Economic Growth Dominated the Headlines
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Economic Growth Dominated the Headlines
This morning’s second estimate of third-quarter GDP showed a booming economy growing at a 2.9% annualized pace. Far above the estimate of 2.6%, and further confirms the Fed held off way too long before starting to hike rates.
Even with some segments of the US economy slowing since the hikes began, the fear will be that real estate, finance, and a few others will continue to fall while other industries show massive resilience despite higher interest rates. Unless we see a very weak Personal Consumption Expenditures (PCE) report tomorrow, we can expect the Fed to do even more damage to interest rate-sensitive industries in their attempt to slow down the US economy.
One piece of good news from the slew of this morning’s reports was that ADP showed that the labor market added only 127,000 jobs in the month of November. This is below the 200,000 number the market anticipated. However, since the market relies on the Bureau of Labor Statistics (BLS) for labor data, the ADP report gets very little respect. Hopefully we will see the BLS report that is scheduled for release Friday morning will confirm a slowdown in labor market.
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Since a strong labor market is one of the primary drivers of inflation, the Federal Reserve is not expected to back down on its rate hike plans until we see the labor market slow and more people lose their jobs. It is wildly unhealthy when employers are not able to find skilled labor and are forced to overbid on the true value of a job just to get applicants. This is very similar to what happened in the housing market where people were forced to pay well over the true value of a home just to have an offer accepted. Both situations contributed to a rise in inflation. With the housing market now weakening, the labor market slowdown is what we are waiting for.
If tomorrow’s PCE report shows consumer inflation running below the market’s expectations, we could see mortgage interest rates soften. In the meantime, rates are on an uptrend, so floating is very risky.?