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Week In Review – February 2, 2018

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Week In Review

Volume 24, Number 4

Reginald J. Smith, Community Development Manager – Bank of Kansas City

UFSC Week In Review

Economic Highlights for the Week Ending February 2, 2018

 

MONDAY, January 29th

Personal income grew 0.4% in December after a 0.3% gain in November. Decembers growth was led by a 0.5% increase in the wages and salaries component of the index. Consumer spending also rose a strong 0.4% in December following an upwardly revised jump of 0.8% in November. Stronger incomes and spending have not yet resulted in higher prices. The closely watched inflation gauge, the core PCE price index remained subdued in December, gaining 0.2% on the month and just 1.5% on the year. Based on this inflation reading, the Fed will stand pat on rates later this week but remain on track to raise rates in March.

 

TUESDAY, January 30th

The consumer confidence index rose to 125.4 in January from a reading of 123.1 in December. The boost in consumer optimism was due to higher expectations ratings; rating of current conditions dropped slightly. This index is heavily weighted toward consumers assessments of the labor market. Slightly more consumers indicated that jobs were hard to get but the overall level of that component remained low and favorable which bodes well for continued high optimism and a strong employment report later this week.

The S&P CoreLogic Case-Shiller 20-city home price index rose 0.2% in November and is now up 6.4% year-over-year. All 20 metro areas tracked by the index rose annually with Seattle, Las Vegas and San Francisco reporting the highest year-over-year gains of 12.7%, 10.6% and 9.1% respectively. The analysis of this pricing data indicates that a much slower pace of homebuilding, resulting in tight supplies is the primary cause of strong house price appreciation.

 

WEDNESDAY, January 31st

As widely expected the FOMC did not raise rates at their policy setting session today but the statement showed some upgrades to the outlook. Inflation was described as moving up and expected to stabilize around 2.0% sometime this year compared to “below target” descriptions previously while descriptions of household spending moved from “moderate” to “solid.” Three rate hikes are still penciled in for this year. At their next meeting March 21, the FOMC will debut a new Chair, Jerome Powell and update their economic forecasts

The NAR’s pending home sales index, a forward-looking indicator based on contract signings, rose 0.5% in December to 110.1. This is the third consecutive monthly gain which points to improvement in existing home sales over the next month or two. Home buying demand remains strong due to strong job growth and increasing wages however, record low supply is constraining sales and pushing up prices affecting affordability.

 

THURSDAY, February 1st

Jobless claims fell 1k to 230k for the week ending January 27. The four-week moving average also fell 5k from the previous week to 234,500. The level of claims and drop in the 4-week average suggests that, after a period of volatility initial claims are settling in to a new lower range which confirms ongoing expansion in labor market conditions.

 

FRIDAY, February 2nd

The economy added 200k new payrolls to the roster in January, in line with expectations and much higher than 160k new jobs created in December. Job growth was led by a 36k gain in construction jobs, a 15k gain in both manufacturing and retail trade positions while business service jobs increased by 23k. Details in the report showed that wage growth was a bit stronger than expected, increasing 0.3% on the month to boost the year-over-year gain to 2.9%, the best rate of the recovery. The average workweek fell to 34.3 hours from 34.5 hours in one of the few signs of weakness in this report. Separately, the unemployment rate remained unchanged last month at 4.1% of the workforce.

Stocks fell sharply after a strong employment report drove interest rates much higher today. The benchmark 10-year note yield rose to 2.85%, a four-year high, after the jobs report was released. The bid was lost in the bond market due to higher wage gains in the report. The Dow fell 665.75 or 2.5% Friday to close at 25520.96.

Stock Market Close for the Week


Index

Latest

A Week Ago

Change



DJIA
25,520.96
26,616.71
-1,095.75 or -4.12%


NASDAQ
7,240.95
7,505.77
-264.82 or -3.53%


WEEK IN ADVANCE

After a week of mostly housing market related data, reports in the coming week wrap up the sector for the month. Watch for new home sales and pending home sales, both on next week’s calendar.


Key Interest Rates

Latest

6 Mos Ago

1 Yr Ago



Prime Rate
4.50%
4.25%
3.75%


Fed Discount
2.00%
1.75%
1.25%


Fed Funds
1.41%
1.15%
0.65%


11th District COF
0.753%
0.657%
0.599%


10-Year Note
2.84%
2.27%
2.48%


30-Year Treasury Bond
3.09%
2.85%
3.08%


30 -Yr Fixed (FHLMC)
4.22%
3.93%
4.19%


15 -Yr Fixed (FHLMC)
3.68%
3.18%
3.41%

6-Mo Libor (FNMA)
1.96625%
1.45500%
1.34739%

Sources: IBC’ s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco