>> Market Update
QUOTE OF THE WEEK... "Once you replace negative thoughts with positive ones, you'll start having positive results." --Willie Nelson, American singer-songwriter, author, and actor
INFO THAT HITS US WHERE WE LIVE... These days the negative thoughts tend to come from the media, while the positive ones are usually the facts the media overlooks. Take Construction Spending, reported in the headlines as dropping in September for the second month in a row. These two miniscule monthly drops of less than 1% were true, but those are overall readings for all types of construction, including highways and commercial and public buildings. Residential construction spending was in fact UP 0.4% for September, and that's the important read for housing. In any case, overall construction spending, compared to a year ago, is UP almost 3%.
Mortgage applications were also reported down for the week. But this drop was driven by a decrease in refinance applications. The seasonally adjusted Purchase Mortgage Applications Index was actually up a nice 3% from the week before, and that's a good indicator for the growing health of the housing market. In a note to clients, a major economic research consultancy said the monthly increase in home prices in September suggests the market is putting any mid-year weakness behind it. Their property economist said it "was the strongest seasonally-adjusted increase in six months" and noted that "monthly price gains have accelerated gently over the past four months."
BUSINESS TIP OF THE WEEK...Restraint is crucial, especially in a growing business. Growth is fantastic, but smart growth is even better. Get a good plan, go slow, grow with intelligence.
>> Review of Last Week
SO-SO JOBS REPORT... Friday saw the October employment report come in with a less-than-expected 214,000 new payrolls for the month. But the unemployment rate did tick down to 5.8%, and this time it wasn't because of a shrinking workforce. In fact, the labor force participation rate actually edged up, although it's still an underwhelming 62.8%. But investors felt these tepid jobs numbers won't get the Fed hiking rates any time soon, and that played well on Wall Street. How well? The Dow and S&P 500 posted fresh record highs and ended ahead for the third straight week!
October was the ninth month in a row with more than 200,000 net hires, which hasn't happened since 1994. Problem is, only about 40% of the new jobs pay above the average hourly U.S. wage, which is up just 2% year-over-year. Wage growth is still one of the biggest obstacles to a real economic recovery, which remains sporadic. The ISM manufacturing index was up in October, while the ISM services number was down. The Trade Deficit drifted wider in September, but Q3 Productivity beat estimates, coming in at a 2% annual rate.
The week ended with the Dow up 1.1%, to 17574; the S&P 500 up 0.7%, to 2032; and the Nasdaq up less than two points, to 4633.
Friday's October jobs report was simply not good enough to signal that the Fed might hike the Funds Rate sooner than expected. Bond prices benefited. The 30YR FNMA 4.0% bond we watch finished the week up .08, at $106.13. Freddie Mac's Primary Mortgage Market Survey reported national average fixed mortgage rates up slightly again for the week ending November 6. But rates are still below where they were a year ago. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.
DID YOU KNOW?... After increasing from 8% to 40% between 2001 and 2011, the percentage of buyers who found their homes on the Internet has held steady at 43%, two years in a row.
>> This Week’s Forecast
RETAIL SALES UP, CONSUMER SENTIMENT TOO... There isn't a whole lot of economic data for us to chew on this week, with no reports scheduled on Monday or on Tuesday, Veterans Day. But Friday we get October Retail Sales, expected to edge up a tad overall, even when you exclude volatile auto sales. This uptick in consumer spending should be reflected in the Michigan Consumer Sentiment index, forecast to edge ahead slightly for November.
The stock market is open on Veterans Day, Tuesday November 11, but the bond market will be closed.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of Nov 10 – Nov 14
Date Time (ET) Release For Consensus Prior Impact
Nov 13 08:30 Initial Unemployment Claims 11/8 281K 278K Moderate
Nov 13 08:30 Continuing Unemployment Claims 11/1 2.355M 2.348M Moderate
Nov 13 11:00 Crude Inventories 11/8 NA 0.460M Moderate
Nov 13 14:00 Federal Budget Oct NA –$90.6B Moderate
Nov 14 08:30 Retail Sales Oct 0.3% –0.3% HIGH
Nov 14 08:30 Retail Sales ex-auto Oct 0.3% –0.2% HIGH
Nov 14 09:55 U. of Michigan Consumer Sentiment Nov 87.5 86.9 Moderate
Nov 14 10:00 Business Inventories Sep 0.2% 0.2% Moderate
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months... Although a few economists forecast a hike in the Funds Rate as early as March, most don't expect to see any upward movement until midyear. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Dec 17 0%–0.25%
Jan 28 0%–0.25%
Mar 18 0%–0.25%
Probability of change from current policy:
After FOMC meeting on: Consensus
Dec 17 <1%
Jan 28 <1%
Mar 18 <1%