The Market Has Rose-Colored Glasses

Forgive sounding like a broken record from last week’s post: With stocks and crypto markets reaching all-time highs this week, it feels like the economy can do no wrong. 

Mortgage rates are elevated by the continued strength and lack of expected weakness.  Is it really as good as it seems? 

There are several metrics that we should examine.  The two biggest metrics that are the focus of the Federal Reserve (Fed) are Inflation and Jobs/Employment.  Another important metric is consumer spending and sentiment (feeling about the economy).  We, in the USA, are not an island impervious to the happenings around the world.  It is important to monitor economic and political events around the globe as they influence our economy and interest rates.

How Have Global Events Impacted the US Economy and Rates? 

Bonds and rates got a little boost from the perceived escalation in the war in Ukraine.  Ukraine sending US-manufactured ATACMS (Army Tactical Missile Systems) missiles and European Union-Manufactured weaponry into Russia led to a non-nuclear ICBM (Intercontinental Ballistic Missile) response from Putin.  North Korea sent 100,000 soldiers to bolster Russia.  The market seems to be viewing this escalation as a possible precursor to a larger conflict that could include the rest of the world.  This uncertainty is good for bonds and mortgage rates, but the stock market just keeps climbing. 

The UK saw its inflation rates tick up this week, which is negative for global bonds and rates.  Even though US inflation appears to be under wraps and continuing lower, pressure from around the globe can make it challenging to see lower rates.  Germany and UK also had several economic releases that showed recession-leaning indicators.  Weakness globally is also good for our rates.

Trending Now: Affluent Bargain Hunting

The New York Federal Reserve Bank administers a consumer finance survey that was particularly telling. 

• The probability of the household sector defaulting on current debt obligations rose to 14%. 
• 40% of respondents claimed their financial situation is worse than 12 months ago. 
• 90+ day delinquencies on auto loans are at 15%.
• Seriously delinquent credit card debt is at a 14-year high. 

Walmart, which is a counter-cyclical stock (meaning the stock improves when the economy gets worse), showed that 75% of its market share came from households making over $100K.  This means wealthier families are beginning to bargain-hunt to find more affordable options for their spending.

Jobs Report vs. QCEW Data

The Bureau of Labor Statistics (BLS) releases the ultra-important monthly Jobs Report.  This report tries to estimate job growth across the country.  They survey around 670,000 businesses and make thousands of phone calls to families.  They take these samples, and each month, they state how many jobs were created and revise the previous two reports to try to be more accurate.  The Jobs Report provides much of the ammunition that the Fed is currently using to decide whether or not to cut rates.

We received the Quarterly Census of Employment and Wages (QCEW) this week.  This report also comes from the BLS, but it isn’t a sample like the Jobs Report.  It looks at over 12 million businesses and covers about 95% of all jobs in the US.  The Jobs Report showed 2.5M jobs created over the past year.  This QCEW report shows only 1.246M.  This correction would lead to about 100,000 fewer jobs each month in the Jobs Report.  If that had been accurately reported, we would have seen a significant rally in the bond and rate markets.  

This is still considered preliminary data, but the Q1 release showed an 818,000 negative job revision; now Q2 shows a 1.246M negative revision.  It appears the revisions are getting worse, with the actual job data less than reported.  It will be interesting to see the Fed response to this, as several members are still stating that the labor market is strong.  We will get the final number in February of 2025.

Leading Economic Indicators Index Still Down, Rates Looking Up

A major report from The Conference Board called the Leading Economic Indicators Index (LEI) had its 32nd consecutive monthly negative number of -.4% last month.  

This index tracks the health of general economic activity and how it affects the future of the economy.  If we don’t see future growth in economic activity, this could be good for bonds and rates.

Wrapping Up with a Warning

Lastly, WARN notices are up. Under federal and state law, employers must give notices to the government prior to having mass layoffs. This allows the government to set up support resources for these employees. In the last 30 days, here is a small sample of layoffs: 

• Boeing: 2500
• HyAxiom 5,000
• Marriott 1,000
• Intel 2,000

Here is an interesting website if you would like to explore this more: www.warntracker.com

Looking Ahead: 

Next week is shortened due to the Thanksgiving holiday but there is no lessened amount of data:

Tuesday, November 26

• Case Shiller Home Price Index
• FHFA Home Price Index
• New Home Sales
• Fed Minutes

Wednesday, November 27

• Personal Consumption Expenditures (PCE) Report
  Note: This is the Fed’s favorite measure of inflation
• Q3 GDP (2nd Reading)
• Pending Home Sales
• Durable Goods Orders
• Initial Jobless Claims