Economic update for the week ending November 12, 2022

Stock markets surged as key report revealed that inflation moderated in October – The Consumer Price Index (CPI) rose 7.7% year-over-year in October, it’s lowest year-over-year increase since January. The CPI peaked at 9.1% in June, but had remained in the mid 8% level until last month. The Core inflation level, which excludes food and energy costs, was 6.3%, also lower than expected. While still a long way from the 2% Fed target, this was a step in the right direction. Mortgage rates dropped over 1/2% on Thursday after the CPI rate was reported and stocks surged. The Dow jumped 1,200 points on Thursday alone. All indexes had steep gains. The Dow Jones Industrial Average closed the week at 33,747.86, up 4.1% from 32,404.22 last week. It is down 7.1% year-to-date.  The S&P 500 closed the week at 3,992.93, up 5.9% from 3,770.55 last week. The S&P is down 16.2% year-to-date. The NASDAQ closed the week at 11,323.33, up 8.1% from 10,475.26 last week. It is down 27.6% year-to-date. 

U.S. Treasury bond yields – The 10-year treasury bond closed the week, yielding 3.82%, down from 4.17% last week.  The 30-year treasury bond yield ended the week at 4.03%, down from 4.27% last week. We watch bond yields because mortgage rates often follow treasury bond yields. 

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products as of November 10, 2022, were as follows: The 30-year fixed mortgage rate was 7.08%, up from 6.95% last week. The 15-year fixed was 6.38%, up from 6.29% last week. The 5-year ARM was 6.06%, up from 5.95% last week. Interest rates dropped sharply on Thursday after the October CPI report showed that inflation dropped to its lowest level since January. Next week’s rates will be lower. The 30-year fixed mortgages was 6.5% by the end of the day on Thursday. Lenders were closed Friday due to Veteran’s Day. 

Real estate sales figures for October will be released next week by the California Association of Realtor’s and the National Association of Realtor’s. You can get a market report with October sales figures for your city or zip code now at RodeoRe.com

Economic update for the week ending November 5, 2022

The U.S. economy added 261,000 new jobs in October – The Department of Labor and Statistics reported that 261,000 new jobs were added in October. The unemployment rate inched up to 3.7%, just off the 60-year low of 3.5% last month, and back to its 3.7% rate in August. The labor-force participation rate (the share of workers with a job or actively looking for a job) dropped slightly to 62.2% from 62.3% in September. Average hourly wages increased 4.7% from one year ago. The number of new jobs created was above what experts had expected, and about the same as the initial report of 263,000 new jobs created in August that was revised to 315,000 today. The Federal Reserve has stated that they intend to keep increasing rates until the overheated jobs market cools. This is a report we will be looking closely at to determine the course of the Fed.

Stock markets down for the week – The Fed led the week with its 4th consecutive .75% interest rate hike, as well as comments which frightened investors who felt that future rate hikes would be moderating. When speaking about inflation Chairman Powell pointed to the labor market as a key contributor. He said “the labor market continues to be out of balance, with demand substantially exceeding the the supply of available workers.” With consumer spending accounting for nearly 70% of the U.S. economy, the Fed has focused on cooling the labor market with the hopes consumers pull back on their spending. While it seems like a historically low unemployment rate is a good thing, as long as workers have no fear of not finding employment, they will keep spending which will continue to fuel inflation. The Dow Jones Industrial Average closed the week at 32,403.22, down 1.4% from 32,861.80 last week. It is down 10.8% year-to-date. The S&P 500 closed the week at 3,770.55, down 3.4% from 3,901.06 last week. The S&P is down 20.9% year-to-date. The NASDAQ closed the week at 10,475.26, down 5.6% from 11,102.45 last week. It is down 32.1% year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week, yielding 4.17%, up from 4.02% last week. The 30-year treasury bond yield ended the week at 4.27%, up from 4.15% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products as of November 3, 2022, were as follows: The 30-year fixed mortgage rate was 6.95%, down from 7.08% last week. The 15-year fixed was 6.29%, down from 6.36% last week. The 5-year ARM was 5.95%, unchanged from 5.96% last week.

