Econ Magazine
Jared Chen
Sky Chen
Bobbi Ying
Lily Yang
Twist Zhou
2022
Economic
& Choices
Content
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- Weekly mortgage demand drops over 6% after interest rates move even higher
- Fed’s Kaplan is worried about inflation and risk-taking, and wants to announce taper in September
- U.S. consumer confidence rebounds in October after three straight declines
- Companies add 571,000 jobs in October thanks to a big boost in hospitality hires, ADP says
- Goldman cuts GDP forecast after Sen. Manchin says he won’t support Biden’s ‘Build Back Better’ plan
- Fed members ready to raise interest rates if inflation continues to run high, meeting minutes show
-Weekly mortgage demand drops over 6% after interest rates move even higher
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* The average contract rate for conforming 30-year fixed-rate mortgages with loan balances ($548,250 or less) rose to 3.23 percent from 3.18 percent for loans with a 20 percent down payment.
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* The 30-year fixed rate has risen 20 basis points in the past month and is now at its highest level since April.
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* Applications to refinance home loans, which are most sensitive to weekly interest rate changes, fell 7 per cent for the week and 22 per cent from a year earlier.
Rising mortgage rates have led to another drop in mortgage demand for refinancing and home purchases. Total filings fell 6.3 per cent last week from the previous week, according to the Mortgage Bankers Association's seasonally adjusted index.
The average contract rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) rose to 3.23 percent from 3.18 percent, while the average contract rate for loans with a 20 percent down payment fell to 0.35 from 0.37, including the origination fee. That ratio was 21 basis points lower than the same week a year ago.
The 30-year fixed rate has risen 20 basis points in the past month and is now at its highest level since April.
Applications to refinance home loans, which are most sensitive to weekly interest rate changes, fell 7 per cent for the week and 22 per cent from a year earlier. The refinancing rate of mortgage activity fell to 63.3 percent from 63.9 percent the previous week.
"Refinance applications fell in the fourth week as interest rates rose, bringing the refinance index to its lowest point since July 2021," said Joel Kan, MBA's vice president of economics and industry forecasting.
Mortgage applications for home purchases fell 5 percent for the week and 12 percent from a year ago. Because home prices are so high, higher mortgage rates are now playing a bigger role in the home buying market. The measures have left existing home prices nationwide 18% higher than a year ago. According to the U.S. Census, the average price of a newly built home in August was 20 percent higher than in August 2020.
Mortgage rates continued to climb this week and are expected to rise sharply into next year as the Federal Reserve winds down its purchases of mortgage-backed bonds.
The MBA released its forecast for 2022 earlier this week, predicting a 33 per cent drop in mortgage origination and a 4 per cent drop in the average 30-year rate. That will mean more competition for lenders as business shrinks.
* Robert Kaplan, president of the Dallas Fed, told CNBC he would like to see the bond purchases announced in September tapered off.
* He said he is worried about inflation and financial market failure.
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Fed’s Kaplan is worried about inflation and risk-taking, and wants to announce taper in September
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Robert Kaplan, president of the Dallas Fed, wants to see the central bank announce next month that it will start tightening policy.
One of his reasons was the widespread belief that the US economy could withstand a little less help from the Fed. But Mr. Kaplan also said he was concerned that inflation and 'excessive risk-taking' could lead to 'distortions' in financial markets, particularly in bonds.
"Based on everything I've seen, I don't see anything right now that would materially change my view," Kaplan told CNBC's Steve Lisman. . " I still think it would be best for us to announce a plan to restructure procurement at the September meeting and start implementing it in October or soon after."
In the early days of the COVID-19 outbreak, It's an appropriate question for Kaplan to start talking about $120 billion in bond purchases starting each month. His comments come a day before Jerome Powell, the Fed chairman, is due to deliver a closely watched speech at the virtual Jackson Hole symposium in Wyoming.
Earlier in the day, CNBC aired an interview with Esther George, president of the Kansas City Fed. George expressed a similar view that the cuts would begin soon. James Bullard, president of the St Louis Fed, was more hawkish in an interview with CNBC.
Both said that while the rising number of Novel Coronavirus cases and their delta variant were worrying, they did not appear to have much impact on the economy in broad terms.
"What we're seeing is that businesses and consumers are learning to adapt and move on with their lives, realizing it's not going to be a neat straight line," Kaplan said. . "It's going to be intermittent, and they're adjusting to that reality."
However, he is concerned about the impact of ultra-loose Fed policy on the economy.
Inflation in 2021 is already at its highest rate in decades,
and Kaplan says rising gas and home prices are affecting
lower-income groups in his area.
"What we're seeing in these communities is that they're disproportionately affected by inflation," he said. "I think we have to take that seriously at the Fed."Kaplan cites the knock-on effect of higher prices on rents.
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He also said he was seeing high levels of risk-taking, particularly in the high-yield end of the fixed income market.For both reasons, he thinks it is time for the Fed to pull back from its accommodation."I think if we can stop buying soon, we'll be healthier and that will put us in a better position for the future,"
U.S. consumer confidence rebounds in October after three straight declines
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Us consumer confidence rose in October after three consecutive declines, as public anxiety over the delta variant of the coronavirus appears to have abated.
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The Conference Board reported Tuesday that its consumer confidence index rose to 113.8 in October from 109.8 in September.
Us consumer confidence rose in October after three consecutive declines, as public anxiety over the delta variant of the coronavirus appears to have abated.
The Conference Board reported Tuesday that its consumer confidence index rose to 113.8 in October from 109.8 in September.
