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NMP's Economic Commentary: The Perfect Storm

Dave Hershman
Jun 16, 2014

If it was the weather, we would have called it “The Perfect Storm.” Last month, we had one week which experienced a confluence of economic news which rarely is seen in a five-day period. At the end of April, we started the week with the release of the index of pending home sales. This measure has taken on new significance this spring since both existing and new home sales have languished because of the weather. The Index of Pending Home Sales gives us a peek at the future. Next came the monthly consumer confidence index which was released as the Federal Reserve Board started their meeting of the Federal Open Market Committee (FOMC).

On Wednesday, things really heated up with the release of the ADP Private Payroll Report, the Fed made their announcement at the conclusion of their meeting and the preliminary estimate of the first quarter’s economic growth was also announced.

Thursday brought the weekly first time claims for unemployment, personal income and spending for March and the PMI manufacturing index. We ended the week with a bang with the release of factory orders and the monthly jobs report.

So the next question is … how did the data come out? The answer to that is not so simple. We started with an increase in pending home sales, but sales were still slower than they were last year. The economic growth of 0.1 percent for the first quarter was disappointing, but many seem to think that the number will be revised later and definitely was affected by the weather which is a temporary factor. On Wednesday, the Fed’s optimistic statement about the economy seemed to bear out this hypothesis regarding the slow first quarter.

The start of the month of May began on Thursday with reports on personal spending and manufacturing which came out on the positive side while first time claims for unemployment rose unexpectedly. Rising claims can indicate a weakening of the labor market; however, the weekly number is often volatile—witnessed by the fact that the number eased back down the following week.

On balance, we were left with a mixed bag coming into the release of the employment report which put us solidly in the plus column. Not only were there almost 300,000 jobs created in March, but the previous months were revised upwards by almost 100,000 jobs and the unemployment rate moved down to 6.3 percent, the lowest since September 2008. Keep in mind that the precipitous drop in the unemployment rate was at least partially due to workers leaving the labor force which means that there is still a long way to go until we solve the long-term unemployment issue and explains why the markets did not respond “euphorically” to the news.  In other words, even the “great economic news” of the week had negative factors sprinkled into the mix.

But certainly, the news kicking off May was positive on balance and shows we are headed in the right direction after a pause for a long and cold winter. What really has helped the markets is that Janet Yellen’s testimony before Congress in early May also indicated a rebound from the winter slowdown, but that Yellen was concerned with a slowdown in the housing market as well as several issues in the labor sector, including the high levels of long-term unemployment.

Thus, though the news has been positive, the Fed’s cautionary tone has assured the markets that they are not ready to raise rates anytime soon. This is the best of both worlds for the markets—an improving economy and continued lower rates. And exactly why mortgage rates hit their yearly lows during the first third of May. Of course, increasing tensions in Ukraine also was a factor in this equation.



Dave Hershman is a top author in the mortgage industry with seven books published. He is also the founder of the OriginationPro Marketing System, and currently the director of branch support for McLean Mortgage. He may be reached by e-mail at dave@hershmangroup.com or visit www.originationpro.com.



This article originally appeared in the May 2014 edition of National Mortgage Professional Magazine.

Published
Jun 16, 2014