Mortgage Economic Review: October 2019
Key Economic Data and Events in September 2019
►Attack on Saudi Oil Production Facilities spiked oil prices and geopolitical tensions.
►The US House of Representatives began an Impeachment Inquiry on President Trump.
►Inflation remained low with the CPI at 1.7% YoY.
►The Economy added 130,000 New Jobs during August.
►US GDP expanded at a 2.0% annualized rate in the 2nd quarter of 2019.
►Trade negotiations with China continued.
Interest Rates and Fed Watch
The latest FOMC meeting concluded on September 18th, and as widely expected, the Federal Reserve cut the Fed Funds Interest Rate by 0.25% to a target range of 1.75% - 2.00%. However, the decision to cut rates was not unanimous among all the FOMC Committee members. One member wanted a 0.50% cut while 2 others wanted to keep rates unchanged. The FOMC Statement that was released after the meeting had an overall positive tone stating there is no sign of a Recession, the Economy is in good shape with a strong Labor Market, healthy Consumer spending, and increased Economic activity. The statement also mentioned that lower exports were more about a strong dollar than the Trade War with China. The next FOMC Meeting is October 29th and 30th. At this point, the odds of another 0.25% Interest Rate cut are running at 51%.
222 Fed Target
►Wage Growth: 3.2% for the last 12 months
►GDP Growth: 2.3% annualized rate for the last 12 months
Housing Market Data Released in September 2019
Housing Data was all green this month. Existing, Pending, and New Homes Sales data were all in positive territory. The Consumer seems to be in a spending mood this year for everything - including homes. Much of the positive numbers can be attributed to lower Interest and Mortgage Rates. Mortgage Rates are so low that they were approaching the historic lows of 2012 around 3.5% on a 30 Year Fixed. Home prices are still going up, but not as fast as in the past. Home prices in Charlotte, Las Vegas, and Phoenix increased at some of the fastest rates.
Labor Market Economic Data Released in September 2019
The Bureau of Labor Statistics reported the Economy added 130,000 new jobs during August (160,000 expected). With this latest Labor Market Data, the Economy has created an average of 150,000 New Jobs per month for the last 6 months. This recent data may indicate a slowing of job creation in the Economy. Remember that this is only one data point and not a sign of an impending Recession. Looking at the trend, the Labor Market remains robust with record low Unemployment and strong Wage Growth for the foreseeable future.
►The Labor Force Participation Rate rose to 63.2% from 63.0% the prior month.
►The Average Hourly Wage rose 0.4%, up from 0.3% the prior month, now 3.2% YoY.
Inflation Economic Data Released in September 2019
Inflation ticked up only 0.1% during August thanks to lower energy costs. The September CPI data was in line with expectations, and Inflation appears to remain in check. However, there was a bit of a surprise in the Core CPI and Core PPI data, which strips out the volatile food and energy prices. Over the past year, Core Inflation is running at 2.4% - higher than the Fed's target of 2.0%. Let's take a look at the trend in prices over the past 12 months in the major categories: shelter costs were up 3.4%, medical care costs up 4.3%, used vehicle prices up 2.1%, food prices up 1.7%, gasoline prices down 7.1%. The perpetual rising cost of shelter and medical care was offset by decreased energy costs over the past 12 months.
►PPI rose 0.1%, now up 1.8% 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 September 2019
The 3rd Estimate of 2nd Quarter 2019 GDP showed the Economy expanded at a 2.0% annualized rate (2.0% expected). This latest GDP data pegs US Economic growth at 2.3% in the last 12 months. The Economy keeps chugging along despite all the negative news in the media. Although this is a lower growth rate than the 3.1% from the first quarter, it's still a substantial number thanks to a strong Labor Market and confident Consumer. As can be expected, lower data for trade and business investment was a drag on growth, but government spending provided a larger than expected boost to the Economy.
Consumer Economic Data Released in September 2019
US Consumers continued to keep their wallets open as Retail Sales had another good month. However, there was mixed data on how the Consumer was feeling. Consumer Sentiment jumped up while Consumer Confidence fell. What was on Consumers' shopping list? Vehicle Sales were up 1.8%, Building Materials up 1.4%, Online Retailers up 1.6%, Health Stores up 0.7%, Sporting Goods up 0.9%, Electronics were flat, Furniture down 0.5%, Bars and Restaurants down 0.2%, Clothing down 0.9%, Gas Stations down 0.9% (due to lower gas prices).
►Consumer Sentiment Index (U of M ) rose to 93.2 from 89.8 the prior month.
Energy, International, and Things You May Have Missed
►European Yields go more negative. German 10-Year Bond yields are hovering around -0.60% and French 10-year Bond yields around -0.30%.
►Protests in Hong Kong continued. These protests started in March and gained strength in numbers and violence.