Economic update for the month ending August 31, 2016 and week ending September 2, 2016 

U.S. Employers add 151,000 new employees in August – The Bureau of Labor Statistics reported that employers added 151,000 new non-farm jobs in August, which was below the 180,000 new jobs analysts expected. The unemployment rate held steady at 4.9%. Wage growth grew on an annual rate of just 2.4% which was also disappointing after showing larger increases in the previous few months. This report, which was released on September 2, actually caused stocks to rally, because it came at a crucial time when experts had expected an interest rate hike at the Fed’s September 20-21 meeting. Experts now believe the Fed may wait to make sure the job market is not slowing before they make a rate increase. The Federal Funds Rate and Discount Rate which are overnight rates are just around 1/2%. The Fed began dropping rates during the recession to stimulate the economy. In 2009 they had dropped rates so many times that their overnight rate was 0%. The lowest in history. Last year they raised them 1/2% and announced that there would be several more rate increases this year. As the economy showed signs of weakness they have held off. This month they announced that a rate increase was coming as they were moving from a stimulus stance to a more neutral stance. This jobs report may cause them to hold steady a little longer. 

Stock markets stable in August. Markets were mostly unchanged in August. The Dow Jones Industrial Average closed the month on August 31 at 18,400.88 down slightly from 18,432.24 at the end of July. The S&P 500 closed the month at 2,170.95 just below July’s close of 2,173.60. The NASDAQ closed on August 31 at 5,213.22, up from July’s close of 5,162.13. 

Stocks finish week higher – Stocks rallied Friday following a jobs report which was below expectations. Investors feel that a softening of new jobs created could cause the Federal Reserve to hold off on an expected upcoming interest rate rise. The Dow Jones Industrial Average closed the week at 18,491.96, up from 18,395.40 last Friday. The S&P 500 closed the week at 2,179.98, up from 2,169.04 last week. The NASDAQ closed the week at 5,249.90, up from last week’s close of 5,218.92. 

Bond yields rise in August – Statements released from the Federal Reserve Open Market Committee meeting, and statements from Fed officials were designed to let investors and analysts know that interest rate hikes were likely soon. While The Fed left itself a little wiggle room they made it clear that historically low rates designed to stimulate the economy would soon rise to more “market neutral” rates. The 10 year U.S. Treasury Bond close on August 31 at 1.58%, up from 1.46% at the end of July. The 30 Year U.S. Treasure Bond yield close at 2.23% on August 31, up from 2.18% at the end of July. 

Bond yields unchanged from last week – The 10 year U.S. Treasury Bond yield closed the week at 1.60%, almost unchanged from 1.62% last Friday. The 30-year U.S. Treasury Bond closed at 2.28%, unchanged from 2.29% last week. Mortgage rates follow bond yields so we watch bond yields closely.

Mortgage rates unchanged – still near record lows – The Freddie Mac Primary Mortgage Survey released on September 1, 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 3.46%. The 15-year fixed average rate was 2.77%. The 5/1 ARM average rate was 2.83%.

Retail sales unchanged – The Commerce Department reported that retail sales in July showed no increase over June’s figure which increased 0.8% from May. Still retail sales rose 2.3% from a year ago, but economists had expected sales to rise 0.4% in July. After two months of very strong job growth experts were not expecting spending to weaken. 

Producer Price Index takes unexpected drop – The Labor Department reported that the producer price index, a key measure of inflation dropped 0.4% last month. Year over year the index shows that producer prices have slipped 0.2% since last July. Fed officials have repeatedly expressed concern about low inflation, as a strong dollar and low oil prices have muted prices.

California employers add 36,400 new jobs in July – The Employment Development Department reported that California’s employers added 36,400 new jobs in July. Although this was considered solid job gains by experts, the unemployment rate actually rose from 5.4% in June to 5.5% in July, as more workers entered the job search. 

Number of existing homes sold in California in July drops as tight inventory puts a squeeze on sales – The California Association of Realtors reported that the number of existing homes sold in California declined 4.1% from June’s sales pace and 5.1% from last July’s annualized rate as historically low inventory levels dragged down sales. The statewide median price in July was $509,830 which was down 1.8% from June and up 3.9% from July 2016. The unsold inventory index edged up from a 3.2 month supply in June to a 3.6 month supply in July.

Pending home sales in California rise in July – The California Association of Realtors announced that statewide pending home sales increased 3.5% in July over last July’s seasonally adjusted annualized rate. Month over month, July’s pending home sales were up 3% from June’s figures. After June and July’s increased rate of new signed real estate purchase contracts it is expected that closed existing sales will increase in the coming months as those homes close escrow. July’s closed sales were disappointing as low inventories caused closed sales to decline after hitting multi year high closed existing sales numbers in June. 

Nationwide existing home sales slowed by low inventory levels – The National Association of Realtors reported that existing home sales slowed in July after hitting the highest levels in many years in June. July’s slowdown was attributed to extremely low inventories of single family existing homes, which include single family homes, town homes, condominiums, co-ops. Sales fell 3.2% from June’s figures and year over year close sales declined 1.6% from last July. Only the western states region had an increase in closed sales. While unsold inventory inched up 0.9% from June the number of existing homes for sale nationwide are still 5.8% below last July’s number. 32% of all sales were purchased by first time buyers, up from 28% one year ago. All-cash transactions accounted for 21% of all sales, down from 23% one year ago. 

New home sales hit highest pace in nearly a decade – The Commerce Department reported that sales of new homes surged in July to the highest level since October 2007. July’s new home sales were up 12.4% from June and 31.3% from last July.That’s a number that stunned experts; however, the number of new homes being completed have risen significantly as home-builders are full production.