Economic Update for the week ending October 29, 2022

Stock markets had another winning week – Stock markets climbed again this week, with the Dow hitting a 2-month high. Although there was no let-up in inflation, third quarter corporate earnings were stronger than expected in almost all sectors besides technology. The third quarter GDP came in stronger than expected. The economy grew at a 2.6% annual rate, rebounding from a weak first and second quarter. The Dow Jones Industrial Average closed the week at 32,861.80, up 5.7% from 31,082.56 last week. It is down 9.6% year-to-date. The S&P 500 closed the week at 3,901.06, up 4% from 3,752.85 last week. The S&P is down 18% year-to-date. The NASDAQ closed the week at 11,102.45, up 2.3% from 10,859.72 last week. It is down 29% year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week, yielding 4.02%, down from 4.33% last week. The 30-year treasury bond yield ended the week at 4.15%, down from 4.21% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The 30-year topped 7%, it’s highest level since 2002.The Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products as of October 27, 2022, were as follows: The 30-year fixed mortgage rate was 7.08%, up from 6.94% last week. The 15-year fixed was 6.36%, up from 6.23% last week. The 5-year ARM was 5.96%, up from 5.81% last week.

Economic update for the week ending October 15, 2022

Stock markets had a turbulent week – Treasury bond yields and mortgage rates moved higher on continued inflation fears – There were two key inflation reports this week. The producer price index came in at an 8.5% year-over-year increase. That was down for a third straight month. It peaked at 11.7% in March, but it is still at levels not seen since the 1980s. The Consumer Price Index (CPI) dropped slightly to 8.2% in September from 8.3% in August. It peaked at 9.1% in June. Core inflation, which strips out food and energy costs, increased to 6.6%, up from 6.3% in August. That was quite a bit above expectations and also the highest level since the 1980s. Between last week’s strong jobs report and the core inflation numbers this week, experts feel the Fed may do two more 3/4% interest rate hikes this year. With the unemployment rate at a 52-year low, more people working than before the pandemic, almost two open jobs for every worker looking for work, and wages rising at the highest rate in decades, it’s obvious why consumers are out spending, which is fueling inflation. The Fed wants to do something to cool the jobs market. The question is, can the Fed get companies to stop hiring by raising interest rates while a massive amount of stimulus is still going out? With the infrastructure bill, the computer chips bill, and the inflation reduction act ( that is just the name of it) there are trillions of dollars set to go out. It seems like the Fed and the government are working against each other. Investors can’t figure out if the Fed will go so far that companies will begin laying off workers and cause a deep recession, or if all the stimulus will keep companies from making massive layoffs and we will have just a mild recession. From a real estate standpoint, we are seeing these high interest rates shock the real estate and lending industry, but other sectors are still incredibly strong. People leaving the real estate and lending industry are finding no trouble obtaining jobs in other sectors. The Dow Jones Industrial Average closed the week at 29,634.83, up 1.2% from 29,296.70 last week. It is down 18.4% year-to-date.  The S&P 500 closed the week at 3,583.07, down 1.5% from 3,639.66 last week. The S&P is down 24.8% year-to-date. The NASDAQ closed the week at 10,321.39, down 3.1% from 10,652.79 last week. It is down 34% year-to-date. 

U.S. Treasury bond yields – The 10-year treasury bond closed the week, yielding 4.0%, up from 3.89% last week.  The 30-year treasury bond yield ended the week at 3.99%, up from 3.86% last week. We watch bond yields because mortgage rates often follow treasury bond yields.  

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products as of October 13, 2022, were as follows: The 30-year fixed mortgage rate was 6.99%, up from 6.66% last week. The 15-year fixed was 5.99%, up from 5.90% last week. The 5-year ARM was 5.81%, up from 5.36% last week. Rates were higher at the end of the week so next week’s rates will be higher.  

September home sales data from the California Association of Realtors and the National Association of Realtors will be released next week. Those will reflect another month of historically low number of sales, prices retreating from their peak in May and year-over-year increases in prices flattening. You can get September home sales data now for your city or zip code at RodeoRe.com. Go to market reports. 

