The U.S. Economy Is Back on Track

The U.S. Economy Is Back on Track

  • Blog 51517Figures support idea that recent slowdown was transitory

  • Michigan consumer-sentiment gauge ticks up to four-month high

The U.S. economy is back on track for steady growth, though not much more.

Data released Friday showed consumer retail purchases rose last month, albeit less than forecast, after a March gain that was revised from a decline, indicating the early-2017 slowdown was transitory. The consumer-price index stabilized in April following the first drop in a year, though a gauge excluding food and energy posted the smallest year-over-year increase since October 2015.

The pickup in retail sales — with gains in nine of 13 major categories — eases concern from earlier in the year about a loss of momentum in household spending, the biggest part of the economy. The CPI results are a reminder that while businesses are regaining some pricing power, inflation is hardly breaking out.

Together, the data indicate progress consistent with the Federal Reserve’s view of the economy and inflation ahead of policy makers’ mid-June meeting, where they are widely expected to continue their gradual pace of interest-rate increases with a quarter-point hike. The Fed may feel less pressure, however, to pick up the pace should core inflation remain subdued.

“It’s a pretty decent overall picture of the U.S. economy,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “Consumer spending is rebounding, though possibly not as much as we expected. On the inflation front, there’s not a lot of pricing pressure, and it looks like inflation is gravitating toward the Fed’s goal.”

A separate report showed that the University of Michigan consumer confidence index climbed to a four-month high in May, and within that, buying conditions for large household durables rose to the highest since 2005, reinforcing signs that Americans remain optimistic about spending.

“Today’s sub-consensus U.S. data is unlikely to rock the Fed’s boat, meaning there are increasingly few reasons for not hiking in June,” James Smith, an economist at ING in London, wrote in a note.

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Mortgage applications rise 2% as more buyers hit the spring market

Mortgage applications rise 2% as more buyers hit the spring market

  • Blog 51017Mortgage application volume is still nearly 14 percent below year-ago levels because of weaker refinancing.

  • “Continuing strength in the job market and improving consumer confidence drove overall purchase applications to increase last week,” said economist Joel Kan.

The gains are slow and small, but mortgage volume is beginning to improve again, as more homebuyers sign on the dotted line.

Total mortgage application volume increased 2.4 percent on a seasonally adjusted basis last week from the previous week. Volume is still nearly 14 percent below year-ago levels because of weaker refinancing, according to the Mortgage Bankers Association .

Even as buyers complain of high home prices and limited listings, mortgage applications to purchase a home gained 2 percent for the week and are 6 percent higher than a year ago.

 “Continuing strength in the job market and improving consumer confidence drove overall purchase applications to increase last week,” said MBA economist Joel Kan. “The index for purchase applications reached its highest level since the beginning of October 2015, which was the week prior to the implementation of the federal government’s ‘know before you owe’ rule.”

That rule had lenders concerned that compliance would delay the mortgage process, which it did for a short time. Demand for mortgages was likely high just prior to its implementation, as buyers rushed to get in and avoid those delays.

Mortgage applications to refinance a home loan rose 3 percent for the week but are still 32 percent below last year, when interest rates were lower.

The average contract interest rate for 30-year fixed rate mortgages with conforming loan balances of $424,100 or less remained unchanged at 4.23 percent, with points decreasing to 0.31 from 0.32, including the origination fee, for 80 percent loan-to-value ratio loans.

Mortgage rates have been inching higher in general and have only moved lower on three out of the past 15 business days, according to Mortgage News Daily.

“While that sort of losing streak sounds fairly unpleasant, the size of the movement has been far from threatening,” said Matthew Graham, Mortgage News’ chief operating officer.

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CBO: Here’s when Fed will stop raising interest rates

CBO: Here’s when Fed will stop raising interest rates

Blog 50817Fed Funds Rate to level out at 3%

The Congressional Budget Office, which provides nonpartisan analysis for the U.S. Congress, released its 2017 Budget and Economic Outlook, which showed a forecasted nine federal funds rate hikes by the year 2020.

Wednesday, the Federal Open Markets Committee met, deciding not to raise rates again after having just raised them in the March meeting. However, housing experts explainedthat recent economic data supports the consensus that the Fed will raise rates in December and once more in 2017.

