Economic Update October 31, 2014
Economic Update October 31, 2014
October turned out to be a fantastic month! We kicked off the month on a somewhat rocky start as Ebola fears struck our country and rattled the markets. As the month progressed, we had positive jobs news as initial jobless claims have fallen to pre-recession levels and the 248,000 gain in payrolls followed an 180,000 increase in August that was bigger than previously estimated. The pickup in hiring this month also showed employers are gaining confidence. Retail Sales reported higher than expected. Corporate profits for the third quarter also came in above expectations. All in all it was a great month!
The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite are all significantly higher this week. The forty-fourth trading week of 2014 comes to a close with the S&P 500, NASDAQ composite and Dow Jones all higher.
The S&P 500 is now up about 9% for the year. No, that’s not the 30% gain we saw in 2013, but it’s still very solid. The Nasdaq is up nearly 11% for the year, and the Dow is 4.5% higher. This October rebound has been so sweet that the Dow hit a new intraday record Friday morning, and the Nasdaq topped its September high (its best level since the 2000 Dot-Com boom).
U.S. stocks hit new highs, erase big October losses. The Dow Jones industrial average ended up 195.10 points, 1.1%, to17,390.52 -- its highest close since Aug. 19, when it finished at 17,279.74. It was up 585.52 from its close of 16,805 last Friday. The Standard & Poor's 500 added 23.40 points, 1.2%, to close at 2018.05 -- its highest close since Aug. 18, when it finished at 2011.36. It was up 53.47 from last Friday’s close of 1865.58. The Nasdaq composite index ended at a 14 1/2-year high, gaining 64.60 points, 1.4%, to close at 4630.74! It was up 200.49 from last Friday’s close of 4483.72.
U.S. 10 year Treasury Bonds yields slightly edged up this week. The 10 year treasury bond yield closed up Friday at 2.35%, from 2.29% last Friday.
Real gross domestic product increased at an annual rate of 3.5 percent in the third quarter of 2014. In the second quarter, real GDP increased 4.6 percent. Combined with the strong 4.6 percent showing in Q2, the six-month average of 4.05 percent is the best half-year performance of the recovery. Even including the 2.1 percent annual rate of decrease for Q1, growth over the past full year was better than the average since the recession bottomed out in mid-2009. Net exports were one of the biggest contributors to growth in the quarter. Net exports, which had been a negative factor in the otherwise strong second quarter, accounted for 1.32 percentage points of growth—more than a third of overall GDP growth for Q3.
The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.3 percent in the third quarter, compared with an increase of 2.0 percent in the second quarter. Personal income increased $22.7 billion, or 0.2 percent, and disposable personal income increased $15.7 billion, or 0.1 percent, in September, according to the Bureau of Economic Analysis. The third-quarter increase in wages and salaries is a welcome sign for the labor market. U.S. consumer spending did fall for the first time in eight months in September, but a rise in consumer sentiment to more than a seven-year high this month indicated economic growth would remain on solid ground.
A price index for consumer spendingincreased 0.1 percent after slipping 0.1 percent in August. In the 12 months through September, the personal consumption expenditures (PCE) price index rose 1.4 percent for a second straight month. Excluding food and energy, prices rose 0.1 percent for a third consecutive month. The so-called core PCE price index increased 1.5 percent in the 12 months through September.
Fed Ends ‘Quantitative Easing’ due to an Improving Labor Market. In conclusion of the Fed meeting this week, the Fed has concluded its asset-purchasing program due to an improving labor market. Here’s what QE3 has meant to investors and the economy. After spending trillions of dollars on bond purchases since the end of the Great Recession — to keep interest rates low to boost spending, lending, and investments — the Federal Reserve ended its stimulus program known as quantitative easing. The central bank’s decision to stop buying billions of dollars of Treasury and mortgage-related bonds each month comes as the U.S. economy has shown signs of recent improvement. U.S. gross domestic product grew an impressive 4.6% last quarter. And while growth dropped at the start of this year, thanks to an unusually bad winter, the economy expanded at annual pace of 4.5% and 3.5% in the second half of 2013. Meanwhile, employers have added an average of 227,000 jobs this year and the unemployment rate rests at a post-recession low of 5.9%. It was at 7.8% in September 2012, when this round of quantitative easing, known as QE3, began.
Even with QE over, the Fed is unlikely to start raising short-term interest rates until next year, at the earliest. In part due to the strengthening dollar and weakening foreign economies, inflation has failed to pick up despite the Fed’s unprecedented easy monetary policy. And there remains a decent bit of slack in the labor market. For instance, there are still a large number of Americans who’ve been unemployed for 27 weeks or longer (almost 3 million), and the labor-force participation rate has continued its decade long decline. Even the participation rate of those between 25 to 54 is lower than it was pre-recession.
Case-Shriller: Housing Price Gains Slow For 8th Straight Month. In 2013 and early 2014, the market experienced a seven-month streak of double-digit annual price increases. But price gains have been steadily slowing since December. The Standard & Poor's/Case-Shiller 20-City Index of home prices rose 5.6% from August 2013, S&P said. That's down from a 6.7% gain in July and well below the double-digit annual increases seen in most of 2013 and earlier this year. While prices are still climbing on a year-over-year basis — up 6.8% in Los Angeles — the numbers reflect a market that is plateauing as credit remains tight, home buyers back away from new higher price points and sellers begin to lower their expectations.
Home prices, especially in coastal California markets, have returned to levels that are unaffordable for most households, and a slowdown in prices, coupled with stronger job and income growth, could give more would-be buyers time to catch up. Still, prices here remain 18% below their peak in 2006, leaving some homeowners holding little or no equity in their homes.
The slowdown in price growth is beginning to have an impact on the market. The number of homes sold in the six-county Southland grew in September for the first time in a year.
Average 30-year mortgage rate just shy of 4%. The 30-Year Fixed Mortgage Rate is at 3.98% compared to 3.92% last week and 4.19% last year. Since April, the 30-year fixed rate has plummeted nearly 50 basis points. The average fee for a 30-year mortgage was unchanged from last week at 0.5 point. The fee for a 15-year mortgage also remained at 0.5 point. The 15-year fixed-rate average ticked up slightly to 3.13%. It was 3.08% a week ago and 3.24 percent a year ago. The 15-year fixed rate has declined almost 40 basis points the past six months. Hybrid adjustable rate mortgages were up as well. The five-year ARM average 2.94% up from last week at 2.91%. The fee was steady at 0.5 point. For a one-year ARM, the average rate edged up to 2.43% from to 2.41% last week. The fee held at 0.4 point.
Applications for "re-fi's" jumped 23% in the week ended Oct. 17 — reaching their highest level since November 2013, according to the Mortgage Bankers Association. But refinance applications fell 7% in the latest week, ended Oct. 24.