Economic update for the week ending October 8, 2022

The U.S. economy added 263,000 new jobs in September – The unemployment rate dropped to a 52-year low – The Department of Labor and Statistics reported that 263,000 new jobs were added in September. The unemployment rate dropped to 3.5%, a 52-year low, from 3.7% in August. The labor-force participation rate (the share of workers with a job or actively looking for a job) increased slightly to 62.3%. It was 62.4% in August, 62.1% in July, and 63.6% before the pandemic. Average hourly wages increased 5% from one year ago. More open jobs than workers looking for work is pushing wages up at a higher pace than we have seen in decades because businesses have to compete for workers rather than workers competing for jobs. In September, there were 1.7 job openings for every applicant, down from 2.1 jobs for every applicant last month. The unexpected drop in the unemployment rate, and wages continuing to rise led to a sell-off in stock markets after the report was released.

Stock markets were higher this week despite a steep sell-off on Friday – Stock markets had a huge rally to begin the week. They ended the week higher even though the Dow fell 630 points or 2.1%, the S&P fell 2.8% and the NASDAQ fell 3.8% on Friday after another hot jobs report was announced. With unemployment at a 52-year low investors fear another .75% rate hike at the next Fed meeting. The Fed has made cooling the overheated job market a priority because people with no fear of becoming unemployed shop and spend money. Consumer spending accounts for nearly 70% of the U.S. economy. More people spending leads to higher prices, which fuels inflation. The Dow Jones Industrial Average closed the week at 29,296.79, up 1.9% from 28,725.51 last week. It is down 19.4% year-to-date. The S&P 500 closed the week at 3,639.66, up 1.5% from 3,585.23 last week. The S&P is down 23.6% year-to-date. The NASDAQ closed the week at 10,652.79, up 0.7% from 10,575.62 last week. It is down 32% year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week, yielding 3.89%, up from 3.69% last week. The 30-year treasury bond yield ended the week at 3.86%, up from 3.61% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products as of October 6, 2022, were as follows: The 30-year fixed mortgage rate was 6.66%, almost unchanged from 6.70% last week. The 15-year fixed was 5.90%, down from 5.96% last week. The 5-year ARM was 5.36%, up from 5.30% last week. Rates were higher at the end of the week. Next week’s rates will be higher.

Economic update for the week ending September 24, 2022

Stock markets drop to their lowest levels in two years after another disastrous week – The Fed increased their key rates by another .75% on Wednesday. They also said that they expect to increase rates by another 1.25% by the end of the year. Stocks slid, and bond yields and mortgage rates increased dramatically for the second consecutive week. Much of this week’s drop is because investors have lost confidence in the Fed. That is not good for the financial system. In 2021 when the economy was very robust and the jobs and real estate market were overheated, they left their key rates at near 0%. They also continued to hold and purchase mortgage securities, keeping mortgage rates at historic lows. This March, they acknowledged that they had made a mistake and began raising rates and selling off their bond and mortgage portfolio to reduce their balance sheet. Both short-term and long-term rates have risen at a rate never seen before. Experts now think the Fed has overcorrected and is moving too quickly without giving the increases and other tightening measures enough time to see the effects. We are already seeing the impact on the real estate market. Rates have more than doubled in the last five months. Home sales have declined dramatically and prices have dropped off their record highs that were hit earlier this year. The Dow Jones Industrial Average closed the week at 29,590.41, down 4% from 30,822.42 last week. It is down 18.6% year-to-date. The S&P 500 closed the week at 3,693.23, down 4.6% from 3,873.33 last week. The S&P is down 18.7% year-to-date. The NASDAQ closed the week at 10,867.94, down 5.1% from 11,448.40 last week. It is down 31.7% year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 3.69% up from 3.45% last week. The 30-year treasury bond yield ended the week at 3.61%, up from 3.52% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products as of September 22, 2022, were as follows: The 30-year fixed mortgage rate was 6.29%, up from 6.02% last week. The 15-year fixed was 5.44%, up from 5.21% last week. The 5-year ARM was 4.97%, up from 4.93% last week. Rates were higher at the end of the week. Next week’s rates will be higher.

