Surprise! Surprise! While the Jobs Report for July didn’t feature any major surprises, the second quarter Gross Domestic Product reading sure did. Here’s what you need to know.
The Labor Department reported that 209,000 new jobs were added in July, while the numbers for May and June were revised higher by 15,000. Through the first seven months of 2014, job creations have averaged 230,000 jobs per month, enough for the U.S. economy to continue to grow. While the Unemployment Rate ticked up a hair to 6.2 percent, overall this was a decent report and a good sign for the labor markets.
Also, as expected, the Fed announced that it will taper its big Bond-buying program by $10 billion total. This means that the Fed will now purchase $10 billion in Mortgage Bonds and $15 billion in Treasury Securities each month. The Fed has been steadily tapering these purchases throughout the year. As we head into the fall, it will be important to see how further tapering may impact Mortgage Bonds—and therefore home loan rates, which are tied to Mortgage Bonds.
There weren’t any major surprises in the housing sector, as the Case Shiller Home Price Index rose by 9.3 percent in May on an annualized basis, the slowest pace in more than a year. From April to May, there was a 0.3 percent decline, the first monthly drop since January 2012. Price gains continue to move down to more normal levels after the big gains seen in 2013.
That leads us to the big surprise of the week. The first reading of second quarter Gross Domestic Product (GDP) surged by 4 percent, well above the -2.1 percent final reading for the first quarter. This is significant because GDP is the broadest measure of economic activity, and at first glance it’s a great sign for our economy. However, it’s important to note that this is the first of three readings and it is based on data that is incomplete or subject to further revisions by the Bureau of Economic Analysis. We will have to see what future reports bring as the second half of the year continues.
- On Tuesday, the ISM Services Index for July will be released.
- Jump to Thursday with the usual suspect, Weekly Initial Jobless Claims, which continue to hover near pre-recession levels.
- On Friday, look for Productivity for the second quarter.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based.
When you see these Bond prices moving higher, it means home loan rates are improving—and when they are moving lower, home loan rates are getting worse.
To go one step further—a red “candle” means that MBS worsened during the day, while a green “candle” means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.
As you can see in the chart below, the volatility continued last week due to news here at home and the uncertainty in several regions overseas. Home loan rates remain attractive and I will continue to monitor them closely.
Economic Calendar for the Week of August 04 – August 08
The bottom line is that home loan rates remain near some of their best levels of the year and now is a great time to consider a home purchase or refinance. Let me know if I can answer any questions at all for you or your clients.