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Hurricane Michael, PPI & Weak Mortgage Apps Grab Headlines

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Wednesday, October 10, 2018

America’s hurricane season is no joke: a new Category 4 storm, Hurricane Michael, is pointed toward the Florida panhandle and expected to make landfall this afternoon. No fewer than 35 counties in the area have declared a state of emergency. Should this storm strike with its current 145-mph winds, it will be the strongest hurricane to hit the region in recorded history.

With flash floods possible and much wind damage expected, most everyone in the area has evacuated; Floridians trust when they are warned about a strong storm, as citizens of the state deal with more tropical weather disturbances than any other state in the country. And although the panhandle region is not as affluent as that on the Carolina coast when it was hit last month by Hurricane Florence, there will be plenty of damage to the regional economy in the near-term.

A new Producer Price Index (PPI) has come out this morning, with results coming in right in-line with expectations: +0.2% on the headline, +0.2% stripping out food and energy costs. Importantly, as this is the first month we see initial results from $50 billion in Chinese tariffs hitting the bottom line, ex-food & energy AND trade is now +0.4%, compared to +0.1% last month.

Final demand hits +2.6% year over year, actually two-tenths lighter than the last read. Ex-food & energy reached 2.5% and x-f&e and trade is at 2.9% this morning — again, in-line with estimates. This PPI figure is a bounce-back of sorts from August’s slightly disappointing -0.1%. Also, the impact of the previous hurricane is to be considered as well: usually producer prices surge ahead of a hurricane making landfall, only to dissipate in the storm’s wake. We expect the companion Consumer Price Index (CPI) ahead of the opening bell tomorrow.

We also see this morning a new read on Weekly Mortgage Applications, and for the first time in 7 years, mortgages have broken upward to a 5-handle, at 5.05% seasonally adjusted, annualized mortgage apps. This is almost exactly a full percentage point higher that this figure a year ago. Applications themselves are down 1.7% from the previous week, as higher rates appear to be keeping mortgage customers away.

Refinancing activity is also way down as a result of these higher numbers. The Refi number is down to 39%, compared to 62% just 2 years ago. This reflects the end of an era, of sorts: with nearly two-thirds of mortgage holders refinancing for either more home equity or lower interest rates, the “house as ATM” philosophy today looks all but completely dried up.

We also see an emergence of adjustable rate mortgages, but these are riskier propositions — if a homeowner holds a mortgage such as this past the low rate date, s/he could be in for a rude awakening down the road. Currently, Wells Fargo (WFC - Free Report) holds the highest number of mortgages in the U.S., and the bank reports Q3 earnings on Friday morning.

Mark Vickery
Senior Editor

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