U.S. existing-home sales – The National Association of Realtors reported that existing-home sales totaled 4.80 million units on a seasonally adjusted annualized rate in August, down 0.4% month-over-month from the annualized number of sales in July. Year-over-year sales were down 19.9% from an annualized rate of 5.99 million in August 2021. The median price for a home in the U.S. in August was $389,950, up 7.7% from $361,500 one year ago. Month-over-month the median price dropped in July and August from the all-time high of $413,800 in June. August marked a record 126 consecutive months of year-over-year increases in the median price. There was a 3.2-month supply of homes for sale in August, up from a 2.6-month supply last August. First-time buyers accounted for 29% of all sales. Investors and second-home purchases accounted for 16% of all sales. All-cash purchases accounted for 24% of all sales. Foreclosure and short sales accounted for less than 1% of all sales, remaining at a historic low.

Economic update for the month ending August 31, 2022

Stock markets dropped about 4% in August – To say that the markets don’t know what to do is an understatement. The first half of 2022 marked the worst first half of a year for the S&P 500 since 1939. The Dow and Nasdaq also had their worst half of a year since 1970. In July, inflation seemed to be moderating, corporate profits were higher than expected, consumer spending was strong and July marked the best July in 50 years for the major stock markets. They made up over half of the losses suffered in the first six months. In August markets reversed after the July jobs report. It shocked experts because employers had hired over double the number of new employees that analysts had estimated and the unemployment rate dropped to 3.5%, a 52-year low. Stocks began to rally again after the July CPI report was released in the second week of the month. It showed that consumer prices, a key indicator of inflation, rose 8.5% year-over-year in July, down from 9.1% in June. With inflation moderating investors felt that the Fed would be less aggressive with future interest rate hikes. On the third week of August, the Fed minutes from the July meeting were released. The minutes showed that the Fed did not intend to slow the pace of rate hikes and was concerned with the overheated jobs market and consumer spending which they have been trying to slow and stocks began to drop. On August 26 Federal Reserve Chairman, Jarome Powell gave a major policy speech. He said that the Fed intended to act “quickly and swiftly for a long prolong period of time” to get inflation down to the Fed target range of 2%. He said to “expect pain!” He cited the overheated jobs market, which is causing a labor shortage and leading to wage gains that are fueling inflation. He spoke about the rate of consumer spending. His frustration that all the rate hikes and other measures to slow the economy was not having an effect on the pace of hiring and spending was evident. Stock markets sold off in the hours that followed his speech. For example, the Dow dropped over 1,000 points. To put it in perspective, that was a 3% drop. The S&P dropped 3.4% and the Nasdaq dropped 3.9% on the 26th. It was a tough speech and a tough day! In September we will be looking at the jobs report which will be released tomorrow. If the pace of hiring continues to be brisk, we expect stocks to continue to drop. If hiring is strong but not above expectations stocks should stabilize. If the pace of hiring is weak and the unemployment rate begins to rise stocks should rise as well. We will look at the August CPI report the second week of the month to see what the inflation rate is. If it looks like inflation is continuing to moderate, so below 8.5%, stocks will do well, but if the CPI rate is higher stocks will get hit hard. On the third week of the month, the Fed will raise their key interest rates. A .75% rise is expected. I would not expect that rise to cause stocks to drop. It’s already built into the current market levels. Should they do a full 1% increase, that’s a different story, but it is not expected. The Dow Jones Industrial Average closed the month at 31,510.43, down 4.1% from 32,845.13 on June 30. It’s down 13.3% year-to-date. The S&P 500 closed the month at 3,955.29, down 4.2% from 4,130.29 last month. The S&P is down 17% year-to-date. The NASDAQ closed the month at 11,816.20, down 4.6% from 12,390.69 last month. It is down 24.4%, year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the month yielding 3.15%, up from 2.67% last month. The 30-year treasury bond yield ended the month at 3.27%, up from 3.00% last month. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of September 1, 2022 for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.66%, up from 5.30% at the end of July. The 15-year fixed was 4.98% up from 4.58% last month. The 5-year ARM was 4.51% up from 4.29% last month. Rates topped out in the middle of June when the 30-year hit over 6%. It dropped to 4.99% the first week of August, but have worked their way back up over ½% since then. The jobs report and the CPI report will have a big impact on rates. If hiring slows and unemployment increases, rates will drop. If hiring remains strong rates will remain at these levels or rise slightly. If the CPI rate shows inflation is dropping, rates will drop. If the CPI increases mortgage rates will increase as well. These are long term rates. They are tied to longer term inflation expectations, not short term. When the Fed raises rates, it may actually lower mortgage rates.

