My Mortgage Blog

Mortgage Market Update 12-11-2013

December 11th, 2013 12:19 PM by Nick Rapplean

Could the economy be seeing a solidifying recovery? Last week’s spate of reassuring economic headlines definitely offered some optimism in that regard. Employment, consumer activity, and real estate all showed substantial improvement.

Unemployment

Easily the top story of last week was the news that unemployment for November dropped to 7 percent, down from October’s 7.3 percent, marking the lowest unemployment rate in five years, according to last Friday’s Bureau of Labor Statistics (BLS) report. All in all, the economy added 203,000 jobs, putting the total number of unemployed workers at 10.9 million people.

Fueling that improvement were gains in robust employment sectors, such as manufacturing, which added 27,000 jobs, and construction, which added 17,000 jobs. That said, the number of people unemployed for 27 weeks or longer — called long-term unemployed by the BLS — was still hovering at 4.1 million in November, with those job seekers accounting for 37.3 percent of the unemployed.

Meanwhile, November’s labor force participation rate, which describes the amount of Americans of working age engaged in the workforce, was 63 percent, up from 62.8 percent in October. That said, the participation rate is still down from 64 percent a year ago. While the labor force participation rate is impacted by various factors, such as demographics shifts, it has been on a sharp decline since the 2007 recession, so November’s bump upward was welcome.

Initial Jobless Claims

Continuing with the employment news, first-time claims for unemployment insurance benefits took an unexpected and welcome dip to a six-year low, according to last weeks report from the Employment and Training Administration. Claims filed by the newly unemployed during the week ending Nov. 30 dropped to 298,000, a decline of 23,000 claims from the preceding week's total of 321,000.

The expectation among employment-watchers was for claims to actually ring in at around 320,000. What was the reason for the sudden improvement? It could be due to seasonal volatility in first-time claims, which can skew up or down. In this case, it showed strong improvement, but the actual figures might be closer to economists’ expectations of measured improvement, TD Securities U.S. strategist Gennadiy Goldberg told the press last week.

"While we continue to note that the tone in the initial claims data has been steadily improving over the past few months, we believe that seasonal volatility has recently led the data to overstate the true voracity of labor market improvement," he said. "We continue to see the ‘true’ trend in claims running at about 320-330K, but we are unlikely to see a fresh confirmation of this trend until strong seasonal volatility begins to unwind in early-February."

Incomes and Spending

While unemployment news was good all-around, personal incomes and spending were mixed with American incomes decreasing $10.8 billion, or 0.1 percent, in December and disposable personal income (DPI; income after taxes) decreasing $23.6 billion, or 0.2 percent, for the month, the Bureau of Economic Analysis reported last week.

Meanwhile, personal consumption expenditures (PCE) increased $32.7 billion, or 0.3 percent, the Bureau said. While the income news was disappointing, an increase in spending is important given that consumer spending accounts for roughly 70 percent of U.S. economic activity.

Consumer Credit

Bearing the importance of consumer activity in mind, consumer credit was up 7 percent in October, growing to a total of $3.07 trillion, the Federal Reserve reported last week. The big question was, what type of consumer borrowing grew?

Non-revolving debt, such as car and student loans continued its ongoing rise, growing at an annual rate of 7.5 percent to $2.21 trillion. However, revolving debt, such as credit card sales, point to increased consumer activity. Fortunately, revolving credit posted at 6.1 percent, hitting $856.8 billion.

As employment improves and more consumers feel confident about their economic circumstances, that revolving debt, along with spending, could continue to show improvement.

Real Estate

Last, but not least, new homes sales enjoyed a surprise surge in October, with transactions of new single-family homes hitting an annual rate of 444,000, the Census Bureau and the Department of Housing and Urban Development reported last week. This marked a whopping 25.4 percent gain over September’s rate of 354,000 and was 21.6 percent higher than October 2012’s estimated rate of 365,000.

The median sales price for new homes sold in October rang in at $245,800, and the average sales price was $321,700. In terms of inventory, the number of new homes for sale at the end of October totaled 183,000, representing a 4.9-month supply at October’s sales rate.

Posted in:General

Posted by Nick Rapplean on December 11th, 2013 12:19 PM

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Mortgage Market Update 12-11-2013

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