The Mortgage Corner
The US economy is booming, even with trade wars looming, and Putin attacking democratic institutions everywhere. The good news is interest rates and inflation are still extremely low, and consumers ebullient over their current status.
Why not, with the unemployment rate down to 4 percent, and 313,000 new nonfarm payroll jobs just created in February? Also the Labor Department’s JOLTS survey reported there were a far higher-than-expected 6.312 million job openings though it included downward revisions to prior months. All in all, openings are a huge 729,000 above hires which came in at 5.583 million.
This probably explains the high number of single-family housing starts—more jobs mean more demand for housing with housing inventories at multi-year lows. Single-family starts, which are key to restocking the new home market, rose 2.9 percent to a 902,000 rate which is up 2.9 percent from this time last year. And single-family completions rose 3.0 percent in the month to 895,000 and will offer immediate supply to the market.
The booming labor market also explains why the U of Michigan’s consumer sentiment survey jumped 2 points to 102, the highest reading in 14 years. Current conditions, where strength hints at ongoing gains for both consumer spending and employment, reports Econoday, is up nearly 8 points to 122.8 and reflects growing confidence in the lower income bracket. Expectations, which is the other component of the index, is actually down 1.4 points to 90.0 and reflects income doubts among the higher bracket.
But beware of consumers’ ebulliance, as they are tapped out, even with the upcoming tax break in April from the higher standard tax deduction. Their personal savings rate is down to a mere 3.2 percent, with might explain the declining retail sales numbers after robust holiday sales in November.
Graph: Econoday
Retail sales have fallen over the past 3 months from their November high. Department stores were especially weak in February, down 0.9 percent, reports Econoday. What isn’t a surprise is a 4th straight month of decline at vehicle dealers, down 0.9 percent in a drop that re-emphasizes the effect of the spike in the hurricane season which pulled sales forward because so many vehicles were lost due to the floods.
But nonstore retailers jumped a monthly 1 percent. Building materials are also positive, up 1.9 percent that reverses a 1.7 percent decline in January, which is why we see the rise in single-family home construction during this winter season.
Slowing consumer spending and the ultra-low savings rate should tell the Fed there is no incipient inflation. Consumers now account for three-quarters of economic activity, so how can there be higher inflation, if consumers are unable to push prices higher?
Stay tuned, as mortgage rates are still at the low end. The 30-year conforming fixed rate is holding @ 4.0 percent for a 1 point origination fee. But the Fed will probably raise their short term rates on Tuesday, anyway.
Harlan Green © 2018
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