One layer of uncertainty was resolved last week: the midterm elections. The new political dynamics prevent major policy shifts and nearly guarantee that the tax reform will remain intact. The results bring to mind the 'gridlock is good' adage. The split Congress comes at a time that the US economy is objectively strong, but investors have been skittish about both the stock market and housing trends. We discuss a brief snapshot of today's trends below, but Fed policy, trade talks, and housing affordability are the three wildcards for the next six months.
Ali Wolf, Director of Economic Research at Meyers Research
The Economy Continues To Exceed Expectations
Job growth hit 97 consecutive months, the longest stretch on record.
Nonfarm payrolls grew by 250,000 in October and the unemployment rate stayed at 3.7%, the lowest level since 1969.
Unemployment Rate: Lowest Level Since 1969
Wage pressure was bound to build due to the strong labor picture. The elusive wage growth jumped to the highest level since 2009, growing 3.1% year-over-year.
The latest report will help solidify the Fed’s plan to raise short-term interest rates in December.
Sales Down Even After Adjusting For Seasonality
Purchase mortgage applications act as a leading indicator of the housing market.
Early November data shows purchase mortgage applications dropped to the lowest level since December 2016.
While some data points suggest more supply is available, the concentration of inventory is not where the housing market needs it the most: the bottom tier. This is especially critical since mortgage rates rose to their highest level in nearly eight years.
The split of total applications continues to favor purchase mortgages as refinances are dwindling in-line with higher mortgage rates. Currently, 60% of applications are for purchase and 40% are for refinances. For reference, refinances made up roughly 60% of total activity three years ago.
The Critical Component
Consumer confidence jumped to the highest level in nearly 20 years.
The index captures both consumer sentiment on current conditions as well as future expectations, both of which increased in October to the highest level since September 2000.
Contrary to some of the recent housing data, 6.4% of consumers plan to buy a home in the next six months, which represented the highest read since April of this year.
Consumers that plan to buy a home in the next 6 months
Consumer spending accounts for two-thirds of GDP, making it a critical component of overall economic growth. Monitoring sentiment can shed light on future spending activity.
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