Monday, September 7, 2015

You Deserve a Raise Today. Interest Rates Don’t.

Credit Alex Nabaum

For most Americans, paychecks determine living standards. Unfortunately, wages in America have long stagnated or declined for most working people, including college graduates.
The disappointing employment report for August — in which wage growth showed no sign of accelerating — only drove home that reality.
Worse, flat or falling pay is self-reinforcing because it dampens demand and, by extension, economic growth. In the current recovery, median wages have fallen by 3 percent, after adjusting for inflation, while annual economic growth has peaked at around 2.5 percent. At that pace, growth isn’t able to fully repair the damage from the recession that preceded the recovery. The result is a continuation of the pre-recession dynamic where income flows to the top of the economic ladder, while languishing for everyone else.
Policy makers should be focused on strategies to raise wages, but the opposite appears to be happening. Just as Congress enfeebled the economy by switching too soon from stimulus spending to budget cuts, Federal Reserve officials have all but vowed to begin raising interest rates this year. That move reflects a belief that the economy is returning to “normal,” but it would be premature, because today’s norm is an economy that is incapable of generating and sustaining broad prosperity.
In a healthy economy with upward mobility and a thriving middle class, hourly compensation (wages plus benefits) rises in line with labor productivity. But for the vast majority of workers, pay increases have lagged behind productivity in recent decades. Since the early 1970s, median pay has risen by only 8.7 percent, after adjusting for inflation, while productivity has grown by 72 percent. Since 2000, the gap has become even bigger, with pay up only 1.8 percent, despite productivity growth of 22 percent.
Why has worker pay withered? The answer, in large part, is that rising productivity has increasingly boosted corporate profits, executive compensation and shareholder returns rather than worker pay. Chief executives, for example, now make about 300 times more than typical workers, compared with 30 times more in 1980, according to the Economic Policy Institute. Other research shows far greater discrepancies at some companies.
For younger people, pay has actually declined. The average hourly wage for recent college graduates in early 2015 was $17.94, compared with $18.41 in 2000. That “loss” in starting pay, about $1,000, can carry over to diminished earnings for years to come. Young high school graduates have it even worse. Their average hourly pay was $10.40 in early 2015 versus $11.01 in 2000.
The Fed is a crucial player in reversing those trends, since one of its mandates is to foster full employment. Wage stagnation is a clear sign that the economy is not at full employment, which means it needs loose monetary policy, not tightening. An interest rate hike, by sending the wrong signal of economic health, could make it harder for labor groups and policy makers to assert the urgency of their efforts to raise pay.
In the past year, low-wage workers have successfully fought for minimum wage increases in states and cities. Congressional Democrats have championed legislation to raise the federal minimum wage and to fight wage theft and abusive worker scheduling. The Labor Department is moving ahead with a much needed new rule to update the nation’s overtime-pay laws.
In the midst of those efforts, it would be a setback for the Fed to act as if the economy is already near full employment. It’s not. The proof is in the paycheck.

Tuesday, September 1, 2015

Current Mortgage Rates for Monday, August 31, 2015

Current Mortgage Rates for Monday, August 31, 2015

best-mortgage-ratesMortgage rates hit recent lows early last week, only to rise again later in the week as mortgage-backed securities sold off.  The primary drivers of the market action of late have been the stock rout in China (and the fears of slowing growth that accompany that sell-off).  This has made the market wildly unpredictable, and has caused bond yields to be all over the place.  Last week’s Primary Mortgage Market Survey from Freddie Mac showed that rates fell to 3.84%, but that was mostly reflective of conditions early in the week.  Rates are effectively a little higher than that now.  This morning MBS are rallying a little bit, and rates are under a small amount of downward pressure.

Today (and yesterday’s) economic data:

This week is fairly data-intensive, but today’s data is not especially influential:
  • Chicago PMI came in a little below expectations, with a print of 54.4 versus expectations of 54.9.  New orders slowed, and order backlogs were in contraction for the seventh consecutive month.  The labor component of the report was in contractionary territory for the fourth consecutive month.  This report in and of itself wasn’t awful, but there are some bad harbingers here.
  • The Dallas Fed Manufacturing Survey… oof.  The consensus prediction for August was -2.5.  The print was -15.8.  This is coming off a July print of -4.6.  This report is obviously heavily influenced by the steep decline in oil prices, so I don’t know if this should be written off as aberrational, or what.  It’s a bad report, but I don’t know that it will impact the markets all that much.
Manufacturing continues to struggle.  This is nothing new, and has been the case all year.  The strong dollar and falling commodity prices (particularly oil) continue to weigh on the sector.  So it goes.

