Consumer prices decline. U.S. Stocks decline on U.S.-Russia tensions. Mortgage rates edge lower.

The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) fell 0.1% in March, below the expected gain of 0.1%. Lower gas prices at the pumps are to blame for the first decline in 10 months. When stripping out volatile food and energy, the Core CPI was in line at 0.2%. On a year-over-year basis, CPI rose 2.4% while Core CPI rose 2.1%, both 12-month highs. The Consumer Price Index measures the average price level paid by urban consumers (80% of the population) for a fixed basket of goods and services.

Heightened tensions over Syria between Russia and the U.S. are giving Bond prices a modest boost so far this morning. President Trump tweeted that Russia should get ready for a missile strike on Syria after the chemical attack over the weekend. Several Russian officials have threatened to retaliate if the U.S. strikes. U.S. Stocks are lower on the headlines.

Mortgage rates declined slightly in the latest week after climbing since the beginning of 2018. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage with conforming loan balances ($453,100 or less) declined to 4.66% in the latest week from 4.69%. That rate carries at least an average 0.40 point added on top. Within the report it showed that both the refinance and purchase index fell 2%.

Consumer inflation tame in February. Small business optimism at record highs. Rex Tillerson out as Secretary of State.

The February Consumer Price Index (CPI) came in at 0.2% last month, in line with estimates and down from the 0.5% previously recorded in January. Lower energy prices were the catalysts for the lower readings. When stripping out volatile food and energy, the more closely watched Core CPI was also in line at 0.2%, leaving the year-over-year Core unchanged at 1.8%. If inflation numbers remain tame, the Fed will be hard pressed to raise the short-term Fed Funds Rate four times in 2018. This doesn’t change next week, as it appears a Fed Funds Rate hike is a lock at the FOMC meeting.

Small business optimism continued to run near record highs in February due in part to lower taxes and decreased regulations. The National Federation of Independent Business Small Business Optimism Index rose to 107.6 last month as owners showed unprecedented confidence in the economy. “When small business owners have confidence and certainty in the economy, they’re able to hire more workers and invest in their business,” said NFIB President and CEO Juanita Duggan.

The shakeups at the White House continued today as Secretary of State Rex Tillerson is out with current CIA Director Mike Pompeo taking his place. Last week President Trump’s Chief Economic Adviser, Gary Cohn resigned with the leading candidate being economist Larry Kudlow from CNBC. It’s been said that Mr. Tillerson due to the failure to wield any significant influence in internal administration over issues surrounding North Korea and Russia.

Small business optimism grows. Tomorrow’s CPI report to be closely watched. The Fed is upbeat on the economy, despite the recent plunge in the U.S. Stock market.

The National Federation of Independent Businesses (NFIB) reports that the underlying strength in the economy can be seen in the critical small business sector. The Small Business Optimism Index rose two points to 106.9 in January and set a record with the number of small business owners saying now is a good time to expand. “Main Street is roaring,” said NFIB President and CEO Juanita Duggan. “Small business owners are not only reporting better profits, but they’re also ready to grow and expand. The record level of enthusiasm for expansion follows a year of record-breaking optimism among small businesses.”

There are no economic reports due for release today. Tomorrow’s Consumer Price Index will be closely watched by the Fed for any signs of inflation due to the recent focus on rising prices and wages. The incoming economic reports are now very important to follow … especially inflation. In the latest Jobs Report, wages grew at the fastest pace since 2009, which could pressure inflation higher.

The recent plunge in the U.S. Stock markets doesn’t have members at the Federal Reserve scurrying to alleviate the situation. Cleveland Fed President Loretta Mester believes that the economy is safe and sound, and that it will work through recent fluctuations, which are far away from having an influence on the economic outlook. Ms. Mester went on to say that inflation should rise this year but not to a point that requires a quicker Fed reaction as it gradually begins to rise to the Fed’s target range.

Global Bond yields on the rise. Inflation remains low. Mortgage rates edge higher.

