Mortgage Economic Review: August 2019
Key Economic Data and Events in July 2019
►Additional tariffs were threatened against $300B of Chinese goods starting September 1st.
►The Stock Market set a new record with the DOW hitting an all-time high of 27,359 on July 15th.
►The Economy Added 224,000 New Jobs during June and 164,000 during July.
►Inflation continued to decrease with the CPI at 1.6% YoY.
►US GDP Growth slowed to a 2.1% annualized rate for the 2nd quarter of 2019.
Interest Rates and Fed Watch
The Fed wrapped up its last FOMC Meeting on July 31st, and as expected, they lowered the Fed Funds Interest Rate by 0.25%. What wasn't expected was the statement Chairman Powell said after the meeting. He said this is only a temporary mid-course adjustment and not to expect a "lengthy cutting cycle." The decision to lower rates was not unanimous. Two Fed Governors voted to keep rates unchanged - they felt the Economy is strong and Inflation will soon be rising. Chairman Powell didn't elaborate on the Fed's next move but kept the door open for another rate cut this year. He said they were keeping an eye on global growth, trade tensions, and US Economic Data to determine when and what to do next. The next FOMC Meeting is September 17th and 18th. Fed Watchers expect another .25% rate cut before year-end.
222 Fed Target
►Wage Growth: 3.2 % for the last 12 months
►GDP Growth: 2.3% annualized rate for the last 12 months
S&P/Case-Shiller 20 City Composite Home Price Index rose 0.14% in May - up 2.4% YoY.
Labor Market Economic Data Released in July 2019
The Bureau of Labor Statistics reported the Economy added 224,000 new jobs during June (160,000 expected), and 164,000 during July (164,000 expected). The latest Employment data shows the Labor Market is slowing down but confirms it is still very robust. For the past 2 months, the Economy has created 357,000 new jobs (revisions included). During June and July, the sectors creating the most jobs were: Manufacturing added 28,000, Construction added 22,000, Transportation & Warehouse added 21,000, Government added 30,000, Business & Professional Services added 76,000, Healthcare & Education added 123,000, Leisure & Hospitality added 17,000.
►The Labor Force Participation Rate rose to 63.0% in July, from 62.9% in June, up from 62.8% in May.
►The Average Hourly Wage rose 0.3% in July, up from 0.2% in June, now 3.2% YoY.
Inflation Economic Data Released in July 2019
Inflation continues to be low and getting lower. Much of the decline in the June CPI and PPI can be attributed to lower energy costs as the CPI Energy Index fell 2.3%. Food and Energy have always been the volatile components of Inflation. In June, the cost of food "at home" declined while the cost of food "away from home" increased. Inflation is the primary indicator that the Fed watches, and they are committed to keeping it around their target of 2.0%. This low Inflation data will reinforce lowering Interest Rates in 2019.
►PPI rose 0.1%, now up 1.7% in the last 12 months.
►Core PPI (ex-food & energy) rose 0.3%, up 2.3% in the last 12 months.
GDP Economic Data Released in July 2019
The First Estimate of 2nd Quarter 2019 GDP showed the Economy expanded at a 2.1% annual rate (1.8% expected). Even though this data beat expectations, it's an ominous sign the US Economy is slowing down faster than we thought. The big drag on GDP was reduced business and residential investment. That was offset by an increase in Consumer Spending of 4.3% and Government spending by 5.0%. The Trade War is taking a toll - reducing GDP growth by an estimated 1.0%. The latest GDP data gives the Fed additional justification for this month's and future Interest Rate reductions.
Consumer Economic Data Released in July 2019
Consumer Economic Data was all green this month as Consumer Confidence, Consumer Sentiment, and Retail Sales all pointed up. Consumers returned to the stores in the 2nd quarter after guarding their wallets in the 1st quarter. The low Retail Sales data in the 1st quarter was probably affected by the government shutdown with Federal Employees going unpaid for a few months. However, the Retails Sales rebound in the 2nd quarter was partially due to pent up demand once Federal Employees started getting paychecks again. Plus, Consumers are generally encouraged to spend more when the stock market is doing well and interest rates are lower.
►Consumer Sentiment Index (U of M) rose to 98.4 from 98.2 the prior month.
Energy, International, and Things You May Have Missed
►The IMF (International Monetary Fund) lowered its forecast for 2019 Global Economic Growth (again) to 3.2% from 3.3% while also raising its forecast for US Economic Growth to 2.6% from 2.3%.
►Boris Johnson took over as the UK's new Prime Minister.
►Prospects of a "No Deal Brexit" have increased. UK Prime Minister Johnson said he would leave the EU on October 31st - with or without an agreement.
►Protests in Hong Kong continued into the second month.