consumer home buying power is factored in, home prices are 39% below their 2006 peak, and 14% below where they were in January 2000
Nonfarm payrolls came in up 263k jobs, beating market consensus of 185k, with the unemployment rate down to 3.6%, beating expectations of 3.8%. The average hourly earnings missed consensus by coming in +0.2% versus +0.3%. The AHE miss was what the market focused on, continuing the story of lower than expected inflation. The labor force participation rate fell from 63% to 62.8%, which is why the unemployment rate came in lower than expected. Almost a goldilocks report, strong job growth and strong (but not too strong) hourly earnings gave both equity and bond markets enough to be happy.
THE FED BEHAVES, JOBS GO WILD... The Fed played nice and left rates alone, but April jobs staged a wild blowout--263,000 new Nonfarm Payrolls sent the Unemployment Rate down to 3.6%, a 50-year low.
More than half the country hadn't been born when unemployment was last at that level. Investors' renewed confidence in U.S. economic growth sparked risk-on sentiment that sent stocks up, though the Dow ended off a bit.
INFLATION STAYS CALM... The Fed keeps an eye on inflation, and so do we. Happily, it's forecast to stay under control. The Core Consumer Price Index (Core CPI) should remain within the central bank's target range. The same goes for wholesale price inflation, measured by the Producer Price Index (PPI).
NOTE: Weaker economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and higher loan rates