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Week In Review – October 5, 2018

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Week In Review

Volume 23, Number 34

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

Economic Highlights for Week Ending October 5, 2018

 

MONDAY, October 1st

Manufacturing conditions remained solid in September despite a decline in the ISM index (Institute for Supply Management).  The ISM manufacturing index slipped to 59.8 in September from 61.3 in August, but the details in this data series were positive on net. Production, employment and the trade all improved slightly.  New orders fell but remained at a high level.  The supplier deliveries index dropped from 64.5 to 61.1, implying that issues in the supply chain didn’t broaden in September.  The inventory index edged lower, but we expect stockpiles to provide a sizable boost to third quarter GDP growth.  All told, manufacturing is doing well, and the impact of the trade tensions has not yet been a significant weight.

 

TUESDAY, October 2nd

The CoreLogic Home Price Index increased 5.5% year over year in August, down from the 6.2% growth rate originally measured in July.  Monthly house price appreciation was just 0.1% and has slowed for six consecutive months.UFSC Week In Review

New motor vehicle sales rose to a 17.4-million-unit annual rate in September, better than expectations and up from a 16.7-million-unit annual rate in August.  The unexpected increase in sales may be related to replacement demand following Hurricane Florence striking the Carolinas.  Sales remain 4.1% lower than in September of last year, however demand was broad based with car sales reaching a 5.4-million-unit annual rate and light truck sales reaching nearly 12 million.  September vehicle sales will provide a temporary bump in retail sales tallies before softening again in coming months.

 

WEDNESDAY, October 3rd

The MBA mortgage applications index was unchanged last week as a small gain in the purchase index was offset by a decline in the refinance index.  After rising sharply in the prior week to the highest level since April 2011, contract mortgage rates eased last week with the 30-year fixed rate mortgage for conforming loans ($453,100 or less) dipped 1 bps to 4.96%.

The ISM non-manufacturing index rose to 61.6 in September, its highest reading since the composite index was established in 2008.  The level of the index shows robust expansion in service sector activity and the broader economy as well.  Details in the data were solid as business activity, new orders and employment all improved from August to September.  Service sector strength will be a positive contributor to GDP growth in Q3 and points to some momentum heading into Q4.

Strong results in the service sectors of the economy led to heavy selling in the bond market.  As Treasury prices dropped, corresponding yields rose sharply with the 2-year note yield up 4 bps to 2.87% and the benchmark 10-year Treasury yield rising 10 bps to 3.16%.

 

THURSDAY, October 4th

Jobless claims fell 8k to 207k for the week ending September 29.  Smoothing out for hurricane-related volatility, the four-week average only rose by 500 to 207k, indicating minimal impact so far.  Jobless claims remain very low and very favorable and are consistent with downward pressure for tomorrow’s unemployment rate and strength in payroll growth.

The sell-off in the bond market continued in today’s session.  The 10-year Treasury yield, after surging 10 bps yesterday, rose another 3 bps today to 3.19%.  Higher interest rates dampened the economic outlook and equities sold off as a result with the Dow down 0.8% to 26,627.

 

FRIDAY, October 5th

Employers added 134k new payrolls to the economy in September which was below expectations for 180k gain.  However, revisions to prior month resulted in a net gain of 87k more new jobs, offsetting weaker-than-expected payroll figures last month.  Details in the data support a continued rosy outlook for the labor market.  Average hourly earnings rose 0.3% on the month and are now up 2.8% on the year.  The labor participation rate held steady at 62.7% of the workforce while the average workweek was unchanged as well, at 34.5 hours.  Manufacturing, professional and business services, construction and mining all added jobs last month while retail and trade and transportation shed jobs.  Separately, the unemployment rate dropped to 3.7% in September from 3.9% in August, a new cyclical low.  As job and wage gains happen at a solid level, it continues to confirm a steady path of gradual rate hikes by the Fed.

Stock Market Close for the Week


Index

Latest

A Week Ago

Change



DJIA
26,447.05
26,458.31
-11.26 or -0.04%


NASDAQ
7,788.43
8,046.35
-257.90 or -3.21%


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
5.25%
4.75%
4.25%


Fed Discount
2.75%
2.25%
1.75%


Fed Funds
2.18%
1.68%
1.12%


11th District COF
1.015%
0.816%
0.732%


10-Year Note
3.23%
2.78%
2.34%


30-Year Treasury Bond
3.40%
3.02%
2.88%


30 -Yr Fixed (FHLMC)
4.71%
4.40%
3.85%


15 -Yr Fixed (FHLMC)
4.15%
3.87%
3.15%

6-Mo Libor (FNMA)
2.60388%
2.45240%
1.50600%

 

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

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