Economic Roundup: Week of May 7th

Weaker than expected global economic data and continued uncertainty in Europe helped mortgage rates stay low and near record low levels over the past week.

The economic data released last week in the US, Europe, and China generally reflected a slowing pace of economic growth.  Spain became the eighth euro zone country to officially enter into recession, meaning that roughly half the members have seen at least two consecutive quarters with contracting economies.  Even Germany’s economy is showing signs of weakening.  Economic strength in the US early in the year has been waning recently as well.  As usual, what’s bad news for the economy was good news for mortgage rates, as slower economic growth reduces inflationary pressures.

In addition, Friday’s important Employment report fell short of expectations.  Against a consensus forecast of 170K, the economy added just 115K jobs in April, but the figures for prior months were revised higher by 53K.  The Unemployment Rate unexpectedly dropped from 8.2% to 8.1%, the lowest level since January 2009, but the decline was mostly due to people leaving the labor force.  Following a strong start to the year, the trend has been slowing, with net job growth over the last two months significantly lower than during January and February.

 Looking ahead, this week  both the Trade Balance and Import Prices reports will be released on Thursday. Then, Producer Price Index (PPI) and Consumer Sentiment will be released on Friday.  The PPI report is the biggest of the week and focuses on the increase in prices of “intermediate” goods used by companies to produce finished products.  There will also be Treasury auctions on Tuesday, Wednesday, and Thursday.

Week of April 2nd: Economic Roundup

Mortgage rates are on a bit of a recent roller-coaster ride and mostly due to shifting expectations of future Fed policy.  The volatility began on March 13 following a Fed announcement as investors lowered their expectations for additional quantitative easing (QE3).  Last week, however, comments from Fed Chief Bernanke caused investors to raise their expectations for future QE3 and mortgage rates dropped.  Yesterday, the Minutes from the recent Fed meeting were revealed and investors did not like them and have again lowered their expectations for QE3.  The Minutes suggest that most Fed officials would support QE3 only if the economy performs much more poorly than expected.  Who knows where we go from here but one thing seems probable, further volatility.

The biggest economic report due out this week is Friday’s Employment Report.  As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month.

Week of March 19th: Economic Roundup

Mortgage rates have been remarkably stable for four months but have experienced an unexpected bump-up over the last couple of weeks.  The main reason for the up-tick is investor reaction to optimistic comments from the latest March 13th Federal Reserve meeting.  These comments caused investors to reduce expectations that the Fed will continue to purchase mortgage-backed securities (MBS).  Recent sentiment had been that they would and this had greatly contributed to recent mortgage rate lows.  The Fed statement also acknowledged that rising energy prices will lead to higher short-term inflation.  In fact, last week’s PPI and CPI inflation figures indicate that this is already happening.

Week of March 12th: Economic Roundup

While it was stronger than expected, the important monthly Employment report had only a minor impact on mortgage rates.  Against a consensus forecast of 200K, the economy added 227K jobs in February, and revisions to prior months added an additional 61K jobs.  The Unemployment Rate remained at 8.3%, as expected.  Average Hourly Earnings, a proxy for wage growth, increased at a 1.9% annual rate.  With gains above 200K for the first three months of the year, the recent pickup in job growth and the decline in Jobless Claims reflect solid improvement in the labor market.  Overall, the economic data came in pretty close to expectations last week, and Greece successfully reached a debt deal with private bondholders.  With a lack of surprises in the economic news, mortgage rates ended the week with little change.

The big news this week is today’s Fed meeting. Investors will be trying to determine the likelihood of additional Fed easing. The most significant economic data this week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales, Industrial Production, Consumer Sentiment, Import Prices, Philly Fed and Empire State round out a very busy week.

Week of March 5th – Economic Roundup

Testifying before Congress on Wednesday, Federal Reserve Chief Ben Bernanke made several comments that caused mortgage rates to swiftly push higher.  The main effect of his comments was to lower investor expectations that a third round of Treasury bond and MBS purchases by the Fed is unlikely.  Investors recently have been increasingly optimistic that the Fed would purchase additional MBS and this had helped push mortgage rates to all-time lows.  As the economic data has improved in recent months, however, the need for additional Fed easing has seemed to decrease.  Last week’s Fed testimony was seen by many investors as one of the first signs that Fed officials share this view.

