Mortgage Economic Review: June 2019
Key Economic Data and Events in May 2019
►Volatility dominated the Stock Market as rattled investors worried over an escalating Trade War.
►FHFA Director Mark Calabria reiterated his desire to end Conservatorship of Fannie and Freddie.
►Uber launched its IPO at $45 with the stock trading as low as $36 - now about $40/share.
►The second estimate of 1Q2019 GDP clocked in at a 3.1% annualized growth rate - 3.2% YoY.
►Inflation remains moderate with the latest CPI at 2.0% YoY.
Interest Rates and Fed Watch
The last FOMC Meeting concluded on May 1st with the FOMC Minutes released on May 22nd. Reading the Minutes, you get the impression that most Fed Governors are in favor of keeping Interest Rates steady. The Fed has remained non-committal as to their next move, but they have reiterated they will be "patient" and "data dependent". Fed Speak translation: they are in no hurry to raise or lower Interest Rates anytime soon as they sit back and watch the Economic Data roll in. That means they are watching Inflation and the all-important yield curve - which is close to inverting. They are also monitoring trade tensions, Stock Market volatility, oil prices, and European Economic stability. The next FOMC Meeting starts June 18th and Fed Watchers don't expect any changes in Interest Rates - but odds of an Interest Rate cut before year end have increased and are now at 85%.
222 Fed Target
►Wage Growth: 3.2 % for the last 12 months
►GDP Growth: 3.2% annualized rate for the last 12 months
Housing Market Data Released in May 2019
Another month of mixed Economic Data from the Housing Market. With Interest Rates lower and a strong Labor Market, the Housing Market should be having a great spring buying season - but it's just ok. Most Loan Officers I've talked to say they are busy with both Refi and Purchase transactions. Plus, they are seeing an increase in 1st Time Buyers. The dip in Interest Rates and softening of home prices has helped affordability, so the typical spring buying season may very well extend into the summer and fall. If rates keep dropping, we could see a busy Purchase and Refi market all year.
Labor Market Economic Data Released in May 2019
The Labor Market continues its robust pace. The Bureau of Labor Statistics reported the Economy added 263,000 new jobs during April (190,000 expected). For the last 3 months, the Economy added an average of 170,000 new jobs each month. Unemployment dropped to 3.6% - the lowest rate in 50 years and there are now an estimated 750,000 to 1,000,000 job openings that are unfilled. Where were the new jobs created? 4,000 were in manufacturing, 33,000 in construction, 76,000 in business services, 76,000 in education / health, 34,000 in hospitality, 11,000 in transportation, 27,000 in government. Retail lost 12,000 jobs - skip down to the Consumer section and read about store closings.
Inflation Economic Data Released in May 2019
Another month of Inflation data coming in lower than expected. Inflation rose slightly in April due to higher prices for gasoline, shelter and health care. Shelter costs, which comprise a third of the CPI, rose 0.4% (3.4%YoY), energy costs up 5.4% (2.9% YoY) and health care up 0.3% (2.3% YoY). Clothing prices have been rapidly declining for the last few months. They dipped 0.8% this month after falling 1.9% the prior month. New Car prices rose 0.1% while Used Car prices declined 1.3% - the third straight month of price decline for Used Cars. Inflation has been modest considering this is the tightest Labor Market in 50 years. The Fed considers this recent lull in Inflation as "transitory", and expects it to increase in the future. Sooner or later, higher wages will translate into higher Inflation, but it doesn't look like that will happen any time soon.
GDP Economic Data Released in May 2019
The second estimate of 1st Quarter 2019 GDP showed the Economy expanded at a 3.1% annual rate (3.0% expected). That was a slight revision down from the first estimate of 3.2% last month. The Economy continues to chug along especially when you consider the 1st Quarter typically has slower growth due to cold weather in much of the country. 1st Quarter GDP data reflects growth in Consumer spending, state and local government spending, exports, inventories, and commercial building, while Federal government spending, business equipment, and residential building decreased.
Consumer Economic Data Released in May 2019
Retail Sales data remains weak in 2019 as Consumers continue to pinch their pennies. Consumers cut back on buying cars, electronics, and apparel. Gasoline Sales was up, but that was due to higher gas prices. This is not good news for retailers who are already hurting from online competition. So far this year over 7,000 store closures have been announced, and that's after 5,500 store closures in 2018. Speaking of online sales - they were down too. With such a strong Labor Market and Unemployment at a 50 year low - you would expect Consumers to be spending more on goods and homes.
Energy, International, and things you may have missed