Gambling on Government Garble

On the heels of yesterday’s “assumption” by the markets, today Fed Governor James Bullard said that interest rate hikes “should come sooner rather than later”. Not much reaction from Bonds, but Stocks have retraced yesterday’s euphoric steps higher.  Such is life when you are gambling on statements from government officials.

Reports out today show that foreclosure activity is down 50% from this time last year.  Personal Spending is up 0.2% and Personal Income is up 0.4%.  This is the second month in a row that we are collectively earning more than we are spending; way to go USA!

The Problem with Assumptions

The final GDP reading for the first quarter of the year was released today showing that the US economy actually contracted by 2.9% over the three month period.  Ordinarily that would cause a sizeable selloff in the stock market and all of that money would come over into Bonds, causing rates to drop a little bit.  As it stands currently, Stocks actually rallied under the assumption that the Federal Reserve will just continue to print more money to buy more bonds to keep interest rates lower. You know what they say about the people who make assumptions.

Friends without Benefits

New Home Sales surge by 18.6% last month to an annual rate of 504K, well above the 440K anticipated.  Still, according to the National Association of Home Builders, we haven’t been building this few homes since WWII.  Part of the reason is the there are over 2MM millennial “friends” (AKA YSA’s) who are choosing to stay home with Mom and Dad or shack up together in an apartment rather than purchase real estate.  This is leading to a generation ill-prepared for their financial future.

The Case Shiller 20 City Index shows home prices rose 10.8% since this time last year.  This is down from the 12.4% increase reported last month.  The median home price across the country is $213,400, averaging 47 days on the market.

Existing Home Sales Rise

Ten years ago, the homeownership rate in the US was 69.2%; today it has fallen to 64.8%.  Where the American dream has historically owning your home, this is a sobering thought.  On the bright side in the reports out today, more people are buying each other’s homes than last month: Existing Home Sales are up 4.9% from April to May.  While it won’t help the Ownership Rate, is does help Realtor commissions 🙂  Also increasing commissions is a price increase of 0.9% from April to May.

Monthly Jobs Report

The Unemployment Rate remains at 6.3% after 217,000 new jobs were created last month.  Over the last six years since the “Great Recession” the U.S. has recovered 8.7 million jobs.  Even still, the 38 year-low Labor Force Participation Rate means that fewer Americans are working now than during the housing-crisis-inspired economic downturn.

Precursor to the Jobs Report

All eyes are on the employment outlook ahead of tomorrow’s Jobs Report by the BLS.  Forecasters predict 220,000 new jobs to have been created, well below the 288,000 from last month.  Weekly Jobless Claims released today show that there were 312,000 new Unemployment claims last week.  That number could increase over the coming weeks as Challenger, Gray & Christmas just reported that employers in the US laid off 52,961 workers in May–the largest one-month total since February.

Overseas, the European Central Bank just reduced their benchmark rate from 0.25% to .15% to stimulate cash flow across the EU.  Additionally, they are now charging 0.1% to deposit funds overnight with the ECB in hopes that banks will lend their funds rather than sock them away.  Interesting.

Cause and Effect

Ordinarily, bad economic news makes traders nervous, causing them to take money out of stocks to put into bonds which drives bond prices up and interest rates down.  Lately that just hasn’t happened.  Six years into a program called Quantitative Easing and many still blame the Fed’s intervention for disrupting the “normal” laws of cause and effect on interest rates an the flow of money.  I on the other hand just think that we are all (including the FOMC) just doing the best we can.

ADP reports that job growth has stunted: 179K new jobs were created last month compared to the  200K expected.  Productivity is also reported to have decreased 3.2%, the fastest decline in six years.

Rates Come Up

In the absence of any news–desirable or not–mortgage pricing is slipping back down to the recent three-week long plateau representing the lowest rates in the last year sans the these most recent three days.  As a result, interest rates have comeback up to higher ground like a Sherpa with too much oxygen in his blood.