Friday Economic Snapshot: Housing market continues recovery
Welcome to Friday, and congratulations on surviving the tumultuous week after the big, nasty taper. Nothing about tapeworms here, but rather the Federal Reserve’s announcement last week that it will eventually reduce its massive monthly bond purchases as the economy continues to heal.
As we noted here last week, this ultimately good news caused heart palpitations in the market leading to a massive stock market sell-off at the end of last week that spilled over into Monday.
One week later, the markets have been reassured by a raft of good news including rising mortgage rates, personal income and spending levels, as well as automobile sales that are on track to hit levels unseen since 2007.
Things are looking pretty good out there this week and, barring any craziness between now and the EOD trading bell, this has been a good week for the American economy.
After increasing for the past seven weeks, average 30-year mortgage rates jumped even higher to 4.46%, which is territory we haven’t seen since the start of the Great Unpleasantness.
This increase – the largest weekly increase for the 30-year fixed rate since April 17, 1987 — was spurred by the infamous Fed taper remarks. According to Freddie Mac, the recent gains in mortgage rates haven’t hurt, as homebuyer affordability remains strong for the typical family in most parts of the country. This tidbit suggests that Freddie Mac expects the housing recovery to continue.
From some, there’s a fear that higher rates could overly cool down the housing recovery that has been powering recent growth. Others say rising rates could be a good thing, possibly preventing another housing bubble from inflating beyond control.
Personal Income, Spending
There’s nothing we in the fun business want to see more than growing personal income and spending levels — as long as that spending isn’t happening on a credit card. To that end, the Commerce Department’s Bureau of Economic Analysis released its “Personal Income and Outlays, May 2013” report that showed income jumping $64.9 billion — 0.5 percent — and disposable personal income up by the same percentage. Also as part of the report, personal consumption expenditures increased $29 billion, or 0.3 percent.
Zooming out, these numbers have been on the rise since bottoming out in late 2009-early 2010, with only minimal drops along the way. This is solid growth, although the latest rise is small and could possibly show a leveling off.
We’ll just have to wait this one out, but the numbers continue to show consistent gains that suggest people have more money to spend on the things they desire in life.
Nothing puts a smile on an American businessperson’s face like healthy automobile sales, right? June auto sales will be released next Tuesday, but Reuters reports that auto sales for the current month are so far “on track for their best month since before the 2008-2009 sales plunge.”
The last few years have been outrageously terrific, as auto sales have bounced back from a Seasonally Adjusted Annualized Rate (SAAR) of 13.2 million in 2008 back up to somewhere north of 15 million units at the current pace. Sure, that’s still well off the 16.9 million SAAR in 2005, but that was also back when you could get a free car with your new Cadillac Escalade. That’s not healthy, and nobody wants to see that sort of sales-at-any-cost mentality return.
As an aside, GM’s stock price at the start of the year was somewhere around $29 a share, where it lingered since the IPO, but it really starting moving up in May. The Detroit automaker’s share price has recently gone as high as $35.49, and it’s currently just below that peak.
Other notable economic news includes the Q1 GDP being revised down to 1.8% from the previously reported 2.4%. That hurts, but every revision seems to be a toss of the coin, good or bad news, but nothing earthshaking.
The Kansas City Fed reported that regional manufacturing contracted in the month of June. On the flip side, weekly unemployment claims declined to 346,000 from the previous week’s 354,000 — right on track with the current average, so this isn’t big news.
So where does all of this leave us? The Fed’s word that the economy is improving to the point where it may not need as much artificial support hasn’t tanked the markets into the doldrums. Fundamentals still look good, so get out there and have a nice summer weekend whether that means work or play.