Fed pushes Congress
Strong words this week from the Federal Reserve as Chairman Jerome Powell made his case on political policy. In his regular testimony to the House of Representatives Financial Services Committee, this week Powell pushed for Congress to extend unemployment insurance benefits, support state and local governments and continue to get cash to struggling businesses.
The Fed rarely posits an opinion to influence political policy. But as the nation continues to slowly wade through economic recovery, Powell was concerned any positive activity could cause the government to prematurely halt assistance.
In part of his testimony, Powell said, “Recently, some indicators have pointed to a stabilization, and in some areas a modest rebound, in economic activity. With an easing of restrictions on mobility and commerce and the extension of federal loans and grants, some businesses are opening up, while stimulus checks and unemployment benefits are supporting household incomes and spending. As a result, employment moved higher in May. That said, the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery. Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely.”
However, that help does come with a price, and that price is an increasing debt margin. Powell acknowledged that issue in his testimony, saying, “Ultimately the debt can’t grow faster than the economy forever – it’s the definition of an unsustainable path – but the time to do that is when unemployment is low and the economy is growing.”
The Dow and S&P 500 snapped a three-day winning streak on Wednesday as the reports of increased COVID-19 cases cast a shadow over the positive economic data. All indices took a hit Thursday with the release of another negative unemployment report. The near 300-point loss was erased as airlines and cruise ship stocks recovered slightly throughout the trading day. The 10-year Treasury note is at .723% in early morning trading as equities futures rise.
Mixed Data Clouding Recovery Picture
Retail sales skyrocketed by more than 17% in May, the largest monthly jump ever according to the Commerce Department. Economists expected a much smaller 8.5% increase from April to May. The annual difference was still 6% lower than May 2019. Automobiles saw a 44% spike in sales in May compared to April, with sales at clothing stores seeing a massive 188% leap. Home furnishing stores also saw a 90% boost with restaurants and bars going up by 29%.
However, for the 13th straight week, jobless claims have totaled more than 1 million Americans. This week, the Labor Department reported that 1.5 million Americans filed initial unemployment claims. It should be noted that more than 760,000 of the unemployment claims were filed as part of the Pandemic Unemployment Assistance program. That program was part of the CARES Act, which allowed people who traditionally would not qualify for unemployment, like independent contractors, to apply for assistance. Continuing claims, which is people reporting two straight weeks or more of unemployment, feel only slightly to 20.5 million. The chart below gives you a long-term look at continuing claims and just how drastic the shift has been over the last few months.
Summer Feeling Like Spring In Housing
The housing industry isn’t just strong right now, it’s a juggernaut. Mortgage rates continue to stay historically low each week and buyers have taken notice. Freddie Mac’s 30-year fixed-rate mortgage average is down to 3.13%. Economists at Freddie Mac say purchase demand is up 20% year-over-year and at its highest level of activity since 2009.
The Mortgage Bankers Association data shows a similar increase. The MBA reports that purchase applications are up 4% on a weekly basis and 21% higher than this time in 2019. That makes a ninth straight week of weekly gains and the highest volume in more than a decade. The lower rates also stimulated more refinances. Refinance applications are up 10% weekly and a whopping 106% increase annually.
The National Association of Realtors’ weekly housing monitor also paints a brighter summer picture for housing. According to their report, “After two months of year-over-year decline, new pending contracts in the past four weeks ending June 14 rose 6% on a year-over-year basis.”
However, their report also notes that new listings are still down by 12% annually. Low rates have spurred refinances, as seen in the MBA’s report, which means that people are fine staying put right now. The competition is fierce on the market with the NAR reporting nine new contracts for every ten new listings.
Contributed by Greg Richardson, MAXEX Managing Director
Greg Richardson is Managing Director at MAXEX, LLC, based in Atlanta, GA. He has 30 years of experience in capital markets, including trading, banking asset and portfolio management, mortgage banking secondary marketing and accounting. MAXEX is the only platform in the mortgage industry to offer a centralized clearinghouse that enables buyers and sellers to trade anonymously with multiple counterparties using a single standardized contract.