Economic update for the week ending July 30, 2016

Second quarter GDP disappointing – The Commerce Department reported that U.S. economy expanded less than forecasted in the second quarter after a weaker start to the year than previously estimated as companies slimmed down inventories and remained wary of investing amid shaky global demand. Gross domestic product rose at a 1.2 percent annualized rate after a 0.8 percent advance in the first quarter. The median forecast of economists surveyed called for a 2.5 percent second-quarter increase. The report raises the risk to the outlook at a time Federal Reserve policy makers are looking for sustained improvement. While consumers were resilient last quarter, businesses were cautious, cutting back on investment and aggressively reducing stockpiles amid weak global markets, heightened uncertainty, and the lingering drag from a stronger dollar.

Stocks stable this week after 4 weeks of gains – Stocks ended the month higher even though the DOW was down for the week. The Dow was dragged down partly because Exxon Mobil Corp posted its biggest loss since 1999 and Chevron corp also posted a loss for the second quarter. They are both Dow stocks. Oil also fell back to $41 a barrel after hitting $50 a barrel at the end of June. The Dow Jones Industrial Average closed the week at 18,432.24, down from 18,570.85 last Friday, but up for the month from 17,929.99 on June 30. The S&P 500 closed the week at 2,173.60, unchanged from 2,175.03 last week. It was up from 2,098.86 on June 30. The NASDAQ closed the week at 5,162.13, up from last week’s close of 5,100.06, and up from 4,842.67 on June 30, 2016.

Bond yields down for the week and end the month pretty much unchanged – After rising last week yields held steady this week. The 10 year U.S. Treasury bond yield closed the week at 1.46%, down from 1.57% last Friday. It was 1.49% on June 30. The 30-year U.S. Treasury bond closed at 2.18%, down from 2.29% last week. The 30 year yield was 2.30% on June 30. Mortgage rates follow bond yields so we watch bond yields closely.

Mortgage rates – Mortgage rates still near historic lows. The Freddie Mac Primary Mortgage Survey released on July 28, 2016 showed that average mortgage rates from lenders surveyed for the most popular mortgage products were as follows: The 30-year fixed rate average was 3.48%. The 15-year fixed average rate was 2.78%. The 5/1 ARM average rate was 2.78%.

U.S. existing home sales at highest pace since February 2007 – The National Association of Realtors reported that existing home sales which include single family homes, condominiums, town-homes, and co-ops climbed 1.1% in June from May to a seasonally adjusted annual rate of 5.57 million. That was 3% higher than the 5.41 million in June 2015. It marks the highest number of sales since February 2007. Boosted by a greater share of sales to first-time buyers not seen in nearly four years, existing-home sales maintained their upward trajectory in June and increased for the fourth consecutive month, according to the National Association of Realtors. Only the Northeast saw a decline in closings in June. Sales to investors fell to their lowest overall share since July 2009. June pending home sales, homes under contract, also rose slightly. 

California pending home sales post third straight year over year increase in June – The California Association of Realtors reported that pending existing home sales continued their upward momentum in June to post three straight months of annual increases. Statewide pending home sales rose in June on an annual basis, with the Pending Home Sales Index (PHSI)* increasing 3.2 percent in June 2016 from June 2015, based on signed contracts. With pending sales on a rising trend in the past couple of months, June’s increase should lead to higher closed transactions in July and August. Pending home sales in Southern California as a whole rose 3.2 percent from June 2015 and 1.3 percent from May 2016, thanks to year-over-year gains of 5.5 percent in Los Angeles County, 4.1 percent in San Bernardino County, and 1.3 percent in San Diego County. Orange County experienced a 6.0 percent decrease from the previous year. 

New home sales hit highest pace in 8 years – Commerce Department data showed that new home sales increased 3.5% in June to an annualized rate of 592,000 homes. Experts had forecast an annualized rate of 560,000 homes. Purchases of new U.S. single-family homes rose in June to the highest level in more than eight years, indicating a firm and resilient housing market. 

California adds 40,299 jobs in June, but the sate’s unemployment rate was higher – The Bureau of Labor Statistics reported that although the state added over 40,000 jobs in June, the unemployment rate rose 0.2% in June to 5.4%. California’s unemployment rate peaked at 12.2% in February 2010 and is now 6.8% lower that at the height of the recession. June’s unemployment rate of 5.4% was up from May’s post recession low of 5.2%. 

Have a great weekend!