Economic update

I am always interested in the state of the economy. Housing is a big part of what makes America grow and prosper. Here is this weeks highlights from Eagle Mortgage newsletter.       John DeCosta

It’s December and we’re officially in the holiday season. Last week was short due to Thanksgiving, but jam packed with important economic data pertinent to the mortgage industry. As has been the case all year, the data is mostly positive but still sending mixed signals about the economy.

The big question – when is the Fed going to raise interest rates? They have taken a pass all year and the FOMC meeting on Dec 15 will be their last chance to raise rates in 2015. Remember, the last time the Fed raised interest rates was June 2006 – almost 10 years ago. In December 2008, the Fed dropped rates to a range of 0% to .25% where it stands today. That’s 7 years of rock bottom interest rates.

To get your arms around all this economic data, it helps to take a step back and look at the big picture. What does the Fed want to see so that they are confident enough about the economy to nudge rates higher? It comes down to 2 things – stable prices and a healthy labor market. The next CPI numbers will be released Dec 15 and the next Jobs Report will be this Friday – just in time for the FOMC meeting. Watch them closely. The indicators this year peg core inflation at 1.9% – pretty close to the Fed’s magic number of 2.0%. Wages have increased and the unemployment rate is around 5.0% (but many people dispute the unemployment number because of the way it’s measured and adjusted). Then what are they waiting for? I think they just like to keep the markets guessing. In the meantime, here are some key indicators from last week:

• Existing Home Sales fell 3.4% to 5.36 million homes sold annually. That was worse than expectations of a 2.7% decrease to 5.4 million units.  The decline was attributed to lack of inventory for sale.
• S&P Case-Shiller Home Price Index rose 0.6% month-on-month for a 5.5% annual increase beating expectations of a 0.3% increase. 
• New Home Sales for October were up 10.7%. This was welcome news following the September plunge of 12.9%.
• Consumer Confidence dropped to 97.6% well below the 103 number that Economists expected.
• Consumer Sentiment came in at 90.0 – up form last month’s 87.2 but below expectations of 92.5.
• Personal Income rose 0.4% while Spending rose only 0.1%. It looks like incomes are rising nicely but consumers aren’t spending their additional cash. Are they saving their money to spend on the holidays? It will be interesting to see how the season’s shopping numbers develop over the next month.
• GDP – The Commerce Department reported that the economy grew at an annual rate of 2.1%, in line with expectations.
• Pending Home Sales – Up only 0.2% when economists were looking for a 1.0% increase. The disappointing number is blamed again on – lack of inventory and affordability.

Net Net – just like last month things still look pretty good especially for the mortgage industry: Gas prices are low, mortgage and interest rates are low, inflation is in check, employment is good, homes are selling, although Mid-East tensions have escalated in the wake of the Paris attacks. To me, the big questions are: If the Fed doesn’t raise rates in December – what are they waiting for? What do they know that we don’t? A simple question that will keep economists buzzing for a while.