Economic Update for the month ending September 2015 and update for the week ending October 3, 2015
September month end - Stocks stabilize in September after dropping sharply in August – Although the economy showed the pace of growth slowing in September the stock markets stabilized, after dropping sharply in August on fears of weakness in China, the world’s second largest economy. The Dow Jones Industrial Average closed the month at 16,284.70, down from 16,528.03 on August 31. The S&P 500 closed the month at 1,920.03, down from 1,972.18 at the end of August. The NASDAQ closed the month of September at 4,620.17, down from 4,776.51 on August 31.
For the week ending October 3, 2015 –On Friday October 2 the September jobs report was released. It showed that the economy gained far fewer jobs in September than experts expected. Although this report was very disappointing the one thing it did was calm investors’ fears of how soon and how much the Federal Reserve would rise interest rates. Rates dropped on bonds and mortgages and stocks rose on Friday after the report was released. The Dow Jones Industrial Average closed the week at16,472.37, up from last week's close of 16,314.67. The S&P 500 closed the week at 1,951.36, up from last Friday's close of 1,931.34. The NASDAQ closed the week at 4,707.78, up from last week's close of 4,686.50.
September 30 Month end -Treasury Bond yields drop in September – The 10 year Treasury bond yield closed the month at 2.06%, down from August’s close of 2.21%. The 30 year treasury bond yield closed on September 30, at 2.87%, down from August’s close of 2.95%.
For the week ending October 3, 2015 - Treasury Bond yields much lower this week following weak jobs report – The 10 year Treasury bond yield closed week at 1.99%, down from 2.17% last Friday. The 30 year treasury bond yield closed Friday at 2.82%, down from last week's close of 2.96%.
Mortgage Rates fall in September – Rates for October 2, 2015 – The 30 year fixed rates are around 3.75% for loans up to $417,000, and around 3.875% for loans over $417,000. The 15 year fixed rate loans are about 3.00% for loans up to $417,000, higher loan amounts have rates that are around 3.25%. 5 Year-ARM and 3–Year ARM rate are both around 3.00%.
U.S. Employers add 142,000 jobs in September – unemployment rate unchanged at 5.1% - The Labor Department reported that US employers added 142,000 non-farm new jobs in September. The unemployment rate remained at 5.1%, its lowest level since 2008. It was a disappointing report as 203,000 new jobs were expected by experts. This was the second straight month that job growth fell well below expectations, as August was revised down to 136,000 jobs added from 172,000. Many experts feel that the Fed’s decision not to raise interest rates is better understood as the last two months have been the weakest in several years. Average hourly wages also fell for the first time this year after looking in July and August that wage growth was beginning to tick up. Wage growth is well below the Fed’s target rate for healthy growth. This was a bad report in every way, except for interest rates which dropped to the lowest levels of the year. The report shows that falling oil prices, a strong dollar, weakness in China and Europe are beginning to cause slowing in the U.S.. The energy sector lost 12,000 net new jobs in September, after losing 9,000 in August, bringing the total loss of energy sector jobs to 100,000 so far this year, as a result of falling oil prices. Weakness in China, and the strong dollar has caused exports to fall. Exports were down over 5% for the year ending July and are forecasted to be down nearly 10% in August from a year ago. This has caused manufacturing to shed 9,000 jobs in September, after losing 18,000 jobs in August. Experts feel that this report will surely give The Fed something to think about when they decide whether or not to raise their benchmark rates from near 0% where they have been since 2008 in an attempt to stimulate the economy.
California employers add 36,200 non-farm jobs - The state's unemployment rate dropped to 6.1% in August from 6.2% in July. Unemployment is at its lowest level since January 2008 in California according to the Bureau of Labor Statistics. Since August of 2014 the state has gained 470,000 jobs. That represents an annual growth rate of 3% which has outpaced the national average of 2.1% for the 50 states.
Consumer confidence reading edges up in September- The University of Michigan final reading on consumer sentiment for September moved higher. It ended the month at a reading of 87.2 from an initial reading of 85.7 at the beginning of the month. The average reading since its inception has been 85.3. The average reading during the 5 recessions since its inception has been 69.3. During non-recessionary years the average reading has been 87.5, which is right about where we are. Consumer sentiment is important because consumer confidence is so closely tied to consumer spending which accounts for nearly a third of the economy.
Second quarter GDP revised upward - The Commerce Department said Friday that the second quarter gross domestic product showed a growth rate of 3.9%. This was higher than their initial estimate of 3.7%. The Commerce Department also said Friday that consumer spending rose 3.6% during the quarter up from an initial estimate of 3.1%.
Important gages of inflation show no threat of inflation - The Labor Department said that its Producer Price Index was unchanged in August after gaining 0.2% in July. In the past 12 months ending in August the Producer Price Index has shown producer prices declining 0.8%, the 7th straight past 12 month decrease in the index. This is mostly attributed to lower energy costs due to falling oil prices, and low import costs due to a stronger dollar. It should be noted that while producers of goods and services are seeing prices actually fall. The Consumer Price Index also declined 0.1% August after increasing 0.1% in July, according to the Labor Department. Falling prices, also called deflation is also something that is a sign of slowing in the economy. The Fed’s target rate for inflation is 2%. So far this year we have been well below that.
Pending home sales decline in August, but numbers are still above last year's levels - The California Association of Realtors reported that pending home sales fall 8.7% in August from July. While monthly pending home sales were down, year over year pending home sales in August were still up 12.8% from August 2014. It was the 10th straight month of year over year increases in the number of pending sales, and the 7th straight month of double-digit year-to-year gains.
California existing home sales and prices beginning to level - The California Association of Realtors reported that the number of homes sold in August dropped 3.8% on an annualized level from the number of homes sold in July. Sales were still up 9.3% from the annualized number of homes sold last August. This year the number of sales have been much higher than last year which was the lowest number of sales in decades, but those increases did moderate in August. Prices are beginning to level as well, according to The California Association of Realtors. The statewide median price in August was up 1% from July, and up only 2.5% from August 2014. That marks the lowest year over year price increase in 3 1/2 years. Unsold inventory ticked up to a 3.6 month supply from a 3.3 month supply in July. This is still a very low number. A normal market has a 6-7 month supply. It's unusual to see prices stabilize with such a low number of homes on the market. The assumption is that prices have risen to a level that buyers have pulled back on their home purchases. Either inventory can rise quickly or prices can begin to rise more quickly in this environment. Unfortunately, we won't know for sure until one or the other happens!