The August jobs report will be released tomorrow. That will be a good indicator of whether the fed rate hikes are causing employers to slow the pace of hiring. So far that has not happened. With unemployment at a 52-year low and wages increasing due to a shortage of labor. The tight labor market is one of the conditions that is fueling inflation.

U.S. existing-home sales – The National Association of Realtors reported that existing-home sales totaled 4.81 million units on a seasonally adjusted annualized rate in July, down 5.9% month-over-month from the annualized number of sales in June. Year-over-year sales were down 20.2% from an annualized rate of 6.03 million in July 2021. The median price paid for a home in the U.S. in July was $403,800, up 10.8% from $364,600 one year ago. July marked a record 125 consecutive months of year-over-year increases in the median price. There was a 3.3-month supply of homes for sale in July, up from a 2.6-month supply last July. First-time buyers accounted for 29% of all sales. Investors and second-home purchases accounted for 15% of all sales. All-cash purchases accounted for 24% of all sales. Foreclosure and short-sales accounted for less than 1% of all sales, remaining at a historic low.

California existing-home sales – The number of single family homes sold in July declined 31% year-over-year – The California Association of Realtors reported that existing-home sales totaled 295,460 on a seasonally adjusted annualized rate in July, down 14.4% from June, and down 31.1% from July 2021 when 428,980 homes sold on an annualized basis. Year-to-date, California existing-home sales were down 13.6% in July. The statewide median price paid for a home in July was $833,910, up 2.8% from $811,170 in July 2021. There was a 3.2-month supply of homes for sale in July, up from a 1.9-month supply in July 2021. A normal market has a 5-6 month supply of homes on the market.

My take – We have been shocked by such a sudden slowing in the number of sales. The number of homes sold is a number that we have not seen in July since the financial crisis. From the closings I have seen, August may be even worse with fewer closings. Fortunately, I we have had a pick up in openings. I expect September sales to be higher than July and August. Prices are another story. The market got so crazy due to bidding wars in the first quarter of the year that we saw sales that shocked us. Many homes had dozens of offers. Most offers were at or a little over the asking price. One or two buyers went tens or even hundreds of thousands of dollars over the asking price. It seemed that people were so tired of losing out on homes that they would pay anything to get the one they were bidding on. We all scratched our heads in amazement with how much over full price the successful buyer was willing to pay. We are not seeing that now. We are seeing the market normalize. Prices are back to the level they began the year. If you look just at the highest price ever reached in March, April or May we are probably about 10% below that highest ever sale where the buyer bid tens or hundreds of thousands over full price to get it! We are not scratching our head in amazement with that panic buying when someone will pay anything now. Without those outlier overbids, the sales we see are the second or third highest price ever for a similar home in the neighborhood. That’s not so bad!

The graph below shows regional figures by county in Southern California.

Economic update for the week ending July 23, 2022

Stock markets ended the week higher – Most companies that have reported second-quarter profits beat earnings estimates. That gave a boost to stocks this week. Even tech stocks, which have been beaten down significantly, had a great week. The news was not all good for tech stocks. Tesla beat expectations but Snap did not. Snap dropped 39% on Friday which spilled over to other sectors and stock markets ended lower on Friday, ending a three-day rally. Investors were also feeling optimistic that dropping gas prices, some settling in food prices, easing of supply-chain shortages, and some economic data indicating that businesses may be pulling back on spending may keep the Fed from being as aggressive with interest rate hikes as thought just a week ago when the CPI report was released. Some feared a full point rate hike at the next meeting. That seems very unlikely now. The Dow Jones Industrial Average closed the week at 31,899.29, up 1.9% from 31,288.26 last week. It is down 12.2% year-to-date. The S&P 500 closed the week at 3,961.63, up 2.5% from 3,863.19 last week. The S&P is down 16.9% year-to-date. The NASDAQ closed the week at 11,834.11, up 3.3%from 11,452.42 last week. It is down 24.6%, year-to-date.

