Economic update for the week ending August 29, 2015
Economic update for the week ending August 29, 2015
Stocks finish week up slightly from last week's close - It was another wild week for the stock markets - Monday was like a "perfect storm" first the Chinese markets sold off in what looked like a crash, dropping 8 1/2% overnight, oil dropped to $38 a barrel, and the dollar strengthened further. This resulting in a drop in the DOW of 1,000 points at one point Monday before recovering slightly and closing about 600 points down for the day. This was after dropping about 1,000 points the previous week! Tuesday it looked like the markets were recovering as the DOW was up over 300 points an hour before the close, only to sell off and close down about 300 points. Fortunately, Wednesday and Thursday the DOW gained over 1,000 points as oil prices rose back up to about $40 a barrel, the dollar softened, China's markets stabilized, and an above expected GDP report was released showing that the U.S. Economy was had gained momentum and was growing faster than expected. The Dow Jones Industrial Average closed the week at 16,643.01, up from last week's close of 16,456.75. The S&P 500 closed the week at 1,988.87, also about the same as last Friday's close of 1,970.89. The NASDAQ closed the week at 4,828.33, up from last week's close of 4,706.04.
Mortgage rates rise slightly from Monday's lows – The 30 year fixed rates ended the week around 3.875% for loans up to $417,000, and around 4.00% for loans over $417,000. The 15 year fixed rate loans are about 3.25% for loans up to $417,000, higher loan amounts have rates that are around 3.375%. The 5 Year-ARM rate is around 2.75% and 1 Year-ARM mortgages are under 2.50%. At one point the fixed rate hit 3.625% during Monday's stock sell off.
Treasury Bond yields rose from lows early in the week and closed higher than last week – Investors bought stocks and pulled money from the safety of U.S Treasury Bonds pushing yields up from Monday's lowest point in over a year. The 10 year Treasury bond yield closed week at 2.19%, up from 2.05%. last Friday. The 5 year was under 2% at one point on Monday. The 30 year treasury bond yield closed Friday at 2.92%, up from last week's close of 2.74%.
U.S. Economy expanded at 3.7% annual rate in the second quarter - The Commerce Department reported Thursday that the GDP (gross domestic product), the broadest measure of goods and services in the economy, grew at an annual rate of 3.7% in April, May and June. This eclipsed the estimated 2.3% growth rate that was expected. It was welcome news that the economy was expanding with more momentum than expected in light of a massive sell off in the stock market in which the DOW lost over 1600 points in 6 sessions. Partially due to this report it gained back about 1,000 points Wednesday and Thursday. Unfortunately, after this report mortgage rates rose about 1/8% across the board, as it does increase the likelihood that The Federal Reserve will follow through on its first interest rate rise since 2006, which they have indicated would happen later this year.
Inflation eases in July - The Labor Department reported that The Consumer Price Index rose 0.1% in July. This followed increases of 0.3% in June and 0.4% in May. This showed that inflation pressures are very moderate. The core inflation rate, which excludes food and energy, grew at just 0.1% in July after a 0.2% June gain. This is how The Fed measures prices as measured by the personal consumption expenditure, what ever that means! It is the Fed's prefered way of measuring core inflation. The Fed's core inflation rate measurement is at 1.2% over the past 12 months, which is well below its target of 2%.Usually, the Fed would raise or lower rates to control inflation. With the Fed's benchmark rate near zero, an unprecedented level since 2008 it is likely, according to them, that they will raise their discount and funds rates even though inflation is below where they want it. Experts feel that a 0.1% inflation gain in July is so low that the Fed may hold off on an increase, as deflation is as dangerous to the economy as inflation.
Consumer sentiment falls in August - The University of Michigan's final August reading of consumer sentiment fell to its lowest level since May last week. The survey was done while the stock market had dropped 1600 points over 6 sessions and before it made up 1,000 points Wednesday and Thursday, and before the positive quarter 2 GDP results were released. Expect September's readings to be higher!
S&P / Case Schiller says home prices continuing to rise - U. S. Home prices continued to rise in June according to The S&P / Case Schiller Home Price Index. It's 20 city index rose 5% year over year in June. Case Schiller computes home prices in 20 major cities with a different formula which is more reflective, according to them, of the actual prices than the median price used by others, as prices in major cities exceed the median price levels.