Many of us know well the statistics on how strong the labor market is and how it’s been growing consistently for years. The issue, one that became incredibly apparent in this week’s election, is that the economic recovery was not equally felt across the country. Specifically, manufacturing, energy, and mining have lost jobs on a year-over-year basis. Globalization has not been good for the working class, particularly in the Rust Belt, and Donald Trump effectively tapped that sentiment.
Campaign promises and reality are often disjointed, but our incoming president has the benefit of controlling both chambers of Congress. This will allow some of his campaign promises to be implemented. With Donald Trump as our president-elect, our Manager of Housing Economics, Ali Wolf, wanted to examine some of the potential changes the country will face over the next four years.
Looser Credit Standards. If the government decides to dismantle Dodd-Frank as proposed, allowing banks to grow even bigger, credit availability could loosen nationwide. Proponents, including Former Federal Reserve Chair Alan Greenspan, believe Dodd-Frank was a “disastrous mistake” that kept credit markets too tight. We foresee that this could have an immediate impact on the housing market as buyers that sat on the sidelines may find more mortgage options not available to them previously.
Changes For The Fed. The Federal Reserve doesn’t like uncertainty and will be unlikely to act if it stays in place. In the short run, the Fed will be more prudent about raising rates. In the medium run, it could be easier for the Fed to raise rates because of the impacts of the proposed infrastructure spending (more about that below). A Trump presidency may rely more on fiscal policy than monetary policy. In addition, Janet Yellen will likely not be reappointed when her term expires in early-2018. Keep a close eye on moves in mortgage rates over the next few months.
Increased Government Spending on Infrastructure. Part of President-elect Trump’s platform was to improve the country’s infrastructure by fixing bridges, highways, tunnels, etc. and creating new jobs in doing so (similar to The American Recovery and Reinvestment Act of 2009). Investors appear to believe the spending will spark growth across the country. That sentiment is reflected in the all-time high for the Dow Jones on Thursday and stocks for companies like Caterpillar and Vulcan Materials are up considerably. If implemented successfully, this could help bring jobs, boost the economy across the country, and put upward pressure on inflation. While potentially good for the overall economy, this could put extra strains on the housing industry, which is already experiencing labor shortages. Construction workers could be faced with even more opportunities and demand higher wages.
Global Slowdown? Some economists fear some sort of global recession as both businesses and consumers pause to see what next year will bring. Remember, though, this was one of the fears that came about after the UK voted to leave the European Union in June. Needless to say, it didn’t happen.
A layer of the uncertainty was removed Tuesday night as we found out who the next president will be. On Wednesday, however, we saw 10-Year Treasury yields hit the highest level in three years. While we all are a bit more relaxed about a meltdown seeing that the equity market has leveled off (Trump’s composed acceptance speech calmed nerves), the big swings in yield suggest there’s still some volatility in the market. Unfortunately, it’s too soon to know what policies President-elect Trump will make priority and there are many different paths the country could take going forward. For now, we will continue to analyze what we know and wait for more certainty.
Ali Wolf, Manager – Housing Economics
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