U.S. Treasury bond yields higher this week – The 10-year treasury bond closed the week yielding 3.00% down from 2.93% last week. The 30-year treasury bond yield ended the week at 3.10%, down from 3.10% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of July 21, 2022, for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.54%, up slightly from 5..51% last week. The 15-year fixed was 4.75%, up from 4.67% last week. The 5-year ARM was 4.31%, down from 4.35% last week.

U.S. existing-home sales – The National Association of Realtors reported that existing-home sales totaled 5.4 million units on a seasonally adjusted annualized rate in June, down 5.4% month-over-month from the annualized number of sales in May. Year-over-year sales were down 14.3%from the annualized rate of 5.97 million in June 2021. The median price of a home in the U.S. in June was $416,000 up 13.4% from $366,900 one year ago. June marked a record 124 consecutive months of year-over-year increases in the median price. There was a 3-month supply of homes for sale in June, up from a 2.5-month supply last June. First-time buyers accounted for 30% of all sales. Investors and second-home purchases accounted for 14% of all sales. All-cash purchases accounted for 25% of all sales. Foreclosure and short sales accounted for less than 1% of all sales remaining at a historic low.

California existing-home sales – The number of single-family homes sold in June declined 21% year-over-year -The California Association of Realtors reported that existing- home sales totaled 344,970 on a seasonally adjusted annualized rate in June, down 8.4% from May, and down 20.9% from last June. Excluding two months during the pandemic shutdown, this marked the fewest number of homes closed escrow in a month since April 2008. Existing-home sales through June are down 10.9% from the number of homes sold in the first half of 2021.

The statewide median price paid for a home in June was $863,790, up 5.4% from $819,630 in June 2021.

There was a 2.5-month supply of homes for sale in June, up from a 2.1-month supply of homes for sale in May, and a 1.7-month supply in June 2021. While up slightly, a 2.5-month supply is still a low level. A normal market has a 5-6 month supply of homes on the market.

We have seen more homes come on the market in the past few weeks. Perhaps sellers feel that prices have topped out. Those listings are selling quickly if they are priced correctly. The vast majority of the homes sold are still receiving multiple offers, but they are not receiving the number of offers that they would have received a couple of months ago. We are seeing two to four offers, not twenty! The homes priced too high are sitting. Once reduced to the correct price those are selling as well, but not with the excitement and urgency a new listing gets. These new listings will begin to close in August. I expect that the number of sales will increase in August from the anemic number of sales we saw in June and that I expect in July, which seems to also be shaping up as a month with a low number of sales. June and July should be the fewest number of sales we see in a month for a long time. That’s what I am seeing on the street.

The graph below shows regional figures by county in Southern California.

Economic update for the week ending July 16, 2022

Stock markets ended a volatile week slightly lower – Stocks dropped and interest rates jumped after the June CPI report was released on Wednesday. The Report shocked experts who had previously seen signs that inflation may have been moderating. To their surprise, the CPI report showed that consumer prices jumped from 8.6% in May to 9.1% in June, the highest reading since 1981. Mortgage interest rates, which had dropped about ½% from their peak on June 14, started to rise last Friday after the June jobs report showed that hiring had beat expectations by over 100,000 new jobs and continued to rise following the CPI report. The brisk rate of hiring, low unemployment, and soaring inflation disappointed investors who had hoped that interest rate hikes and other tightening measures would begin to cool the overheated economy and curb inflation. Due to inflation, good news is bad news, as the stronger the economy is the more people spend which causes inflation. On Friday, stocks surged on good news, which has not been the case lately, when it was announced that Retail Sales increased 1% month-over-month in June and rose 8.4% from one year ago. The report showed that consumers have not been swayed by negative economic predictions and are not cutting spending because they have a high amount of savings and their wages are rising. Early second quarter corporate profits have also beat expectations. The Fed reported that import prices fell slightly in June as the strong dollar and moderating oil prices may be helping inflationary pressures. Fed officials also made comments which dispelled investors’ fears of a full one percentage point interest rate hike at its next meeting. That does not seem to be their plan based on their comments. The Dow Jones Industrial Average closed the week at 31,288.26, down 0.2% from 31,338.15 last week. It is down 13.9% year-to-date.  The S&P 500 closed the week at 3,863.19, down 1.1% from 3,899.38 last week. The S&P is down 19.0% year-to-date. The NASDAQ closed the week at 11,452.42, down 1.6% from 11,635.31 last week. It is down 26.8% year-to-date.

