Economic Numbers Continue to Impress

The February employment numbers blew the doors off consensus numbers. In February, the economy produced 236,000 new non-farm payroll jobs. The consensus was around 165,000. So the new numbers were 71,000 higher then predicted. The unemployment rate fell from 7.9 percent to 7.7 percent. It was an excellent report.

Interest rates after the release of the employment numbers hit the highest levels since May of 2012. Generally speaking good news on the economy means higher mortgage interest rates.

Consumer spending continues to be strong. This is likely attributable to continued robust consumer spending. Many economists expected consumer spending to decline after the increase in payroll taxes in January, which resulted in a decline in take home pay. One theory is the wealth effect. Household wealth is at its highest level since the third quarter of 2007. This figure represents the difference between the value of household assets and liabilities.

The record highs of the stock markets, which in the first full week of March were at its highest level ever helps contribute to the good feeling of the consumer. Household income has held up surprisingly well in recent months. House prices are strong. Housing inventory is at very low levels. With demand rising and inventory at low levels, prices are increasing. Merrill Lynch increased its prediction for home appreciation. The new prediction is for single-family houses to appreciate by 8 percent in 2013. Prices were up 7.3 percent nationally in 2012.

The housing affordability index is excellent. Mortgage interest rates are at low levels and house prices are still attractive. Both are off of their historic lows.

The Federal Reserve Board of Governors has repeatedly stated that they will not stop their current foundation of low rates until the unemployment rate reaches 6.5 percent. No matter how pretty the February numbers were, the distance between an unemployment rate of 7.7 percent and 6.5 percent is a long one.

There will be more fluctuations in the economy in the near term. Mortgage rates will likely stay in a relatively narrow range in the near term. Rates have bounced higher off of the recent historically low levels.

Economists warn that sequestration may temper economic progress starting in the next couple of months. One strong employment report is good. Economists are anxious to see if the accelerated employment can be sustained in the next couple of months.★

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Wed, 9 Jul 2014 22:46:18 -0400

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