Recently released housing data continues to be encouraging.  January Existing Home Sales rose 4% from December and are now at the highest level since May 2010.  January Pending Home Sales rose 2% from December and are now at the highest level since April 2010.  Recall, that the home buyer tax credits expired in the Spring of 2010, so recent volume figures are the best since this time.  Also, since Pending Home Sales are a forward-looking measure, this data suggests that home sales should improve in coming months.

One other item worth mentioning is the price of oil.  Concerns about Iran have pushed oil prices up to the highest level in nine months.  Higher energy prices are bad for consumers and the economy.  Since higher oil prices have two opposite effects on inflation though, the impact on mortgage rates is uncertain.  Rising energy costs add to inflation (bad), but they also slow economic growth, which reduces inflationary pressures (good).  It’s not clear which influence will be larger over time.

 The biggest economic report this week will be the ever important Employment data to be released on Friday.  As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month.  ISM Services & Factory Orders are also being released today, as well as Productivity on Wednesday, and Trade Balance on Friday.

Week of Feb 21 – Econmic Roundup

Mostly good news to report as the DOW Jones stock index has recently climbed to its highest point in years and January Housing Starts are up to the highest level since October 2008.  Here are three other key recent economic developments of which you should be aware:

Good News from Greece

After several weeks of uncertainty, European officials have agreed to provide a $172 billion bailout package to Greece, and Greek officials also reached a debt deal with private investors.  As a result, Greecewill be able to avoid defaulting on debt maturing on March 20.  Anticipating that European leaders would not allow Greeceto default, investors showed little reaction to the news.  Questions remain about whether Greek leaders will fully implement the unpopular austerity measures called for by the terms of the deal.  This announcement is probably not the end of this story…..

Inflation Concern

Recent inflation data indicates that core inflation (which exclude food and energy) is on the rise.  Core CPI inflation was 2.3% higher than one year ago, which was the highest annual rate since September 2008.  Fortunately, Fed officials forecast that core inflation levels will moderate later in the year.  However, if it unexpectedly continues to rise, the impact could be detrimental to mortgage rates as higher inflation is always negative for mortgage rates.  In addition, it would be more difficult for the Fed to maintain its current loose monetary policy.  Needless to say, investors will be closely watching core inflation levels in the coming months to see if the Fed’s forecast proves correct.

Good News on the Job Front

Weekly Jobless Claims have unexpectedly dropped to 358K and are now at the lowest level in nearly four years.  Considering this measure has been consistently over 400K for a number of years, it is good news to see this figure maintaining sub-400K levels for the last few months.  This is significant because in the past when this figure improves so does the labor market.  In January, the Unemployment Rate dropped to the lowest level since February 2009, and the recent Jobless Claims reports provide additional evidence that the labor market is moving in the right direction.

Looking ahead, this will be a light week for US economic data.  Existing Home Sales will be released on Wednesday and then New Home Sales and Consumer Sentiment will be released on Friday.  In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday of this week.

Unemployment Drops to Lowest Level in Three Years

Friday’s Employment data exceeded expectations in nearly every area.  Against a consensus forecast of 135K new jobs, the economy added 243K jobs in January, the most since April 2011!  In addition, revisions to prior months added another 60K jobs.  The Unemployment Rate also dropped from 8.5% to 8.3% (see graph below), which is the LOWEST LEVEL SINCE FEBRUARY OF 2009!  Strong labor market data is great news for the economy, but it increases future inflationary pressures, which is unfavorable for mortgage rates.  As a result, mortgage rates moved a little higher on this news, but the key word is a “little.”  In past years, rates would have really jumped on such news, but rates continue to be resilient and maintain super low levels.

 The economic calendar is very light this week.  There will be Treasury auctions on Tuesday, Wednesday, and Thursday that could influence rates.  The Trade Balance and Consumer Sentiment reports will be released on Friday as well.

Economic Week In Review

In last Wednesday’s Federal Reserve meeting, Fed officials stated that they now expect economic conditions will allow the fed funds rate to remain at exceptionally low levels until at least “late 2014″.  Wow!  The Fed has never been quite this clear for so long into the future.  Prior statements extended the expected time frame only to mid-2013.  In addition, comments from Fed Chief Bernanke suggested that Fed officials would like to see stronger economic growth, and they are open to the possibility of additional Fed easing.  Many investors think it is likely that the Fed will also announce the additional purchase of Mortgage-Backed Securities (MBS) at a later meeting as well.  The expectation for a low fed funds rate and the possibility of additional Fed purchases of MBS increased the demand for MBS last week, which resulted in higher MBS prices and lower mortgage rates.

