Inflation and the latest jobless claims figures make headlines at the end of last week.
The number of Initial Jobless Claims declined in the latest week, as another 709,000 people filed for unemployment benefits for the first time during the week ending November 7. The number of people continuing to receive benefits also fell in the latest week to 6.8 million. While these declines are both a step in the right direction, the caveat remains the rise in people filing for Pandemic Emergency Unemployment Compensation, as noted below.
The National Federation of Independent Business Small Business Optimism Index remained unchanged in October at 104 and is among the highest in the survey’s history. However, as COVID cases rise and things potentially shut down again, this optimism may wane in the months to come. Of particular note, those who expect higher selling prices rose for the fifth month by 2 points to match the highest level since July 2019, which speaks to potential inflation.
But for now, consumer inflation remains tame as the Consumer Price Index (CPI) came in flat for October while decreasing from 1.4% to 1.2% annually. Core CPI, which strips out volatile food and energy prices, was also flat in October while the annual reading also saw a decline. At the wholesale level, the Producer Price Index showed that headline inflation ticked up a bit more than expected in October, but Core PPI also remains tame. Read on to learn more about the significance of inflation when it comes to home loan rates.
Lastly, don’t miss an important note below regarding the media and rising home prices – and what metric to look for.
Jobless Claims Moving in the Right Direction
Another 709,000 people filed for unemployment benefits for the first time during the week ending November 7, which is a decline from the previous week. California (+157K), Illinois (+71K) and New York (+44K) reported the largest increases.
The number of people continuing to receive benefits also improved, as that figure dropped to 6.8 million in the latest week.
While both of these figures have been moving in the right direction over the past few weeks, it’s important to remember that when regular benefits expire, people can file for Pandemic Emergency Unemployment Compensation (PEUC), which extends their benefits for another 13 weeks. That figure increased by 160,000 people, so while the drop in continuing claims is a great sign, it does need to be taken in context.
Consumer Inflation Cooled in October
Consumer inflation was tamer than expected in October, as the Consumer Price Index (CPI) was flat for last month. On an annual basis, CPI decreased from 1.4% to 1.2%. Core CPI, which strips out volatile food and energy prices, was also flat in October while the year-over-year reading fell from 1.7% to 1.6%.
Of particular note, rents are rising 2.7% across the US, which is stable from the previous month.
Most likely, the spike in COVID cases in October caused consumers to be fearful, which led to inflation cooling a bit. Inflation had been up 1.5% over the previous five reports.
At the wholesale level, the Producer Price Index (PPI) showed that headline inflation did increase by 0.3%, which was higher than market expectations of 0.2%. On a year over year basis, headline PPI increased from 0.4% to 0.5%, but still remains very tame. Core PPI, which again strips out food and energy prices, was up 0.1% for the month, but decreased from 1.2% to 1.1% annually. As with the Core CPI reading, we are not seeing much in the way of Core inflation in October, likely due to the increase in COVID cases.
Why is tame inflation significant?
Inflation is the arch enemy of fixed investments like Mortgage Bonds because it reduces their value. Home loan rates are inversely tied to Mortgage Bonds. When inflation rises, it can cause Bonds to worsen or move lower, which means home loan rates can rise. Though many factors impact the markets, it’s always important to keep an eye on inflation headlines.
A Note on Home Prices
When the media talks about rising home prices, it’s important to note which data they reference, as the median home price is the wrong metric to look at. Here’s why.
The median home price simply measures the middle-priced home that sold in a given timeframe, meaning that half the homes sold above that number and half below that number.
For example, the median home price for Existing Home Sales in September was reported at $311,800, up almost 15% year over year. But this doesn’t mean homes are not affordable. It means the middle-priced home that sold was $311,800, with half the homes selling below and half above that price. In September, inventory remained tightest among lower-priced homes, which is why not as many were sold. As a result, a greater number of higher-priced homes sold and the median home price moved higher.
The real metric to look at is appreciation, which is growing at a pace of 5.5% to 6% year over year.
Family Hack of the Week
Soup season is here! This hearty chicken soup recipe is sure to be one your whole family will enjoy.
Cut 1 bunch celery, 3 large onions and 5 large, peeled carrots into a medium dice and add to a large stockpot. Heat on medium-high so onions and celery release their water. Stir often.
Once the vegetables have softened, rinse 2 1/2 pounds of chicken thighs and add on top of the vegetables. Continue to stir periodically as you peel and dice 4 large parsnips and add to pot. Add 3/4 gallon of water, 3 bouillon cubes, 2 tablespoons Italian seasoning and 1 pound small white potatoes.
Bring to a boil, then reduce to a simmer. Stir occasionally and skim off any film at the top as needed.
After 15 minutes, add 1 pound of green French lentils and another 1/4 gallon of water. Simmer until lentils are cooked, vegetables are tender and chicken falls apart, approximately 1 hour and 15 minutes to 1 hour and 30 minutes. Break chicken apart with a fork into bite-size pieces. Add salt and pepper to taste.
Serve with your favorite crusty bread and freeze leftovers for the perfect easy meal.
What to Look for This Week
This week’s economic calendar contains key reports throughout the week. In housing news, we’ll get a look at homebuilder confidence for November on Tuesday with the NAHB Housing Market Index while Wednesday brings us October data on both Housing Starts and Building Permits. October Existing Home Sales will also be released Thursday.
In the manufacturing sector, look for an update Monday from the New York region with November’s Empire State Index. The November Philadelphia Fed Index follows Thursday.
Also on Thursday, the latest weekly Initial Jobless Claims remain important to monitor, as do Retail Sales for October, which will be reported Tuesday.
The Fed’s ongoing purchases of Mortgage Backed Securities continues to provide stability to the markets. Mortgage Bonds are in the middle of a range between support at the 25-day and 50-day Moving Averages and overhead resistance at 103.50.