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Afternoon Note

Deflation Risk Continues to Lurk

By Charles Payne, CEO & Principal Analyst
8/15/2019 2:02 PM

Most of the economic data from this morning is substantially better than consensus. There are a couple of issues, including lower prices, which adds to my concern that deflation is a major risk.

Manufacturing Deflation

The prices paid component of both the Philly Fed and Empire State Manufacturing reports declined in August from July.   In addition, a special question in the Philly Fed survey sees potentially rapidly declining prices for the next year.  In just three months, respondents see prices their firm will receive, and prices consumers will pay for goods for the next year decline 2.0% from 2.8% and 2.5%, respectively.


Philadelphia Federal Reserve

Firms Expect Own Prices to Match the Rate of Inflation In this month’s special questions, the firms were asked to forecast the changes in the prices of their own products and for U.S. consumers over the next four quarters.

Regarding their own prices, the firms’ median forecast was for an increase of 2.0 percent, lower than the 2.8 percent that was provided when the same question was last asked in May. 

The firms’ actual price change over the past year was 2.5 percent. The firms expect their employee compensation costs (wages plus benefits per employee) to rise 3.0 percent over the next four quarters, the same as the previous forecast.

When asked about the rate of inflation for U.S. consumers over the next year, the firms’ median forecast was 2.0 percent, a decrease from 2.5 percent in the previous quarter. The firms’ median forecast for the long-run (10-year).


Mortgage Applications

Total applications +21.7%

Mortgage applications +21.7% week to week and +81% from a year earlier.

United States MBA Mortgage Applications

New Home Mortgage Applications

Mortgage applications for new homes climbed 11% in the past week and +31.2% from a year ago.

Loan Types:

Here’s the rub and I think its good news.  Average loan size was $325,457 in July from $329,593 in June.  That’s a sharp decline, but it probably means more first-time buyers are emerging.  It’s also proof deflation moves consumers.

Homebuilder Confidence

Homebuilder confidence came in at 66 against consensus of 65, with two out of three components at the highest level of 2019.  Traffic moved to expansion for the first time since last October.

Message of Market

There is still a very defensive tone to buying thus far this session with tech slumping on Cisco’s (CSC) big disappointment.

S&P 500 Index



Communication Services (XLC)



Consumer Discretionary (XLY)



Consumer Staples (XLP)



Energy (XLE)



Financials (XLF)



Health Care (XLV)



Industrials (XLI)



Materials (XLB)



Real Estate (XLRE)



Technology (XLK)



Utilities (XLU)



Rush Limbaugh said today
Rush Limbaugh today said yesterday was a dry run of Trump Haters to crash Market that failed only get worse as election nears Liz interviewed a guy today that this is a algorithm-driven mkt. so computers are in charge either fox wont let u call them out or no balls or 800 point moves the new normal till election

garry brewer on 8/15/2019 7:59:59 PM

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