The German Bundt is back above 0.5% this morning, the highest in several years. The 10 Year Treasury Note is up at 2.61%–should it push above 2.62%, longer-term interest rates stand to see a sizable bump in yield. Economists have been drawing the line in the sand at 2.62% for quite some time now. Stocks are under water, so that eases a little pressure off of rising interest rates this morning. As a bit of a tangent from yesterday, Apple laid out a plan today to bring $350B into the U.S. economy as a result of the new tax code–so that seems like a plus. Given the growth we are experiencing, we’ll see how well that line holds up.
When I approached my IT guy last month to talk about getting a new computer, he suggested a Mac. I already have an iPad, an Apple Watch, the Ear Pods, and I’m on like my sixth iPhone; so I figured “why not?”. Well I went live on this machine yesterday and it was extremely painful. I would have rather beat my head against the wall than try to save one more document to an unfindable folder. I awoke this morning with a deep foreboding souring my otherwise pleasant workday ahead. Well it’s just after noon and IT Guy has been in here a half dozen times so far today to coach me some basic processes inherent to Mac-dom. I guess I am doing ok with it because I managed to get this email put together. I have decided that it’s a little like snowboarding, and the first few days is just going to downright stink. But by day five or six I should be shredding down the virtual highway looking cool and collected like the Mac-dude in the picture here. After all, nobody wants to be boring PC, right?
I’m not the only optimistic mind out there; the Fed’s Beige Book, published today, shows that companies across all Fed districts trumpeted an expectation for even better days ahead. Polled professional investors also don rose-colored glasses; over 66% are totally bullish about the equities markets. That rampant enthusiasm was last seen a year before Black Monday in 1987. The DOW is up over 300 points, and bond pricing is at the lowest levels in the last 10 months.
The Jobs Report was released today and on the surface it was a bit of a letdown. With only 148,000 new jobs created last month, the news momentarily squashed the felt euphoria from the flurry of cheerful data released so far this week. I’m here to tell you that the celebration can continue and here’s why: The average rate at which jobs have been created in the U.S. is 210,000 per month, and there have been over two million new jobs created every year for the last seven years! There are about 124 million people working full time in the U.S., and our population is growing at a rate of only 0.7% per year, so the 1.6% rate of new employment opportunities outpaces population growth by 2X. And that means that employers have to pay more to attract the help, which is one reason that wages increased by 2.5% last year alone. So if you are willing and able to work, that’s good news.
All that comes at a cost, however, and that will be higher interest rates in the future. With the Fed raising three times in 2017 and committing to three more in 2018, those in the know are forecasting the 30 year rates to end the year about 1/2% higher than present levels, which are still pretty attractive.
The DOW just hit 25,000 for the first time in its 132 year history. Ahead of tomorrow’s Jobs Report, the ADP Payroll Report shows Private Payrolls rise by 250,000, which is 24% higher than expectations. The 10 Year Note opened this morning at 2.48%, a level not seen since last March. The markets are rolling ahead with little hesitation.
Looking ahead to a few forecasts, the Atlanta Fed sees GDP at 3.2% to end the year. The Mortgage Bankers Association anticipates the 30 year mortgage rate to end the year at 4.6% and the National Association of Realtors expects 4.5% for the same criteria. If the economy maintains its current momentum, rates will blow by those estimates fairly handily.