Economic update for the week ending May 30, 2015
Economic update for the week ending May 30, 2015
Stocks had a volatile week – Markets were closed Monday for Memorial Day. Tuesday the stock market had its largest drop in three weeks as investors worried about a surging dollar and a default on Greek debt. The DOW fell 190 points. Wednesday markets recouped most of Tuesday's losses after Greek debt talks showed progress. Thursday stocks fell again after a sell off in the Chinese market and fears again of the approaching Greek debt payment. And Friday a disappointing U.S. GDP report dragged markets down further. The Dow Jones Industrial Average closed the week at 18,010.68, down from 18,232.02 last week. The Nasdaq closed at 5,070.03, down slightly from 5,089.39 last Friday. The S&P 500 closed at 2,107.03 also down from last Friday's close of 2,126.06.
Bond yields drop this week - Disappointing economic news and a strong dollar caused bond yields to drop this week. The 10 year U.S. Treasury Bond closed the week at a 2.12% yield, down from 2.21% last week. The 30 year U.S. Treasury Bond closed Friday yielding 2.88%, down from 2.99% last Friday. Mortgage rates usually follow treasury bond rate trends, so if this trend continues expect mortgage rates to drop slightly.
Mortgage Rates – The 30 year fixed rate ended the week around 4.00% for loans up to $417,000, and around 4.25% for loans over $417,000. The 15 year fixed rate loans are about 3.25% for loans up to $417,000, and around 3.50% for loans over $417,000. The 5 Year-ARM rates are around 3.00%. 1 Year-ARM mortgages are around 2.50%. Last week's Freddie Mac Primary Mortgage Survey showed rates as follows: 30 year fixed rates at 3.87%, 15 year fixed at 3.11%, 5/1 YR ARM at 2.90%and 1 YR ARM at 2.50%.
First quarter GDP drops at a 0.7% annual rate - The Commerce Departmentsaid Friday that the economy shrank in the first quarter. Total economic output, known as gross domestic product (GDP) decreased at annual rate of 0.7% for the first quarter of 2015. This was greater than the initial estimate of a 0.2% drop released last month. This final number spooked the market as it was so much worse than the estimate, which was already below analysts expectations of a slight increase. Bad weather played a part in the drop, that's for sure. However; experts felt that the economy was much stronger this year than last year and that the economy would not contract, even with an extreme winter, they were wrong. It is believed that the economy will rebound in the second quarter, but experts do not expect it to rebound as strongly as it did last year in the second quarter. This is due to the strength of the dollar which makes our goods more expensive overseas, and hurts tourism into the U.S. among other factors, including low oil prices which has caused a loss of 70,000 oil, drilling and energy sector jobs this year.
Consumer confidence drops to 6 month low - The University of Michiganreported Friday that its index of consumer sentiment dropped in May to its lowest level since November. Consumers of all income levels felt less confident about the economy both current and future. It should be noted that although confidence is dropping from multi year highs the 2015 average for the first 5 months is the highest since the first 5 months of 2004. It is widely believed that the economy and consumer confidence will improve as the weather improves after a very harsh winter in the Northeast.
Factory orders fall 0.5% in April - The Commerce Department reported Tuesday that orders for durable goods fell 0.5% in April. Durable goods are long lasting manufactured goods from U.S. Factories. This could be a sign of effects of the strong dollar making out goods more expensive overseas.
Pending home sales at 9 year high - The National Association of Realtorssaid Thursday that its index of pending home sales climbed in April to the highest level in 9 years. April marked the fourth straight month of increases of homes under contract. With such low inventory it was feared that the number of homes sold would begin to cool. That has not materialized. Homes are selling at a pace in which unsold homes on the market is still decreasing. The number of homes coming on the market has increased. They also forecasted that prices would rise 8% (annualized) in the second quarter after an annualized 6.2% rise in the first quarter. They also expect prices to stabilize in the third and fourth quarters, ending the year up 6% year over year.
U.S. new home sales climb 6.8% - The Commerce Department said Tuesday that new home sales increased at an annualized rate of 6.8% in April. The annual pace of new housing starts (construction permits) also jumped 20.2% from March. This was in line with a similar trend in California reported last week.