Small business optimism at record high levels. Home Depot reports blowout earnings. Strong economic growth forecast for 2018.

Small business owners continue to express optimism due in part to a strong U.S. economy. The NFIB Small Business Optimism Index rose to its second highest level in the survey’s 45-year history to 107.9 in July, just a whisker away from its record-high of 108 set back in July 1983. Small businesses are one of the backbones of the U.S. economy and employ millions of Americans. “Small business owners are leading this economy and expressing optimism rivaling the highest levels in history,” said NFIB President and CEO Juanita Duggan. “Expansion continues to be a priority for small businesses who show no signs of slowing as they anticipate more sales and better business conditions.”

The world’s largest home improvement center, Home Depot, posted blowout earnings in its latest quarter due in part to strong home-improvement activity and a robust U.S. economy in the second quarter. Home Depot reported earnings per share of $3.05 versus the $2.84 expected while revenues came in at $30.46 billion, above the $30.03 billion expected. A slow start to the spring season, due to cooler weather pushed shoppers to purchase their spring gardening needs in the second quarter. The company has raised its earnings forecast for the full year.

The Congressional Budget office (CBO) reports that economic growth will be strong in 2018 but will ease in 2019 as fiscal stimulus eases. The CBO predicts that Gross Domestic Product will grow 3.1% in 2018, above the 2.2% recorded in 2017 due to increased government spending, reduction in taxes, and faster growth in private investment. The CBO went on to say that in 2019, the pace of GDP growth slows to 2.4% in the agency’s forecast as growth in business investment and government purchases slows.

Housing affordability at a 10-year low. Consumer inflation tame in July from June. Gas prices at the pumps steady.

Rising home prices and mortgage rates pushed housing affordability to lows not seen in a decade in the second quarter of 2018, reports the National Association of Home Builders. From the beginning of April to the end of June, 57.1% of all new and existing home were affordable, down from 61.6% in the first quarter. The national median home price rose from $252,000 in the first quarter of 2018 to $265,000 in the second quarter, the highest quarterly median price in the history of the Housing Opportunity Index. At the same time, average mortgage rates surged by more than 30 basis points in the second quarter to 4.67% from 4.34% in the first quarter.

Consumer inflation remained tame in July from June but year-over-year core consumer inflation rose the most in 10 years. The Consumer Price Index (CPI) rose 0.2% in July from June in line with estimates as rising shelter costs offset a drop in energy prices. Over the past 12 months, CPI rose 2.9%, unchanged. However, the Core CPI, which strips out food and energy, rose 2.4%, the highest rate since September 2008. But inflation remains on the tame side with no evidence of a spike higher in the coming months.

Gas prices at the pumps remained unchanged today from last week, despite lower oil prices. Motorists are still paying the highest August prices since 2014. The national average price for a regular gallon of gas is $2.87, the same from a month ago but up $0.50 from last year this time. Motorists should see lower prices by mid-September as the summer driving season winds down in a few weeks.

Home price gains solid in June. Mortgage credit availability increased in July. Buying a home considered most stressful event for consumers.

Home price gains remained strong in June. CoreLogic reports that home prices, including distressed sales, rose 6.8% from June 2017 to June 2018 and increased 0.7% month over month from May to June. Over the next year, gains are expected to slow as further increases in home prices and home loan rates could erode affordability and dampen sales and home-price growth. CoreLogic forecasts a 5.1% increase from June 2018 to June 2019 while month-over-month home prices are expected to be unchanged from June to July of this year.

Mortgage credit availability continued to increase in July for the third month in a row fueled by an increase in conventional credit supply. The Mortgage Bankers Association’s Mortgage Credit Availability Index rose 1.7% in July after gains in both May and June. From a year ago, the index has increased 2.8%. The MCAI is calculated using several factors related to borrower eligibility (credit score, loan type, loan-to-value ratio, etc.).

A recent survey revealed that buying a home can be exhausting, confusing and complicated. Homes.com reports that in a survey of 2,000 Americans, 40% say that purchasing a home can be the most stressful event in modern life while another 44% said they felt nervous throughout the whole home buying process. In addition, about 33% of those surveyed admitted to shedding tears at some point during the process. “At the end of the day, buying a home is often the largest purchase the average American will experience in their lives,” said David Hoegerman, Homes.com senior manager of content.