The CBO released a chart that shows interest rates will rise steadily, probably about three rate hikes of 25 basis points per year, and finally level out at 3% in 2020.

The current target range for the federal funds rate stands at .75% to 1%. The chart shows once the federal funds rate hits 3% in 2020, it will hold that pace for several years, remaining at 3% at least until 2027.

While 3% is a significant increase from today’s rate, the chart shows it is still substantially lower than the pre-crisis years between 2002 and 2007.

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Mortgage rates are little changed this week

Mortgage rates are little changed this week

Blog 50517Mortgage rates held steady this week as mixed economic news kept them in check. News of a strengthening labor market was offset by disappointing first-quarter growth in gross domestic product.

According to the latest data, released Thursday by Freddie Mac, the 30-year fixed-rate average slipped to 4.02 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 4.03 percent a week ago and 3.61 percent a year ago.

The 15-year fixed-rate average was unchanged at 3.27 percent with an average 0.5 point. It was 2.86 percent a year ago. The five-year adjustable rate average ticked up to 3.13 percent with an average 0.5 point. It was 3.12 percent a week ago and 2.8 percent a year ago.

“Markets have been erring on the side of caution following a weak advance estimate for first-quarter GDP and the broadly expected decision to leave rates unchanged,” Sean Becketti, Freddie Mac chief economist, said in a statement.

As expected, the Federal Reserve did not raise its benchmark rate when it met this week. It is widely anticipated that its next rate increase will come next month.

The Mortgage Bankers Association “continues to forecast that the FOMC will raise rates at its meeting in June and again in September,” said Lynn Fisher, MBA vice president of research and economics. “It also remains likely that the committee will begin allowing assets to run off their balance sheet by the end of the year, which, over time, may exert upward pressure on the spread between mortgage interest rates and Treasury yields. For now, the FOMC confirmed this week that it will continue reinvesting principal so as to maintain current balance sheet levels.”

Bankrate.com, which puts out a weekly mortgage rate trend index, found that more than two-thirds of the experts it surveyed expect rates to remain relatively stable in the coming week. Elizabeth Rose, branch manager at Movement Mortgage, is one who says rates are unlikely to change much.

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Fed holds interest rates steady, dismisses first-quarter slump as ‘transitory’

Fed holds interest rates steady, dismisses first-quarter slump as ‘transitory’

Blog 50417Odds of June rate hike jump to 90% after statement

The Federal Reserve on Wednesday left a key borrowing rate unchanged and dismissed a weak first quarter as temporary, signaling it is still on track to raise interest rates at gradual pace.

“The [Federal Open Market Committee] views the slowing in growth during the first quarter as likely to be transitory,” the statement said, in unusually dismissive language. Job gains were described as “solid,” as were the fundamentals underpinning the continued growth in consumer spending. Business fixed investment “firmed,” the central bank noted.

“The main takeaway is full steam ahead” with rate hikes, said Kathy Bostjancic, head of U.S. macro investor services at Oxford Economics.

The U.S. stock market, notably the S&P 500 index, SPX, +0.05% ended mostly lower after the statement following the release.

The decision leaves the benchmark short-term fed-funds rate in a range of 0.75% to 1%. The median forecast of Fed officials is for two additional quarter-point rate increases this year.

Investors who bet on the future path of the fed-funds rate project the next rate hike raised the odds of a move in June from 70% to 90%, Bostojancic said.

“On the whole, the statement was slightly more hawkish than we expected. On balance, we still think that the Fed will hike again in June,” agreed Paul Ashworth, chief U.S. economist at Capital Economics.

There were no dissents from the Fed’s updated policy statement.

Economic data show the U.S. economy got off to slow start in 2017 as Americans dialed back spending and companies reduced production to get inventories back in line.

Yet the economy has repeatedly picked up speed in the spring and summer, and Wednesday’s statement shows the central bankers expect the same pattern to recur.

Consumers and businesses are the most upbeat in year and early signs point to faster growth in the second quarter.

A string of higher inflation readings was also broken in March, a sign the economy had cooled off.

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