Global Bond yields continue to rise due to several factors as the U.S. 10-year yield at the highs seen in January 2014. The Bank of England said it sees interest rates rising sooner and higher as the U.K. is boosted by global growth. Dallas Fed President Kaplan said the central bank will likely continue removing policy accommodation gradually and could hike rates three times this year. In addition, with Friday’s uptick in wage growth, inflation talk is now picking up steam

At present, the annualized Core PCE, the Fed’s favorite inflation gauge, is still at a low 1.5%, below the central bank’s target range of 2%. Chicago Fed President Evans feels rate hikes should be put on hold until midyear with just a hint of inflation in the economy. Low inflation and waiting to see the tax reform impact could put a few rate hikes on hold.

Mortgage rates edged higher in the latest week though they still remain just above all-time lows. Freddie Mac reports that the 30-year fixed-rate mortgage jumped 10 basis points to 4.32% with an average 0.5 in points and fees, up 33 basis points since the start of the year. Mortgage rates are now at the highs seen in April 2014. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

Home prices rise. Foreclosure activity at 17-year lows. Stocks plunge.

CoreLogic reports that home prices nationwide, including distressed sales, rose 6.6% year over year in the month ended in December. On a month-over-month basis, prices increased 0.5% from November to December. CoreLogic reports that rising incomes and consumer confidence have increased the number of prospective buyers. The increase in potential buyers coupled with limited inventories of homes for sale on the market continues to drive prices higher. Looking ahead, prices are expected to cool a bit with a 4.3% gain from December 2017 to December 2018.

Foreclosure starts and completions have fallen to a 17-year low in 2017 as the economy and the housing markets continue to grow. Black Knight Financial reports that there were 649,000 foreclosure starts in 2017, which were the fewest since 2000. First-time foreclosure starts were 15% below 2016 levels and about half the annual average seen from 2000-2005. In addition, 2017 saw the lowest single-year total for foreclosure completions since the turn of the century.

U.S. Stock markets plunged yesterday with the Dow Jones Industrial Average shedding 1,175 points, its largest one day point loss in its 122-year history. The Dow had been up 40% since the presidential election in November 2016 so a correction was overdue. The fundamentals are still in pace for the U.S. economy. Economic growth continues while the job market continues to expand and consumer confidence is at multi-year highs.

Job growth increases in January. Consumer Sentiment solid in January. Americans may drink 325.5 million gallons of beer during the Super Bowl.

The Bureau of Labor Statistics reported on Friday that U.S. employers added 200,000 new workers in January while November and December were revised lower by a total of 24,000. The big news within the report was a rise in annual wage growth, which surged 2.9% from January 2017 to January 2018, the biggest increase since June 2009. Wages have been stagnant but the unexpected rise is a key metric for the economy. The Unemployment Rate remained at 4.1%, the Labor Force Participation Rate was unchanged at 62.7%, while the U6 number (or total unemployed) edged higher to 8.2% from 8.1%. Overall, it was a solid report.

Consumer Sentiment beat expectations in January for the final monthly reading coming in at 95.7 versus the 95 expected and up from 94.4 in the early monthly reading. A booming Stock market and solid job growth were a few measures that kept the index above average historically. Conditions for purchasing homes fell to the lowest level in seven years due in part to low inventories. A spokesperson from the index said the tax cuts will increase discretionary spending.

With the Super Bowl airing on Sunday, here are a few facts: According to the Department of Agriculture, Super Bowl Sunday is America’s second largest food consumption day behind Thanksgiving. On the Monday after the game, it is expected that 1.5 million workers will call in sick. Americans may drink 325.5 million gallons of beer during the game. It’s estimated that the NFL collects around $620 million of revenue from this event, which is the highest in history for a one-day sporting event. Enjoy the game!

Pending Home Sales decline. Stocks rebounding. ADP Private Payrolls beats expectations.

A low supply of homes for sale on the market continued to plague home buyers in December. The National Association of REALTORS® reports that Pending Home Sales in December rose 0.5% from November, which was just below the 0.6% expected. Year-over-year Pending Home Sales are up 0.5%. Sales slowed in all four major regions of the country. Lawrence Yun, NAR chief economist, says, “Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices — especially at the lower end of the market.”

After two straight days of losses, Stocks are higher being buoyed by strong earnings reports and after President Trump delivered a mostly controversy-free State of the Union last night. The president called for a $1.5 billion infrastructure spending bill. U.S. Stocks are on track for their best January in decades. The closely watched S&P 500 is up 5.7%, its best January gain since 1997 fueled by positive economic data, strong earnings and the recent tax cuts.

