Wednesday, July 30, 2014

FOMC Continues Taper Pace, Rate Raise Timeline Unknown

The Federal Reserve will continue its current pace of tapering, reducing purchases by $10 billion per month. The Fed will now purchase mortgage-backed securities at a pace of $10 billion per month rather than $15 billion per month, and purchase longer-term Treasury securities at a pace of $15 billion per month rather than $20 billion per month.

The FOMC did not offer additional forward guidance as to when rates will rise. The press release noted that, “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” The FOMC said rates are likely to remain low due to underemployment, but they are beginning to see pressure from inflation. Inflation rose in the second quarter, the Committee commented that, “the likelihood of inflation running persistently below 2 percent has diminished somewhat.”

The Committee noted that economic progress is improving, particularly the labor market. Despite a declining unemployment rate, “there remains significant underutilization of labor resources.” Moreover, the FOMC found that the housing market recovery is sluggish and inflation is moving towards the Committee’s longer-tern goals.

The market reacted positively to the release, gaining 47 basis points in the 30 minutes immediately following the release.

Read the full FOMC statement below. Read the Federal Reserve release.    

ADP: Private Sector Added 218,000 Jobs in July

According to the ADP’s National Employment Report, the private sector added 218,000 jobs in July. While less than in June, the figure remained above 200,000, indicative of a healthy and growing labor market. Moreover, July’s report included positive revisions to May and June’s headline numbers.

The ADP report suggests that Bureau of Labor Statistics data to be released on Friday will also show slowing job growth.

Job gains continued to be centered in the service sector, which added 202,000 in July, down from 238,000 the month prior – still the second highest reading this year. Professional and business services declined slightly, to 61,000 jobs added, which was slightly below the second quarter average of 66,000 per month.

The goods producing sector was weaker in July, adding just 16,000 jobs, the second lowest reading this year and well below the second quarter monthly average of 34,000. Manufacturing was also weaker, only adding 3,000 jobs, compared to 10,000 in June.

Read the ADP release.

U.S. Economy Grew 4.0% in the Second Quarter

Real GDP growth jumped in the second quarter at a 4.0% seasonally adjusted annual rate. The jump was anticipated, following negative growth in the first quarter. However, the magnitude was larger than expected. Inventory growth accelerated, driving the growth along with strong consumption. Net exports also improved noticeably from the first to second quarter.

The strong first quarter followed a decline of 2.1% in the first quarter, revised from 2.0%.

Consumption picked up heavily from the first quarter, contributing 1.69% to GDP growth compared to 0.8% in the first quarter. Inventories grew considerably, contributing 1.7% to GDP growth, a drastic change from the negative 1.2% growth the quarter prior.

A reduction in imports reduced this drag on the economy to 0.6%. The government sector contributed 0.3% to growth, as state and local government spending grew but federal government fell.

Read the BEA release.

Tuesday, July 29, 2014

Annual Home Price Appreciation Slows in May

According to the Case-Shiller 20-city index, home price appreciation remained at 1.1% in May, the same as the month prior. Year-over-year growth continued to slow, improving 9.3% for the 20-city index, down from 10.8% in April. However, last month’s post on Case-Shiller noted that, “Cold weather in the first two months of the year likely held demand low, causing a rebound in March and April. Next month’s report should normalize, and therefore might reveal a slightly lower pace of growth.”

All 10 metropolitan areas saw home prices improve from the previous month. Moreover, every metropolitan area continues to see prices above year-ago levels. San Diego saw the slowest gain, growing 0.5%. San Francisco had the strongest growth at 1.6%. Notably, the range of growth has narrowed, indicative of a normalizing market. Las Vegas continues to see the largest year-over-year growth, at 16.9%.

Read the S&P release.

Thursday, July 24, 2014

New Home Sales Sharply Decline in June

New home sales declined sharply in June to an annualized pace of 406,000 units. May’s headline index was revised down by 62,000 units. June’s pace was 8.1% below May’s, and is the second slowest pace all year. June’s report was 11.5% below year ago levels.

The declines in June were broad-based, with all four regions declining. However, due to the stronger gains in May, only two of the four regions are below the pace from April. The Northeast posted the sharpest decline at 20.0%. The South, Midwest and West declined 9.5%, 8.2% and 1.9% respectively.

Due to depressed sales in June, the supply of homes increased to 5.8 months, the highest value since October 2011.

The median price of a new home shrank 1.1% to $276,700. However, the median price is 5.3% above year ago levels.

Read the Census report.

Tuesday, July 22, 2014

Existing Home Sales Surpass 5 Million Mark

Existing home sales improved 2.6% in in June, reaching an annualized pace of 5.04 million units. The pace is above 5 million for the first time since last October. May’s pace was revised upward, indicating an improving housing market.

All four regions improved in June. The Midwest had the strongest monthly growth at 6.2%. The Northeast, West and South followed respectively at 3.2%, 2.7% and 0.5%. Aside from the South, sales declined in the other three regions compared to year ago levels.

Housing inventory remained the same in June at 5.5 months, while below April’s level, housing inventory is nearing the 6-month mark that indicates a balanced market.

The national median existing-home price was $223,300 in June. House price appreciation is slowing, and declined to a year-over-year growth of 4.3%. Stabilizing housing prices, low interest rate environment and stronger job growth creates an environment of housing affordability and a positive outlook for an active housing market.

Read the NAR release.

Consumer Prices Rose 0.3% in June

Prices rose by 0.3% in June, a slightly slower pace than the month prior. The increase from year-ago levels remained at 2.1%, the same as the month prior and just above the Federal Reserve’s 2.0% target. The most recent minutes from the Federal Reserve’s FOMC meeting noted that inflation is rising faster than anticipated for the medium run. However core inflation, the focus of the FOMC, rose 1.9% over the year, slightly below the Fed’s target.

Energy prices surged 1.6% in June, the largest monthly increase in 6 months. A 3.3% increase in seasonally adjusted gasoline prices was the driver behind the energy gain. Food prices grew 0.1%, a much slower pace than the 0.5% the month prior. The slower pace dropped the annual growth rate of food to 2.4%.

Core prices grew 0.1%, the slowest growth since January. The slower growth was driven by services, which saw its smallest monthly gain in 6 months. Goods prices grew 0.1%, consistent with the previous month.

Read the BLS report.