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Here's what's happening in the market this week-

As the Federal Reserve's September meeting approaches, a series of key economic reports will be released this week that will shed light on inflation, consumer spending, and the overall health of the economy. These data points are likely to play a critical role in shaping the Fed’s policy decisions. Fed Chair Jerome Powell has repeatedly emphasized that the data between meetings will be pivotal in their decision-making process.

Notably, a significant shift in rates following the last Fed meeting led to a surge in refinance applications, lower borrowing costs, and heightened demand. The subsequent rise in the unemployment rate to 4.3%, while still below the historical average of 5.7%, represents a 0.9% increase from the cycle low of 3.4% in April 2023. Such a rapid increase has historically signaled an impending recession. Remember, the Fed is unlikely to cut rates when the economy is robust, so keep that in mind amid the headline buzz.

Key Economic Events to Watch This Week:

1. July Producer Price Index (PPI) - The Producer Price Index, which tracks wholesale inflation, will provide insights into inflation at the production level, potentially foreshadowing future consumer price trends. A sharper-than-expected increase could signal inflationary pressures, influencing the Fed’s policy considerations.

2. July Consumer Price Index (CPI) – The Consumer Price Index is a key inflation measure, reflecting changes in consumer prices for goods and services. Wednesday’s CPI release will be closely watched, as it directly affects consumer spending power and the Fed’s inflation targets. Ideally, the news will meet or fall below expectations.

3. Weekly Jobless Claims, July Retail Sales, and Home Builder Sentiment – Jobless Claims: This weekly report will give a snapshot of the labor market’s health. An increase in claims may signal a weakening job market, while a decrease suggests continued strength.

July Retail Sales: This data measures consumer spending, a key driver of economic growth. Strong numbers could indicate robust economic activity, while weaker figures may raise concerns.

Home Builder Sentiment: This index reflects the confidence of home builders, offering insights into the housing market's outlook and potential future construction activity.

4. Philly Fed Manufacturing Index – This index offers a glimpse into manufacturing activity in the mid-Atlantic region, serving as an early indicator of broader manufacturing trends that could affect economic expectations.

5. July Housing Starts and Building Permits – Friday’s Housing Starts and Building Permits report will provide data on new home construction, a critical factor in assessing the housing market's health and overall economic stability.

6. Fed Speakers and Earnings Season- Throughout the week, several Federal Reserve officials will speak at events, potentially offering further insight into their views on the economy and monetary policy. Meanwhile, earnings season continues, with companies releasing financial results that will paint a broader picture of the economy.

Signs of Economic Weakness Could Support a Rate Cut in September

With mortgage rates declining, demand for homes is rising, leading to increased competition. The Mortgage Bankers Association reported a 6.9% increase in mortgage applications for the week ending August 2, 2024—the highest level since January. This spike is due to lower mortgage rates, with the 30-year fixed rate dropping to 6.55%, the lowest since May 2023, following dovish signals from the Fed and a weak jobs report. Refinance applications jumped 16% from the previous week, particularly for VA loans, while purchase applications saw modest growth.

Despite concerns about a recession, home prices remain resilient. CoreLogic's Home Price Index reported a 0.3% rise in June, continuing a trend of steady gains. Even as the rate of increase slows, prices are still up 4.7% year-over-year. ICE (formerly Black Knight) also reported a 0.2% rise in national home values for June, further confirming the strength of the housing market.

Recession Fears Loom

Despite 43 months of job growth in the U.S. economy, recession concerns persist. The unemployment rate’s 0.9% jump to 4.3% is the highest since October 2021, and historically, such increases occur about three months into a recession. Additionally, the labor force participation rate saw its largest increase since March 2021, signaling more people are returning to the job market. However, rising jobless claims point to potential labor market weakness, often a precursor to economic downturns.

According to Goldman Sachs, 70% of July's unemployment rise came from temporary layoffs, with California experiencing the largest increase, especially in leisure and hospitality industries. While the unemployment rate could decrease in the next reading, the broader trends suggest caution.

What could shift the market’s view of an imminent rate cut?

• Changes in the unemployment rate

• Data showing inflation back on the rise

Home Prices Remain Strong Despite Inventory Gains

Contrary to some media speculation, rising housing inventory is unlikely to trigger a market crash. Active listings increased 5.3% from June and are up 37% from a year ago. However, the current levels are still 30% below pre-pandemic inventory levels in July 2019. The growth in inventory is concentrated in four states—Texas, Idaho, Florida, and Tennessee—while other regions, particularly the Northeast, have seen sharp declines in active listings.

Next Steps for Homebuyers

With mortgage rates improving, now is a great time to explore your home-buying options, as long as it fits within your financial means. Focus on sustainable financing that aligns with your long-term goals rather than waiting for a perfect moment.

For homeowners considering refinancing, the decision should be based on whether the benefits outweigh the costs. With rates expected to improve further, careful planning and calculations will help you make an informed decision. We’re waiving all lender fees on refinance applications through 2025, so now may be the right time to evaluate your options.