Economic update for the week ending May 21, 2022

Stock markets dropped again this week - The Dow suffered its eighth consecutive weekly loss which marks its longest weekly losing streak since 1923. The S&P and Nasdaq suffered their seventh weekly loss, their longest losing streak since 2001. It is a strange time.

First-quarter corporate profits were much stronger than expected, and the economy and job market are showing very strong numbers; however, investors fear that inflation, higher interest rates, war, supply chain shortages, and a China lockdown will soon lead to a drop in profits, and possibly a recession.

  • The Dow Jones Industrial Average closed the week at 31,261.90, down 2.1% from 32,196.66 last week. It is down 11.4% year-to-date.

  • The S&P 500 closed the week at 3,901.36, down 2.4% from 4,023.89 last week. The S&P is down 15.6% year-to-date.

  • The NASDAQ closed the week at 11,354.62, down 2.8% from 11,805.00 last week. It is down 24.5% year-to-date.

U.S. Treasury bond yields - The 10-year treasury bond closed the week yielding 2.78%, down from 2.93% last week. The 30-year treasury bond yield ended the week at 2.99%, down from 3.10% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – Home mortgage rates appear to be stabilizing. The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of May 19, 2022 for the most popular loan products were as follows:

  • The 30-year fixed mortgage rate was 5.25%, down from 5.30% last week.

  • The 15-year fixed was 4.43%, down from 4.48% last week.

  • The 5-year ARM was 4.08%, up from 3.98% last week.

U.S. existing-home sales - The National Association of Realtors reported that existing-home sales totaled 5.61 million units on a seasonally adjusted annualized rate in April, down 2.4% month-over-month from the annualized number of sales in March. Year-over-year sales were down 5.9% from the annualized rate of 5.96 million in April 2021. The median price of a home in the U.S. in April was $391,200, up 14.8% from $340,700 one year ago. April marked a record 122 consecutive months of year-over-year increases in the median price. Inventory levels ticked up slightly from March but remained near record lows. There was a 2.2-month supply of homes for sale in April, down from a 2.3 month supply one year ago. First-time buyers accounted for 28% of all sales. Investors and second-home purchases accounted for 17% of all sales. All-cash purchases accounted for 26% of all sales. Foreclosure and short-sales accounted for less than 1% of all sales remaining at a historic low.

Housing Starts

Housing Starts for April came in a little under expectations at 1.724 mln, below expectations of 1.756 mln. Housing starts for March were revised lower, from 1.793 mln to 1.78 mln. This takes the MoM change to -0.2%, beating expectations of -2.1%. Building Permits came in at 1.819 mln, above the expectations of 1.814 mln, while March's numbers were revised from 1.873 mln to 1.870 mln. The MoM change is -3.2%, which is slightly higher than market expectations of -3.0%. Looking into the details, the overall number of backlogs has climbed to the highest since 1974.

Mortgage Applications

Mortgage Applications fell 11.0% for the week ending May 13, which is the first time since the week of April 22. Purchases were down 11.9%, while refinances were down 9.5%. The average 30-year fixed rate is 5.49%. "The housing market is facing growing challenges," said NAHB Chief Economist Robert Dietz. "Building material costs are up 19% from a year ago, in less than three months mortgage rates have surged to a 12-year high and based on current affordability conditions, less than 50% of new and existing home sales are affordable for a typical family. Entry-level and first-time home buyers are especially bearing the brunt of this rapid rise in mortgage rates."

Retail Sales

Retail Sales for April came in 0.9% MoM, meeting market expectations, but ex-auto sales beat market expectations coming in 0.6% instead of 0.4%. The control group also saw a nice jump and market beat, 1.0% instead of 0.5% which was the market was expecting. Annual revisions were positive, 1.7% from 0.8% for February, and 1.4% from 0.5% in March. The data suggests that consumers are still spending at a rapid pace, even as prices rise at the fastest pace in decades.

Empire State Manufacturing Index

New York Fed's Empire State Manufacturing index fell 36.2 points from last month's reading to -11.6 for May, which is the lowest level since May 2020 and missed the market expectations of 15.0. Looking at the internals, there were some large drops there as well. The new orders index plunged from 25.1 to -8.8, the shipments index fell from 34.5 to -15 and the unfilled orders index dropped 17.3 to 2.6. The prices paid index did fall from 86.4 to 73.7, which is still a pretty elevated level. This is a surprising miss.

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