Monday, April 14, 2014

Still Not Gaining Traction After All These Years

Keeping you updated on the market for the week of April 14, 2014.

Still Not Gaining Traction After All These Years
The employment numbers for March were reported this past Friday, and they were “okay” at best.
The Bureau of Labor Statistics reports that total payrolls rose 192,000 for the month, which was inline with the consensus estimate. The good news is that gains were realized in the private sector, which created 167,000 new jobs compared to 148,000 in February. The pace of job creation wasn't able to move the unemployment rate, though, which remains stuck at 6.7%.
To be sure, payroll growth has improved in recent months, but it needs to improve at a more robust pace. In January 2009, the number of unemployed plus the number of Americans not participating in the labor force was around 96.2 million. Today, that number has risen to over 104 million.
As a standalone number, 192,000 new jobs might seem a lot, but it really isn't when placed in context of the bigger picture. Five years into the post-recession recovery, new jobs should be continually added at a 200,000-or-more rate each month. That hasn't been the case.
Federal Reserve officials are also of the mind that things remain a little soft. The minutes from the latest Fed meeting points to continued loose monetary policy for years to come. This means the Fed is committed to holding rates low, even if it still plans to back off quantitative easing (buying Treasury notes and bonds and mortgage-backed securities).
In short, the economy is at best creeping forward, the taper is still on as scheduled, and easy-money policies will persist longer than many economists had expected. Of course, there is a hedge (there always is), and that is if extraordinary market data appear, the Fed's direction will change. This all feels a bit like the movie Groundhog Day.
At least the Fed is making us appear like a prophet on mortgage rates. At the beginning of the year, we thought the rate on the 30-year fixed-rate loan might bob about between 4.25% and 4.5% for a while.'s latest survey has the 30-year fixed-rate loan pegged at 4.47%; Freddie Mac's survey has it pegged at 4.34%.
At this point, though, we'd have thought the 30-year loan would have ceased bobbing about and started trending higher. That hasn't been the case, as the economy in general and the labor market in particular continue to spin their wheels.
Our primary concern is that if the economy doesn't gain traction soon housing – particularly new home activity – will start loosing traction. Existing home sales at the national level have gone nowhere over the past six months. New-home construction is an even bigger concern, because of its signification contribution to overall economic activity. The last thing we'd want to see is new-home construction backslide.
For the past two years, we've anticipated some kitty litter being thrown down so that the economy could gain traction and drive itself out of this rut. So far, that's yet to occur.


Date and Time
Retail Sales
Mon., April 14,
8:30 am, ET
0.7% (Increase)
Moderately Important. Sales will trend higher after weather-induced sluggishness.
Home Builder Sentiment Index
Tues., April 15,
10:00 am, ET
50 Index
Important. Optimism is expected to return with the warmer weather.
Mortgage Applications
Wed., April 16,
7:00 am, ET
Important. Increased purchase activity points to rising home sales.
Housing Starts
Wed., April 16,
8:30 am, ET
970,000 (Annualized)
Important. Starts are expected to surge after being impeded by bad weather in recent months.


Is Everyone Wrong About This Important Variable?
Nearly every economist, every pundit, every commentator has predicted 5% on the 30-year loan by the end of the year. We have to slot ourselves in with the crowd. Though we still have almost eight months to go, rates continue to languish.
Lower interest rates are certainly more popular than higher interest rates. But low interest rates alone can't drive the housing market. We simply need more economic growth, and not just to grow the market, but to sustain it. RealtyTrac reports that March marked the 42 nd consecutive month of falling foreclosure activity. But fissures are starting to show: RealtyTrac also reports that foreclosure activity was up in 29 states.
We hope that our prediction of 5% on the 30-year loan comes to pass, because a 5% rate will only occur if accompanied by stronger economic growth. We can see no other way that Federal Reserve officials will let it rise.

No comments:

Post a Comment