Although this is great news for anyone with a Home Equity Line of Credit because the Prime Rate will stay so low for years to come, it is not good news for those with short-term savings accounts nor does it insure that long-term mortgage rates will stay low.  Other factors such as inflation, unemployment, and consumer confidence will dictate what happens with mortgage rates.  Nevertheless, the stage seems to have been set for mortgage rates to stay low for the foreseeable future, and that’s good news for the real estate community!

Also worth noting, Friday’s Gross Domestic Product (GDP) report showed an increase at a 2.8% annual rate during the fourth quarter of 2011, which was a little below the consensus forecast, but up from 1.8% during the third quarter.  Early estimates for the first quarter of this year are for a slower growth rate.  The long-run average growth rate for the economy is generally considered to be around 3.0%, and the economy usually grows at a faster than average rate following a recession.  Given that the economy is growing below its potential and that inflation remains tame, the Fed’s expectation that monetary policy will remain very stimulative for a long time is understandable.

There was some good economic news to report from last week as December Durable Goods Orders rose a strong 3% from November and Consumer Sentiment rose to the highest level in a year.  Significant progress also seems to have been made in reaching a new debt deal inGreece.  Unfortunately, though, the housing news wasn’t great as December Pending Home Sales declined 4% from November’s 19-month high and December New Home Sales declined 2.2% (as shown in the graph below).  2011 ended up being the worst year on record for New Home Sales. 

Looking forward, the biggest economic report this week will be the ever-so-important Employment data on Friday.  As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month.  Chicago PMI Manufacturing and Consumer Confidence are also fairly big reports that will be released today as well as ISM Manufacturing, Construction Spending, and ADP Employment on Wednesday.  Productivity, Factory Orders, and ISM Services round out a busy week.

Economic Update: Improving Economy Bad for Mortgage Rates

An improving US economic outlook was negative for mortgage rates over the last week.  Reduced concerns about Europealso caused a partial reversal in the “flight to safety” trade.  As a result, mortgage rates ended the week higher.

 Early in the month, the December Employment report showed a larger than expected increase of 200K jobs, and the Unemployment Rate continued to move lower.  Last week, Weekly Jobless Claims fell to the lowest level since April 2008.  The labor market is one of the most important factors in the health of the economy, and many investors now view the outlook as brighter than it has been since the financial crisis began.  If this is the case, it will be great news for the economy, and job gains will increase the willingness and the ability of people to purchase homes.

 The Housing sector data released last week was encouraging as well.  January Existing Home Sales increased 5%, while the inventory of unsold homes declined 9%, to the lowest level since March 2005.  December Housing Starts for single-family units increased 4%, and Building Permits for single-family units rose 2%.  Finally, the January NAHB Home Builder confidence index rose for a fourth consecutive month to the highest level since 2007.  Improving economic conditions, high affordability levels, and low mortgage rates are three solid reasons to be optimistic about the housing market.

 The most highly anticipated economic news this week will be Wednesday’s Fed announcement.  Investors will be looking for hints about whether the Fed will provide additional monetary stimulus.  The most significant economic report will be Friday’s GDP data for the fourth quarter.  GDP is the broadest measure of economic activity.  Before that, Pending Home Sales will be released on Wednesday and Durable Orders and New Home Sales on Thursday.  Leading Indicators and Consumer Sentiment round out the schedule.  In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

Economic Update

The news from Europe has been mostly negative over the last week.  Economic growth in Germany has been slower than expected.  Negotiations on restructuring Greek debt also have not progressed as planned.  S&P is downgrading the debt of several European countries, including France.  Lastly, the European Central Bank (ECB) has given no indication that it will provide relief to the troubled countries.  As a result of all of this turmoil, investors shifted funds to relatively safer investments, including US mortgage-backed securities (MBS), which has helped mortgage rates move lower.  However, we already know that Congress is imposing new fees on Fannie Mae and Freddie Mac later this spring that are going to cause mortgage rates to bump up as much as .25% over the weeks ahead.  Anyone in the market to lock a mortgage rate should do it as soon as possible.

The most significant economic data due out this week are the monthly inflation reports.  The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Wednesday.  The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday.  CPI looks at the price change for those finished goods which are sold to consumers.  In addition, Industrial Production, an important indicator of economic growth, will come out on Wednesday.  Housing Starts will be released on Thursday, and Existing Home Sales will come out on Friday.  Philly Fed and Empire State round out a very busy week.