Private employers added more new workers than expected in January as the job markets continue to grow. ADP Private Payrolls in January rose by 234,000, well above the 190,000 expected while December was revised lower to 242,000 from 250,000. Within the report it revealed that small businesses added 58,000 workers; medium size businesses 91,000; and large companies 85,000. Mark Zandi, chief economist of Moody’s Analytics, said, “The job market juggernaut marches on. Given the strong January job gain, 2018 is on track to be the eighth consecutive year in which the economy creates over 2 million jobs. If it falls short, it is likely because businesses can’t find workers to fill all the open job positions.”

Consumer Sentiment slips. Refinance applications ramped up in December. Tax cuts should hit American’s wallets soon.

Consumer Sentiment edged lower in early January down from the decade high hit back in October. The index fell to 94.4 after the 95.9 recorded in December. However, consumers reported persistent strength in personal finances and buying plans. The report also revealed that 34% of consumers talked of tax reform with 70% of those saying the new tax reform bill would be positive while 18% said negative.

Leading cloud-based platform provider for the mortgage industry, Ellie Mae, reported this week that refinance applications made up 40% of all closed loans in December. The surge in refinancing was due in part to purchases being down in the winter months and would-be borrowers wanting to close before the new tax laws took effect. “As we closed out 2017 we saw an increase in the percentage of refinances due to seasonality as fewer purchases take place in the fourth quarter, and likely homebuyers were taking advantage of the mortgage deductibility limit before it decreased to $750,000 on December 15th,” said Jonathan Corr, president and CEO of Ellie Mae.

The new Tax Cut and Jobs Act bill should see Americans money taxed at lower rates starting February 1. Corporations are steadily increasing wages, giving bonuses, upping 401K contributions and hiring anyone they can. This is all powerful for housing. With consumer confidence already the highest in this century, that number should grow as tax reform actually starts to hit the wallets of America.

Wholesale inflation declines. Mortgage rates edge higher. Walmart raises starting salaries, gives cash bonuses.

Wholesale inflation declined for the first time in nearly 1 1/2 years in December from November amidst decreasing costs for services. The Bureau of Labor Statistics reports that the Producer Price Index (PPI) declined 0.1% in December, well below the 0.4% recorded in November. On an annual basis, the PPI rose 2.6%, after the 3.1% rise seen in November. The more closely watched inflation reading Consumer Price Index will be released Friday morning.

Mortgage rates edged higher this week as Bond prices declined and yields increased. U.S. Stocks continue to push higher pressuring Bond prices lower. When Bond prices decline, mortgage and interest rates tend to rise. Freddie Mac reports that the 30-year fixed-rate mortgage rose 4 basis points to 3.99% with an average 0.5 in points and fees. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

Retailing giant Walmart announced on Thursday that it will be raising its starting wage rate for hourly employees to $11 an hour after the Tax Cut and Jobs Act was passed in December. In addition, workers that are employed 20-years will receive a one-time cash bonus of $1000, $750 for those employed 15 to 19 years of service, 10 to 14 years $400, five to nine years $300, two to four $250 and workers with less than two years will receive $200. The wage increases are expected to cost Walmart $300 million.

Housing Affordability Remains a Persistent Challenge

Fannie Mae released its Home Purchase Sentiment Index which fell 2 points in December to 85.8, reversing last month’s rise. The net share of respondents who said now is a good time to buy a home declined while the net share who reported that now is a good time to sell a home remained flat. “Entering 2018, housing affordability remains a persistent challenge, particularly in rental markets, where consumer expectations for price increases over the next 12 months reached a new survey high,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.

The holiday shopping season paid off well for retailer Kohl’s as comparable sales grew by nearly 7% during November and December. That is well above the 4.9% gain on overall sales estimated by MasterCard for the holiday shopping season. The uptick in sales was accomplished by handling returns for Amazon, shrinking hundreds of stores instead of closing them while bringing in new brands, such as Under Armour.

The New Year has ushered in the highest gas prices at the pumps since 2014 due in part to higher travel volumes over the holidays coupled with rising oil prices. The national average price for a regular gallon of gasoline is at $2.49, with motorists in the Northeast, South and upper Midwest seeing pump prices rise as much as $0.13 from more than a week or two ago. However, now that holiday traveling season is over, motorists can expect gas prices to trend cheaper this month as gasoline demand eases.