Home prices rise. Home affordability declining. Consumer Confidence strong

Home prices rose steadily across the nation in May though affordability issues may come into play in the months ahead. The S&P CoreLogic Case-Shiller 20-City Home Price Index rose 6.5% from May 2017 to May 2018. This was in line with expectations and just below the 6.7% recorded in April (revised from 6.6 percent). On a monthly basis, home prices were up 0.7% from April to May.
David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices says, “Home prices continue to rack up gains two to three times greater than the inflation rate.” In addition, “Affordability – a measure based on income, mortgage rates and home prices – has gotten consistently worse over the last 18 months. All these indicators suggest that the combination of rising home prices and rising mortgage rates are beginning to affect the housing market.”
Consumer Confidence rose in July to its second highest level in 2018 with consumers feeling that economic growth is still strong. The Consumer Confidence Index rose to 127.4 in July, above 127.1 in June. Within the report it showed that those stating business conditions are “good” increased, while those saying business conditions are “bad” declined. Consumers’ assessments of the labor market were also more favorable. Those claiming jobs are “plentiful” increased, while those claiming jobs are “hard to get” were virtually unchanged.

Gross Domestic Product surges. Economic data ramps up next week. Gas prices at the pump unchanged.

Economic growth surged in the second quarter of 2018 due in part to a big rise in consumer spending. The Bureau of Economic Analysis reported that Gross Domestic Product rose 4.1% from the 2.2% recorded in the first quarter, which was revised up from 2%. The 4.1% was in line with expectations. Within the report, it showed that consumer spending jumped 4 percent in the second quarter from the dismal 0.5% from the first quarter. Overall, it was a solid report. Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. It is considered the broadest measure of economic activity.

The investing community will have all eyes and ears glued to economic data next week as well as the Fed’s monetary policy statement being released on Wednesday. The week’s economic data includes reports on housing, manufacturing, consumer confidence, inflation and the granddaddy of all reports … the Jobs Report for July. The Jobs Report includes Non-Farm Payrolls and the Unemployment Rate. The two-day Federal Open Market Committee meeting kicks off on Tuesday and ends Wednesday with the 2:00 p.m. ET release of the Fed statement.

Gas prices at the pumps remained unchanged from last week as we are now well into the summer driving season. The national average price for a regular gallon of gasoline is at $2.85 today, unchanged from last week and up from $2.28 a year ago. Prices should begin to ease a bit sometime in September when Americans get back from vacations, school begins and when motorists tend to drive less.

Home prices push higher. Median home prices at record highs. Higher shares of Google lifts Stocks.

A shortage of homes for sale on the market continued to drive home prices higher in May, reports the Federal Housing Finance Agency (FHFA). The FHFA’s House Price Index (HPI) rose 0.2% in May from April, +6.4% from May 2017 to May 2018. The FHFA monthly HPI is calculated using home sales price information from mortgages sold to or guaranteed by Fannie Mae and Freddie Mac.

RE/MAX reports that home prices surged in June to a fresh record high, while inventories shrank. The national median home sale price in June was $258,500, a new record for the nine years that RE/MAX has tracked the housing market. As far as the amount of homes for sale on the market, 42 of the 54 metro areas reported a decline to a 2.7-month supply, an 8.8% drop from a year earlier and the lowest inventory number ever recorded for June. “Lack of inventory has become a theme for the year,” said RE/MAX CEO Adam Contos. “Having fewer homes to choose from poses a challenge for buyers, who need to be ready to act decisively and quickly.”

U.S. Stocks are rallying in response to a strong corporate earnings season. Google reported better-than-expected earnings yesterday, which is lifting all Stocks and FAANG (Facebook, Apple, Amazon, Netflix, Google) shares this morning. Of the 90 companies in the S&P 500 that have reported earnings so far, 82% have exceeded expectations. The U.S. economy is humming. In addition, Consumer Confidence is near all-time highs while small business optimism is at peak levels.

Home purchase loans rise in June. President Trump “not thrilled” with rate hikes. New home purchase activity declines year over year.

Home purchase loan closings rose in June while refinancing activity declined, reports Ellie Mae. Ellie Mae’s Origination Insight for June revealed that 71% of all loans in June represented home purchases, up from 70% in May and a new high since the report began in 2011. Refinance closings fell to 29% from 30%, as home loan rates have pushed higher since the end of 2017. Times to close all loans rose slightly to 42 days from 41 days with the breakdown being 44 days for purchases, 37 days for refinancing.

President Trump spoke to CNBC yesterday saying that he is “not thrilled” with interest rate hikes. “I’m not thrilled,” President Trump said. “Because we go up and every time you go up they want to raise rates again. I don’t really – I am not happy about it. But at the same time, I’m letting them do what they feel is best.” One thing we don’t ever want is the Fed’s independence challenged. The Fed is likely going to hike the short-term Fed Funds Rate in September but may pause after that, as the U.S. dollar continues to strengthen against global currencies.