U.S. Treasury bond yields higher this week – The 10-year treasury bond closed the week yielding 2.93%, down from 3.09% last week.  The 30-year treasury bond yield ended the week at 3.10%, down from 3.27% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of July 14, 2022, for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.51%, up from 5.30% last week. The 15-year fixed was 4.67%, up from 4.45% last week. The 5-year ARM was 4.35%, up from 4.19% last week.

California home sales statistics for June will be released next week from the California Association of Real Estate. U.S. home sales will be released by the National Association of Real Estate the week of the 21st. You can get local sales statics for June on my website. You can search the market report tab for your city or zip code.

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Economic update for the week ending July 9, 2022

Stock markets finished the week higher – Signs of cooling inflation, and three straight weeks of declining gas prices from their peak in mid June had investors optimistic about future earnings, interest rate increases, supply chain issues, and labor shortages. On Thursday, ADP – the nation’s largest payroll company, estimated job growth above the level of expectations. On Friday, the Labor Department reported that 372,000 new jobs were created in June. That was 100,000 jobs more than what was expected. With job growth so robust and unemployment so low it’s hard to see how consumer spending, which accounts for almost 70% of the U.S. economy, will stall. If consumers keep spending, it will be hard to bring down inflation. Experts and the Fed had hoped that higher interest rates would increase borrowing costs for companies and slow the pace of hiring. As of June, that has not happened. Job growth for the first half of 2022 is at the highest levels ever recorded and the second quarter job gains were the highest in half a century. It is hard to imagine inflation declining to a healthy level without slowing job growth and wages. Investors now expect further and swifter action by the Fed than they did in the first three days of the week as a result of the strong job growth numbers in June. The CPI report is due out next Wednesday. That will be the best gauge of how the Fed’s actions have impacted inflation so far. The Dow Jones Industrial Average closed the week at 31,338.15 up 0.1% from 31,097.26 last week. It is down 13.8% year-to-date. The S&P 500 closed the week at 3,899.38, up 1.9% from 3,825.33 last week. The S&P is down 18.2% year-to-date. The NASDAQ closed the week at 11,635.31, up 4.6% from 11,127.85 last week. It is down 25.6% year-to-date

U.S. Treasury bond yields higher this week – The 10-year treasury bond closed the week yielding 3.09%, up from 2.88% last week. The 30-year treasury bond yield ended the week at 3.27%, up from 3.11% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of June 30, 2022, for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.30%, down from 5.70% last week. The 15-year fixed was 4.45%, down from 4.83% last week. The 5-year ARM was 4.19%, down from 4.50% last week. Rates were lower Friday. The 30-year jumped a little at the end of the week after the strong jobs report. The hope is that job growth will stall as the Fed raises rates and tightens credit in order to slow the economy to curtail inflation. Such strong job growth and low unemployment puts more pressure on inflation. Next week’s survey rates should be a little higher.

The U.S. economy added 372,000 new jobs in June – The Department of Labor and Statistics reported that 372,000 new jobs were added in June. That exceed experts expectations by 100,000 jobs. They expected interest rate hikes and other tightening measures by the Fed to slow the overheated economy and would slow hiring. The unemployment rate held steady at 3.6% which is just slightly higher than the 52-year low of 3.5% just before the pandemic. The labor-force participation rate (the share of workers with a job or actively looking for a job) was 62.2% in June, down from 62.5% in May. It is well below the 63.6% level before the pandemic. Experts are puzzled as to why more employees are not returning to the workforce, especially with wages higher, pandemic stimulus running out, and so many available job openings. Survey data reported that there were 11.3 million available Jobs which amounted to about 2 positions for every job seeker. Average hourly wages increased 5.1% from one year ago. Wages were up 5.2% year-over-year in May and 5.5% year-over-year in April which may be a sign that inflation may be moderating.