Macro Data Continues To Send Mixed Messages As To The Health Of The U.S. Economy | (12.22.22)
"Well done is better than well said." - Benjamin Franklin
What You Need To Know Today:
• We received the final Q3 2022 quarter-over-quarter (Q/Q) GDP reading from the Bureau of Economic Analysis (“BEA”) — which came in at 3.2%. This figure is an increase from to the previous “preliminary” reading of 2.9% and the pre-release market expectation for the “final” reading of 2.9%.1 Remember, GDP measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy. Essentially, it is the broadest measure of economic health and activity within a given country. While this is Q/Q data, it is important to note that the actual figures are reported in an annualized format — meaning “quarterly change x 4".” Technically, this “positive revision” is an indication of improved economic health, but also continues the trend of data-mixed messaging.
TL;DR — Final GDP for Q3 2022 was revised upwards from 2.9% to 3.2%.
• I have covered the U.S. unemployment rate and initial jobless claims many times on The Homepage recently and while I want to keep the information fresh and new, it is hard to deny the importance of these statistics when trying to understand the overall health of the U.S. economy. This is especially true during times of widespread economic hardship. The Department of Labor reported updated initial jobless claims for this past week, which came in at 216,000, below the pre-release market forecast of 221,000, and just slightly above the previous week’s reading of 211,000.2 The labor market is remaining more resilient than the market is expecting and could be an indication of the “soft landing” the Fed is pushing for when tightening monetary policy in order to fight inflation. However, it also could motivate the Fed to further tighten policy if it does not believe the economy is slowing enough to bring inflation back down to target levels. If the latter is the case, it might just be a matter of “when” not “if” the labor market will see repercussions
TL;DR — Jobless claims came in better than expected; the labor market fights on. Does this signal a possible “soft landing” or has the labor market just not felt the pain yet? That is the question.
Chart Of The Day:
Mortgage rates in the United States (including jumbo loans) are off of local highs with a significant peak established. As the Fed continues to tighten monetary policy and market uncertainty persists it is possible that we will see this pattern reverse and another move upwards. As always, it is important to remember that the Federal Funds Rate is not directly correlated to mortgage rates and there are many factors to consider when trying to forecast mortgage rate movements including the relative “strength” of mortgage-backed securities as well as the 10-yr treasury yield which is actually much more correlated to mortgage rates historically than the Feder Funds Rate is.
Visualizing The 30-Year Fixed Mortgage Rate Run-Up & 2022 Peak3
TL;DR — Mortgage rates have established a local peak.
Poll Of The Day:
Source: Bureau of Economic Analysis (BEA) / U.S. Department of Commerce — Gross Domestic Product.
Source: U.S. Department of Labor (DOL) — Initial Jobless Claims Report.
Source: Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, December 22, 2022. Optimal Blue, 30-Year Fixed Rate Jumbo Mortgage Index [OBMMIJUMBO30YF], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/OBMMIJUMBO30YF, December 22, 2022.