• Manufacturers in Texas Saw Growth in Factory Activity Slow in January

    Every month, the Federal Reserve Bank of Dallas asks Texas business executives questions on labor market conditions and the results are compiled into the Texas Manufacturing Outlook Survey, the Texas Service Sector Outlook Survey and the Texas Retail Outlook Survey.

    On January 30th, the Federal Reserve Bank of Dallas reported that: “Growth in Texas factory activity slowed in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell from 9.1 to 0.2, with the near-zero reading suggestive of flat output.

    Other measures generally indicated weakened manufacturing activity this month. The new orders index was negative for an eighth month in a row – suggesting a continued decrease in demand – though it moved up from -11.0 to -4.0. The growth rate of orders index inched down to -12.3. The capacity utilization index was positive but dipped from 7.9 to 6.0, while the shipments index returned to negative territory at a reading of -6.3.

    Perceptions of broader business conditions continued to worsen in January, though pessimism waned. The general business activity index remained negative but shot up 12 points to -8.4. Similarly, the company outlook index posted its 11th straight negative reading but moved up 11 points to -2.5. The outlook uncertainty index was largely unchanged at 16.8.

    Labor Market & Price Pressures

    Labor market measures pointed to stronger employment growth and longer workweeks.

    • The employment index climbed four points to 17.6, a reading significantly above its series average of 7.9.
    • Thirty-one percent of firms noted net hiring, while 13 percent noted net layoffs.
    • The hours worked index held fairly steady at 3.8.

    Further, price pressures were generally steady and wage growth eased slightly in January.

    • The raw materials prices index was largely stable at 20.5, remaining below its series average of 28.0 for the third month in a row.
    • The finished goods prices index was little changed at 9.9, roughly in line with its series average of 9.0.
    • The wages and benefits index ticked down from 34.2 to 30.5.

    Expectations regarding future manufacturing activity were mixed in January. The future production index pushed further positive to 16.1, signaling that respondents expect output growth over the next six months. The future general business activity index remained negative, coming in at -9.1. Most other measures of future manufacturing activity were positive this month.”

    Sources: dallasfed.org

  • Conference Board Leading & Coincident Economic Indicators Pointing to a Recession

    The Conference Board was founded in 1916 by a group of CEOs “concerned about the impact of workplace issues on business, and with a desire for greater cooperation and knowledge sharing among businesses.”

    Every month, the Conference Board compiles a composite of economic indexes designed to signal peaks and troughs in the business cycle. The leading, coincident, and lagging economic indexes are essentially composite averages of 10 individual indicators and help smooth out some of the volatility of individual components.

    The ten components include:

    • Average weekly hours, manufacturing
    • Average weekly initial claims for unemployment insurance
    • Manufacturers’ new orders, consumer goods and materials
    • ISM Index of New Orders
    • Manufacturers’ new orders, nondefense capital goods excluding aircraft orders
    • Building permits, new private housing units
    • Stock prices, 500 common stocks
    • Leading Credit Index
    • Interest rate spread, 10-year Treasury bonds less federal funds
    • Average consumer expectations for business conditions

    Leading Indicators Signaling a Recession

    On January 23rd, the Conference Board announced that its Leading Economic Index for the U.S. decreased by 1.0% in December 2022 to 110.5 (2016=100), following a decline of 1.1% in November.

    The LEI is now down 4.2% over the six-month period between June and December 2022 – a much steeper rate of decline than its 1.9% contraction over the previous six-month period (December 2021–June 2022).

    “The US LEI fell sharply again in December – continuing to signal recession for the US economy in the near term. There was widespread weakness among leading indicators in December, indicating deteriorating conditions for labor markets, manufacturing, housing construction, and financial markets in the months ahead.

    Meanwhile, the coincident economic index (CEI) has not weakened in the same fashion as the LEI because labor market related indicators (employment and personal income) remain robust. Nonetheless, industrial production – also a component of the CEI – fell for the third straight month.

    Overall economic activity is likely to turn negative in the coming quarters before picking up again in the final quarter of 2023.”

    The trajectory of the US LEI continues to signal a recession 

    Sources: conference-board.org

  • Mortgage Applications Drop as Mortgage Rates Increase

    Mortgage Applications Drop as Mortgage Rates Increase

    On Wednesday, the Mortgage Bankers Association announced that mortgage applications decreased 13.2%  from two weeks earlier (and include adjustments to account for the holidays). 