The Mortgage Bankers Association recently reported that new home purchase applications fell year over year. Builders remained constrained due in part to a shortage of workers, and rising costs, particularly lumber costs. The MBA Builder Application Survey for June 2018 fell nearly 9% from June 2017. “Applications for new home purchases fell in June, both compared to last year at this time and relative to May, which fits the seasonal pattern. So far this year, new home applications are up 2.5% relative to the first 6 months of 2017,” said Mike Fratantoni, MBA Chief Economist and Senior Vice President of Research and Industry Technology.

Foreclosure activity declines. Builder confidence remains high. Fed Chair Powell says that U.S. unemployment to decline further.

Foreclosure activity continues to decline and is down significantly from the peak seen in early 2010. ATTOM Data Solutions reports that there were 362,275 properties with foreclosure filings, default notices, scheduled auctions or bank repossessions in the first half of 2018, down 15% from the same period last year. In addition, foreclosure filings are down a whopping 78% from the 1,654,634 filed in the first six months of 2010. The report went on to reveal that properties foreclosed in the second quarter of 2018 took an average of 720 days from the first public foreclosure notice to complete the foreclosure process.

Builder confidence remained elevated in July for newly-built single-family homes, reports the National Association of Home Builders (NAHB). The NAHB Housing Market Index was unchanged this month at 68 where any number over 50 indicates that more builders view conditions as good rather than poor. “Consumer demand for single-family homes is holding strong this summer, buoyed by steady job growth, income gains and low unemployment in many parts of the country,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La.

Fed Chair Powell is testifying on the state of the U.S. economy this morning in front of the Senate Banking Committee. Mr. Powell says that that gradual increases to the Fed Funds Rate is necessary while second quarter 2018 economic growth is considerably stronger than the first quarter. Mr. Powell sees solid economic growth abroad and U.S. unemployment declining further. Wage growth has been trending higher, but is not causing high inflation.

Consumer Sentiment edges lower. Mixed bank earnings reported. Fed Chair Powell on Capitol Hill next week.

Consumer Sentiment edged lower in early July but remains near lofty levels. The continued strength in the index is due in part to favorable job and income prospects. The preliminary July Consumer Sentiment Index came in at 97.1 versus the 97.8 expected and down from 98.2 in June. Looking ahead, there are rising concerns about the potential negative impact of tariffs on the domestic economy. In comparison, in July 2017 the index was at 93.4.

Three of the largest banks in the nation reported earnings this morning showing mixed results. JPMorgan Chase reported a record quarterly profit of $8.3 billion, an increase of 18% from the same period last though below first quarter profits of $8.7 billion. Citigroup reported revenues that were below forecasts while earnings per share beat expectations. Wells Fargo reported that revenues and earnings missed expectations.

Next week Fed Chair Powell will be on Capitol Hill as he will give his semi-annual testimony on the state of the U.S. economy to Congress on Tuesday and Wednesday. It was formerly known as the Humphrey-Hawkins testimony – a reference to the 1978 law that requires Fed Chairs to deliver testimony twice a year. Mr.Powell’s testimony comes two weeks before the next Federal Open Market Committee meeting on July 31-August 1.

Small business optimism remains high. Job openings near all-time highs. Mortgage delinquency rates decline.

The NFIB Small Business Optimism Index remains historically high as sales and profits maintained strength in June. The Small Business Optimism Index hit 107.2 in June, down 0.6 from May, its sixth highest reading in survey history. “The first six months of the year have been very good to small business thanks to tax cuts, regulatory reform, and policies that help them grow,” said NFIB President and CEO Juanita Duggan. Since December 2016, the Index has averaged lofty levels of 105.4, well above the 45-year average of 98 and just below the all-time high of 108.0 from July 1983. The biggest problem employers are now facing is finding qualified workers to fill positions.
Job openings remained at near all-time highs in May as the labor markets continues to gain strength. The Bureau of Labor Statistics reports that there was 6.6 million job openings on the last business day of May, just below the series high of 6.8 million in April, according to its JOLTS (Job Openings and Labor Turnover Survey) report. The report is closely monitored by the members of the U.S. Federal Reserve.
Mortgage delinquency rates have been edging lower as the economy and job markets strengthen. CoreLogic reports that the 30 days or more delinquency rate for April 2018 was 4.2%. In April 2017, 4.8% of mortgages were delinquent by at least 30 days or more including those in foreclosure. This represents a 0.6% decline in the overall delinquency rate compared with April 2017. CoreLogic says that delinquency rates are nearing historic lows, reflecting a long period of strict underwriting practices and improved economic conditions.