Based on the information provided in Friday’s BLS report, the recent job report shows mixed results.
INFLATION AND MORTGAGE RATES
Based on the information provided in Friday’s BLS report, the recent job report shows mixed results. While there were 187,000 jobs created in July, which is a positive sign, it fell short of the expected number of about 200,000. Additionally, job growth in May and June was revised lower, indicating some weakness in the labor market. One notable factor contributing to the job gains in the report is the birth/death model used by the Bureau of Labor Statistics (BLS). This model estimates new business creation relative to closed businesses and how many jobs this created. In July, this modeling added 280,000jobs, which seems surprisingly high given the current economic climate and the cost of capital. This raises questions about the accuracy of the modeling. Further analysis of the data reveals some concerning trends. Part-timeworkers increased by 972,000. Multiple job holders rose by 118,000. This data suggests some individuals are having to take on second jobs to make ends meet. Moreover, full-time workers fell by 585,000, which could indicate reduced job security or businesses cutting back on hours to save costs. The decline in average weekly hours worked is also noteworthy, as it reflects businesses' attempts to cut costs. This, in turn, led to a minimal increase of only 0.1% in average weekly earnings from June. Given these observations, the data points towards underlying weakness in the job market and the broader economy. This situation raises concerns about the potential for inflation. Headline inflation is expected to increase from 3% to 3.1-3.2% based on upcoming CPI (Consumer Price Index) report. To mitigate the risks associated with inflation, individuals who are under contract may want to consider locking their rates. It's essential to keep an eye on the upcoming CPI report for a more comprehensive understanding of inflation trends and how they may impact the economy and financial markets. The report is due this Thursday. If inflation rises, as we expect it to, mortgage rates will take another hit this week. The analysis of the leisure and hospitality sector in the job market reveals some interesting points. While the sector has experienced significant job gains recently, surpassing the pre-Covid employee numbers, there are signs that this trend may not be sustainable. The Bureau of Labor Statistics (BLS) Jobs Report for July showed only 17,000 leisure and hospitality job gains. A relatively small increase compared to the previous months. Additionally, the latest Job Openings and Labor Turnover Survey (JOLTS) indicated that leisure and hospitality job openings fell to their lowest level since March 2021. This suggests a potential slowdown in job growth in this sector in the coming months. Moreover, there have been notable discrepancies between the BLS and ADP Employment Reports in recent times. These differences may be attributed to issues with seasonal adjustments in the data. Seasonal adjustments are used to account for regular fluctuations in employment patterns throughout the year. They can lead to distortions in the data. Heading into the fall, it will be essential to closely monitor these discrepancies and their potential impact on the accuracy of the job market data. The performance of the leisure and hospitality sector, as well as any adjustments made to the data collection methodologies, could have significant implications for understanding the overall health of the job market and the economy. Why does this matter? People who are struggling financially aren’t thinking about buying homes. The destruction of demand continues. Inflation is headed into a danger zone this month and weak points in the labor market could influence monetary policy. The next Fed meeting is in September. We want to hear about future rate cuts, not more rate hikes. We might not get what we need. A higher rate environment could last longer than expected in effort to stabilizes prices. If you’re in contract now, closing this month, its a good time to lock in your rate. The news this week can be tricky. If you’re looking to buy soon, buy within your means and play the long game. Homeownership is not for instant gratification. Homeownership is about stability. The average home equity rose from $231,000 per home to $249,000 this month. You can’t save as fast as you can earn equity over the next 5 years. Especially in a low inventory real estate economy. |
US CREDIT RATING AND RISING DEBT
The US debt can impact Americans in several ways, both in the short and long term. Here are some key ways the national debt can affect individuals and the broader economy:
Interest Payments: As the national debt increases, the government needs to pay interest on the borrowed funds. These interest payments can consume a significant portion of the federal budget, diverting funds that could otherwise be used for essential programs and services. Higher interest payments may also lead to increased taxes or reduced government spending, which can impact citizens directly.
Economic Growth: A high level of debt can have adverse effects on economic growth. When the government borrows extensively, it competes with private borrowers for funds, leading to higher interest rates. Elevated interest rates can dampen consumer spending, business investment, and overall economic activity, potentially resulting in slower economic growth and fewer job opportunities.
Inflation and Purchasing Power: If the government resorts to "printing money" to finance the debt (monetization), it can lead to inflation. Rising inflation erodes the purchasing power of consumers' income, meaning their money buys less, resulting in a decreased standard of living.
Social Programs and Safety Nets: As the national debt increases, policymakers may face pressure to cut spending on social programs and safety nets. This can affect individuals and families who rely on these programs for support, potentially leaving them in a more vulnerable financial position.
Interest Rates for Borrowers: The level of US debt can influence interest rates in the broader economy. High levels of government debt can lead to higher interest rates for consumer loans, mortgages, and credit cards. Which makes it more expensive for individuals to borrow and potentially slowing down personal spending and investment.
Investment and Job Creation: High levels of government debt can create uncertainty and fiscal instability. This may deter businesses from making long-term investments and hiring new employees. This can have implications for job creation and wage growth.
Future Tax Burden: If the debt isn’t addressed and continues to grow, there is a risk that future generations may face a higher tax burden. This could result in reduced disposable income and limited economic opportunities for future Americans.
It's important to note that managing the national debt is a complex challenge. There are various economic theories and policy perspectives on how to address it effectively. Striking the right balance between fiscal responsibility and supporting economic growth and social programs is a significant consideration for policymakers.
Does the downgrade to the US credit rating matter?
In an interview with The Washington Post, billionaire VC Chamath Palihapitiya says the latest downgrade of the country’s credit rating is not a cause for concern.
Palihapitiya says that people should not pay attention to Fitch’s latest move as he believes the United States still boasts the most dominant economy in the world.
“Let me just state what I think about the downgrade is: it’s irrelevant. The S&P (Global Ratings) did it 13 years ago. Fitch is a marginal credit-rating agency. They’re at a minimum 13 years late. At a maximum, they’re just anxiety-ridden.
The second point and the more important one is that none of you who are always freaking out about this understand this conversation about relativism. All of these conversations are relative, and you deal with them in absolutes. On a relative basis, Japan’s debt to GDP (gross domestic product) is 270% and growing. On a relative basis, our debt to GDP is half of that. We are the most important economic force in the world.”
Palihapitiya also says that central banks around the world will be hard-pressed to find an alternative that could replace the US dollar in their foreign reserves.
Why does this matter?
In my opinion, the rising debt in the US means higher taxes in the near future for Americans. Otherwise, the government cuts spending and the economy stops growing. This is a critical matter, and we should be paying attention. Less opportunity means less demand in the housing market too.
The US is now spending 44% of GDP per year, the same levels as World War 2. The US Debt has increased by $1.5 trillion since the debt ceiling was lifted in June.