    • The Market Composite Index, a measure of mortgage loan application volume, decreased 13.2% on a seasonally adjusted basis from two weeks earlier. 
    • On an unadjusted basis, the Index decreased 39.4% compared with the two weeks ago.
    • The holiday adjusted Refinance Index decreased 16.3% from the two weeks ago and was 87% lower than the same week one year ago.
    • The seasonally adjusted Purchase Index decreased 12.2% from two weeks earlier.
    • The unadjusted Purchase Index decreased 38.5% compared with the two weeks ago and was 42% lower than the same week one year ago.

    “The end of the year is typically a slower time for the housing market, and with mortgage rates still well above 6% and the threat of a recession looming, mortgage applications continued to decline over the past two weeks to the lowest level since 1996. Purchase applications have been impacted by slowing home sales in both the new and existing segments of the market. Even as home-price growth slows in many parts of the country, elevated mortgage rates continue to put a strain on affordability and are keeping prospective home buyers out of the market.”

    • The refinance share of mortgage activity increased to 30.3% of total applications from 28.8% the previous week.
    • The adjustable-rate mortgage (ARM) share of activity decreased to 7.3% of total applications.
    • The FHA share of total applications increased to 14.0% from 13.1% the week prior.
    • The VA share of total applications increased to 13.4% from 12.0% the week prior.
    • The USDA share of total applications remained unchanged at 0.6%.

    MBA Mortgage Applications Over the Past Year

    Increases to Mortgage Rates

    • The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 6.58% from 6.42%, with points increasing to 0.73 from 0.65 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate increased from last week. 
    • The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $647,200 ) remained at 6.12%, with points increasing to 0.45 from 0.37 (including the origination fee) for 80% LTV loans. The effective rate increased from last week. 
    • The average contract interest rate for 15-year fixed-rate mortgages increased to 6.06% from 5.97%, with points increasing to 0.70 from 0.57 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.

    Sources: mba.org

  • Market Insights – Nov. 30, 2022

    Home-Price-Gains Continue to Decline Across the United States

    On Tuesday, S&P Dow Jones Indices released the latest results for the S&P CoreLogic Case-Shiller Indices, the leading measure of U.S. home prices. Data released today for September 2022 show that home price gains declined across the United States. 

    “The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 10.6% annual gain in September, down from 12.9% in the previous month. The 10-City Composite annual increase came in at 9.7%, down from 12.1% in the previous month. The 20-City Composite posted a 10.4% year-over-year gain, down from 13.1% in the previous month.

    Miami, Tampa, and Charlotte reported the highest year-over-year gains among the 20 cities in September. Miami led the way with a 24.6% year-over-year price increase, followed by Tampa in second with a 23.8% increase, and Charlotte in third with a 17.8% increase. All 20 cities reported lower price increases in the year ending September 2022 versus the year ending August 2022.”

    Month-Over-Month

    “Before seasonal adjustment, the U.S. National Index posted a -1.0% month-over-month decrease in September, while the 10-City and 20-City Composites posted decreases of -1.4% and -1.5%, respectively.

    After seasonal adjustment, the U.S. National Index posted a month-over-month decrease of -0.8%, and the 10-City and 20-City Composites both posted decreases of -1.2%.

    In September, all 20 cities reported declines before and after seasonal adjustments.”

    Analysis

    “As has been the case for the past several months, our September 2022 report reflects short-term declines and medium-term deceleration in housing prices across the U.S. For example, the National Composite Index fell -1.0% in September, and now stands 10.6% above its year-ago level. We see comparable patterns in our 10- and 20-City Composites, which declined -1.4% and -1.5%, respectively, bringing their year-over-year gains down to 9.7% and 10.4%. For all three composites, year-over-year gains, while still well above their historical medians, peaked roughly six months ago and have decelerated since then.

    Despite considerable regional differences, all 20 cities in our September report reflect these trends of short-term decline and medium-term deceleration. Prices declined in every city in September, with a median change of -1.2%. Year-over-year price gains in all 20 cities were lower in September than they had been in August.

    The three best-performing cities in August repeated their performance in September. On a year-over- year basis, Miami (+24.6%) edged Tampa (+23.8%) for the top spot with Charlotte (+17.8%) beating Atlanta (+17.1%) for third place. The Southeast (+20.8%) and South (+19.9%) were the strongest regions by far, with gains more than double those of the Northeast, Midwest, and West; the two worst- performing cities were San Francisco (+2.3%) and Seattle (+6.2%).”

    More Data Later This Week

    More economic data will be released later this week, including GDP and MBA Mortgage Applications on Wednesday; Construction Spending and Jobless Claims on Thursday and Motor Vehicle Sales on Friday.

    Sources: spglobal.com