Looking Back:

Well, last week was a crazy week.  Bond were driven by equities, which were in turn driven by events in China.  Stocks started off the week *way* down, and bond rallied as a a result.  Yields on 10-year Treasuries fell to as low as 1.92% on Monday at the depths of the stock sell-off.  Mortgage backed securities, which trade at a spread to Treasuries, rallied accordingly, and for a brief period rates were at 3-4 month lows.  Equities rebounded as the week wore on, and bond yields rose as high as 2.20% on Thursday, and then fell back to the 2.15% range on Friday, which is currently where they are sitting.  It was a crazy week, and the situation in China is far from settled.  It seems very likely that we’re going to continue to see pretty wild swings in the near term.

Looking Ahead:

Well, there’s plenty of domestic data this week, much of which is predicted to be similar to last month’s data.  Among the highlights, we get the August ISM Manufacturing report tomorrow, International Trade on Thursday, and the August jobs report on Friday.  The consensus for the employment report is that the economy will have added 223k jobs, which is more or less where the report has been for months now.  As I noted above, the market has mainly been moved by overseas influences, which makes it exceedingly difficult to say with any certainty where things will be at the end of the week.  That said, it’s worth burning a few words about the Fed, which is oddly unperturbed by the low rate of inflation.

FedWhat’s up with the Fed?

Last week the core PCE Deflator for July was published, and it showed growth of 1.2%, year-over-year.  This is one of the key metrics by which the Fed gauges inflation.  The Fed’s target for inflation is 2%, and we haven’t been close to that goal anytime recently.  The strong dollar and the fall in commodity prices should prove disinflationary for the U.S. and one would think that we should see even less inflation moving forward.  The Fed, which has consistently predicted higher inflation over the past several years, only to see their predictions fall flat, seems nonplussed by this situation, and still seems intent on hiking rates this year. if you believe the various interviews and speeches that came out of the Jackson Hole Symposium.  Tim Duy put up a nice run-down of this on Friday.  I’d suggest reading the whole thing, but this is the jist of it:
“The Fed very much wants to ignore the inflation data and follow the labor markets. And even as inflation drifts further away from their target, they keep doubling down on their bets. It’s what the Phillips curve is telling them they should do.
Bottom Line: The Fed doesn’t want to take September off the table. Many officials had what they believed was a solid case for hiking rates at the next meeting, and they don’t want market turmoil to undermine that case. And that case is not complicated. It’s the Phillip curve combined with an estimate of full employment (an estimate of full employment that remains sticky despite the persistent downtrend in inflation). If they move in September, that’s the story they will run with. They don’t have another paradigm.”
Seems to me that a near-term hike would have a neutral impact at best, and would be disastrous at worst.  I cannot see how it would be good, except to maintain the Fed’s “integrity,” as they’ve been talking about hiking for what seems like forever now.  I understand they don’t want to be perceived as looking at one month’s data, and reacting.  But when things change drastically, it seems imprudent/strangely inflexible not to react.  As Bob Dylan once said, “you don’t need a weatherman to know which way the wind blows.”

As for mortgage rates?

Mortgage rates are going to move with Treasury yields, and Treasury yields are currently being moved by stocks which are being moved by overseas influences, and to a degree, the Fed.  As some point things will settle down, but right now we’re all over the place.  I’ve backed away from a prediction of 30-year rates ending the year between 4.25-4.50%, but if the Fed hikes in September (or October), I do believe that rates will spike.  Right now we’re enjoying a dip in rates, and if I were looking for a mortgage, I would take advantage of it.

And now for something completely different:

Is there a more dysfunctional organization on this planet than the Washington Redskins?  Perhaps one of the European governing bodies?  Perhaps. I don’t care one way or another about the Skins, but it’s certainly a fun show to watch.  It’s a little reminiscent of the 80’s Steinbrenner Yankees.

This week’s economic data that could impact mortgage rates:

  • Chicago PMI
  • Dallas Fed Manufacturing Survey
  • PMI Manufacturing Index
  • ISM Manufacturing Index
  • Construction Spending
  • ADP Employment Report
  • Factory Orders
  • International Trade
  • Weekly Jobless Claims
  • ISM Non-Manufacturing Index
  • Nonfarm Payrolls
 #robertdarvish #bobbydarvish #mortgagerates #platinumlending #orangecounty #loan #finance #realestate #homepurchase #homerefinance #interestrates #darvish