August 9th – 16th
Services Sector Rebounds, Easing Recession Fears. Labor Market Delivers Encouraging News.
Last week, disappointing economic data fueled investor concerns about a potential slowdown in economic growth. However, this week brought a welcome change, as stronger-than-expected economic reports helped to alleviate fears of an impending recession. As a result, after a significant drop last week, mortgage rates edged up slightly this week.
Services Sector Shows Unexpected Strength
The most notable economic report of the week came from the Institute of Supply Management (ISM), revealing a surprising uptick in the services sector. The ISM national services index rose from 48.8 to 51.4, surpassing the consensus forecast. With readings above 50 indicating expansion and below 50 signaling contraction, this report suggests that consumer demand for services remains robust, even in the face of rising prices.
Labor Market Stability
The labor market also delivered encouraging news. The latest report from the Department of Labor showed that new claims for unemployment insurance fell to 233,000, down from 250,000 the previous week and below expectations. This decline suggests that the spike in claims in recent weeks was largely due to disruptions caused by Hurricane Beryl, rather than underlying weaknesses in the labor market. Overall, jobless claims remain well below the elevated levels seen during the early stages of the pandemic and are consistent with the pre-pandemic norms of 2019. Weekly jobless claims are a key indicator of labor market trends and provide timely insight into the health of the economy.
Mortgage Applications Surge
Lower mortgage rates this week provided a boost to mortgage applications. According to the Mortgage Bankers Association (MBA), refinance applications jumped 16% from the previous week and were a remarkable 59% higher than the same period last year. Purchase applications saw a modest increase of 1% week-over-week, though they remain 11% lower compared to this time last year.
Looking Ahead: Inflation and Economic Indicators
Investors will continue to keep a close eye on signals from the Federal Reserve regarding future monetary policy. This week’s focus will shift to key inflation data. On Tuesday, the Producer Price Index (PPI) will be released, followed by the Consumer Price Index (CPI) on Wednesday, a critical monthly indicator tracking price changes across a broad spectrum of goods and services. Additional reports include Import Prices and Retail Sales on Thursday, with retail sales data being particularly important as consumer spending accounts for over two-thirds of U.S. economic activity. The week will wrap up with the release of Housing Starts on Friday.
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