In this week’s economic review, the Federal Reserve bumped the federal funds rate, consumer sales, pricing and sentiment fell, and housing starts and home builder confidence stumbled.
As expected, the Federal Reserve bumped interest rates a quarter percentage point to a range between 1.00 and 1.25 percent on Wednesday. The Fed noted that while the labor market has continued to improve and household spending has increased, they conceded that inflation “has declined recently”.
Consumer spending fell 0.3 percent in May versus a consensus for a 0.1 percent gain. Weakness was centered in department stores, autos and restaurants, all posting declining sales for the month.
Consumer Price Index
Price inflation in May was disappointing, falling 0.1 percent versus a 0.2 percent increase. The core rate (minus food and energy) stands at plus 0.1 percent for the month with a year-over-year rate of plus 1.7 percent.
While the soft report didn’t stop Fed policymakers from raising rates on Wednesday, it could decrease the likelihood of future rate hikes for the remainder of 2017.
Housing Market Index
Home builders have been very upbeat in 2017, but the trend softened a little for the June report. The index fell 2 points to a reading of 67 from May’s downwardly revised 69. The future sales component remains abnormally strong at 76 with current sales also unusually optimistic at 73. The traffic component, which recently climbed above the 50-level, fell back 2 points in the month to 49.
May housing starts fell an unexpected 5.5 percent in May to an annualized rate of 1.092 million, marking the third consecutive month of declines. Permits were also weak, down 4.9 percent to a 1.168 million rate. Both single and multi-family starts were down while total completions were up 5.6 percent. The April reading was downwardly revised.
The preliminary June index fell to the least optimistic reading since November. The index dropped from 97.1 in May to 94.5. The 3-point decline of the expectations component indicates less confidence in the job market and the 2.1-point decline of the current conditions component points to a decline in consumer spending for the month.
This week in the economy:
- The 30-year fixed-rate increased 2 basis points as of June 15th, landing at 3.91% with 0.5 points, according to Freddie Mac.
- Purchase applications fell a seasonally adjusted 3 percent in the week of June 9 after a 10 percent spike the week prior. Refinance applications increased a sharp 9 percent bringing that sector of the index to the highest level since November 2016, according to MBA Mortgage Applications.
- Initial jobless claims dropped 8,000 in the week of June 10, according to Bloomberg, after a decline of 10,000 the week prior. The 4-week average is up slightly at 243,000.
- The Bloomberg Consumer Comfort Index increased 0.1 points in the week of June 11, landing at a very strong level of 50.0.
The economic calendar for the week of June 19th, 2017:
- Wednesday – MBA Mortgage Applications, Existing Home Sales
- Thursday – Jobless Claims, Bloomberg Consumer Comfort Index, FHFA House Price Index
- Friday – New Home Sales
To receive updates on mortgage rates and other economic news, sign up for our weekly economic updates.