Consumer spending accounts for about 70 percent of all economic activity in the United States, so economists closely watch these numbers to better understand the future of the national economy.
Consumers' views of current and future expectations both rebounded in October.
In addition to delta variables, consumer concerns about inflation also dragged down confidence. Earlier this month, the Labor Department reported that consumer prices rose again in September, leaving inflation up 5.4 percent from a year ago. That was the biggest increase since 2008, as chaotic global supply chains continued to wreak havoc.
Last week, Jerome Powell, the Chairman of the Federal Reserve, said that the chaotic supply chains and shortages that have plagued the economy since the summer have gotten worse and could keep inflation going into 2022.
The rise in consumer confidence in October surprised analysts, who widely expected it to fall for the fourth consecutive time.
Companies added 571,000 jobs this month, beating dow Jones' estimate of 395,000. Leisure and hospitality led the way with 185,000 new jobs. Large businesses were by far the biggest creators, adding 458,000.
Companies add 571,000 jobs in October thanks to
a big boost in hospitality hires, ADP says
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ADP, the payroll processing company, reported on Wednesday that private sector job creation surged in October, thanks to a surge in hiring in the hospitality industry.
The company added 571,000 shares this month, beating dow Jones' 395,000 estimate and just before a downwardly revised 523,000 in September. It was the best month for jobs since June.
Leisure and hospitality - which includes bars, restaurants, hotels and so on - grew by £185,000, well below pre-pandemic employment levels. The industry is seen as a proxy for the economic recovery, which stalled over the summer due to the increase in novel Coronavirus delta variants and large blockages in supply lines.
Mark Zandi, chief economist at Moody's Analytics, said: "The job market is picking up speed as the delta wave of the pandemic abates." Moody's Analytics helped ADP prepare the report. "Job growth is accelerating across all industries, especially at large companies. As long as the outbreak is contained, there could be more big job gains in the months ahead."
Growth in the sector helped boost overall service sector employment by 458,000.
Professional and business services also added 88,000 jobs, trade transportation and utilities added 78,000, and education and health services added 56,000
In goods production, 113,000 jobs were added, construction added 54,000 and manufacturing added 53,000.
In terms of size, businesses with more than 500 employees have so far led the way with 342,000 new hires. Companies with fewer than 50 employees increased by 115,000 and medium-sized companies by 114,000.
While ADP can serve as a harbinger of government statistics, the two can be very different.
In September, ADP set a record for private payrolls -- originally 568, 000, then revised down by 45, 000 -- well above the Labor Department's 317, 000. Total non-farm payrolls in September were just 194,000, well below estimates, and were held back by the loss of 123,000 government jobs.
According to Goldman Sachs, the apparent failure of President Biden's "Build Back Better" plan means that economic growth next year could be weaker than expected.
Goldman cuts GDP forecast after Sen. Manchin says
he won’t support Biden’s ‘Build Back Better’ plan
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The plan hit a major hurdle on Sunday when Senator Joe Manchin of West Virginia said he would not support the bill, meaning it did not have enough votes to pass the Senate.
Jan Hatzius, Goldman's chief economist, said in a note to clients on Sunday that the failure of the law -- which includes heavy spending on climate infrastructure and social programs -- would slow economic growth in 2022.
"It already looks like a close call to enact the BBB, and in light of Manchin's comments, we are adjusting our forecasts to eliminate the assumption that the BBB will become law. While the BBB looks unlikely in its current form, there is a good opportunity for Congress to enact a much smaller fiscal package that addresses manufacturing incentives and taxes on supply chain issues, "the report says.
Goldman sachs slightly lowered its forecast for real GDP growth for the first three quarters of 2022. The company now expects growth of 2% in the first quarter, 3% and 2.75% in the following two quarters. Goldman had expected growth of 3%, 3.5% and 3%.
The firm also noted: "In the coming months, our headline CPI forecast will be as high as 7% before it begins to decline, and the inflation concerns already expressed by Senator Manchin and others are likely to persist, making it more difficult to pass the forecast." .
Fed members ready to raise interest rates
if inflation continues to run high, meeting minutes show
* Minutes from the November Fed meeting showed members were concerned about inflation and willing to tighten policy if it continued to pick up.
* The minutes noted that officials were willing to raise rates "sooner than participants currently anticipated"
* They also said at the meeting that they saw a need to reduce monthly asset purchases, with some members pushing for more aggressive reductions.
Fed officials expressed concern about inflation at their meeting earlier this month and said they were willing to raise interest rates if prices continued to rise.
The Fed's interest-rate committee released minutes of its November meeting on Wednesday, indicating for the first time that the central bank could withdraw all of the economic aid it provided during the pandemic.
Goldman sachs slightly lowered its forecast for real GDP growth for the first three quarters of 2022. The company now expects growth of 2% in the first quarter, 3% and 2.75% in the following two quarters. Goldman had expected growth of 3%, 3.5% and 3%.
The minutes showed a lively discussion of inflation, with members stressing their willingness to act if conditions continued to heat up.
"Many participants noted that if inflation continued to run above the Committee's objective, the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated," the minutes noted.
Officials stressed a "patient" approach to incoming data. The figures show that inflation is at its highest level in more than 30 years.
But they also said they would "not hesitate to take appropriate action to address inflationary pressures that pose risks to their long-term price stability and employment objectives".
After a two-day meeting that ended Nov. 3, the Federal Open Market Committee said it would begin reducing its monthly bond-buying program. Earlier, the committee bought at least $120bn in Treasuries and mortgage-backed securities.
The goal is to keep money flowing in those markets while keeping broader interest rates low to boost economic activity.
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