Chicago's Mortgage Choice - March 14, 2017 Real Estate Report - The Jobs Report and Fed Meeting

The data is in. The jobs report has been released and the Federal Reserve Board's Open Market Committee is meeting as we release this publication. Keep in mind that the employment numbers are a major factor in affecting the Fed's decision -- but they are not the only factor. The stock market rally, which indicates confidence, as well as inflationary indicators, are also watched closely. As a matter of fact, the numbers on wage growth might be almost as important as the jobs numbers themselves. Last month, wage growth came in 2.8% on an annual basis and this is seen as good news for workers but bad news on the inflation front. Add a strong stock market and rising wage growth to the fact that the economy added 235,000 jobs last month and the unemployment rate ticked down to 4.7%, and you can see why the markets are predicting a rate increase. You might ask why a rising stock market would affect the Fed's thinking. We have already spoken about the stock market's indirect influence upon the economy. Certainly, the growth of equity will make those who own stocks more confident in making large purchases, and this has the potential to boast the economy. However, there is a more direct link between the Fed and the rise in the stock market. The last thing the Fed wants to do is raise rates and stifle the economy. With the stock market so strong right now, the Fed is much more likely to conclude that the economy can withstand the news of higher rates. If consumers are uncertain, piling on a rate increase just makes things worse. If consumers are hopeful, they are much less likely to envision higher rates as a roadblock to success. Of course, this is all speculation, and by the time you read this commentary, you are likely to know what the Fed was really thinking. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - February 28, 2017 Real Estate Report - Jobs and Rates

It has been a whirlwind start to the year with record stock prices and a new administration coming together. And the year could get a bit more interesting with an employment report due out at the end of next week. Of course, the jobs data is always important, but this report could hold a bit more weight with a meeting of the Federal Reserve coming up in a few weeks. The Fed has recently talked about raising rates as much as three times this year, but the markets have been predicting no increase before May or June. Could a very strong jobs report make a March increase more likely? This is certainly within the realm of possibilities and the recent release of the minutes of the last Fed meeting seemed to be somewhat open to that scenario. Keep in mind, even though the economic news released thus far this year has not been significantly stronger than expected, the inflation data reported recently was higher than forecasted. And the Fed is watching the inflation rate very closely while analyzing the economy. In addition, while the economic reports have not been that strong, consumer confidence is up, along with the stock market. There is a possibility that this confidence turns into more jobs created because employers are also feeling more confident. More jobs will boost the economy. In addition to the total number of jobs added, one indicator which will be watched very closely will be wage growth. If wages grow more quickly than expected, this would denote that the job market is getting tighter and would be another factor elevating inflationary concerns. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - February 7, 2017 Real Estate Report - Where the Economy Stands

Certainly, this past week was one to get a good assessment of where the economy stands coming into the new year and a new Presidency. In the past week or so, we have had reports on overall economic growth for 2016; personal income and spending for December; the jobs report for January; and a meeting of the Federal Reserve Board's Open Market Committee. That is a lot of information to assess. Let's start with the economic growth. Our rate of economic growth for 2016 was 1.6%, which was the slowest since 2011. The fourth quarter came in at 1.9% and is subject to revision, but even a significant upward revision will not affect the overall 2016 growth results by that much. The next release measured personal income and spending for December, which was another report which shows how we finished out the year. December personal spending numbers are especially important because they reflect spending through the holiday season. These numbers came in moderately robust, and met expectations. We then had the meeting of the Federal Reserve mid-last week. The markets were not expecting the Fed to increase rates since they did so in December. And this prediction was right on the mark. However, the markets were watching the Fed's statement closely. This statement indicated that economic growth remains moderate and the economy was balanced as of right now--with no more risks on the upside vs. the downside. Finally, on Friday we had the all-important jobs report, which is the first economic reading for January. The report was a real mixed bag with strong employment growth of 227,000 jobs added, but an up-tick in the unemployment rate to 4.8% and lower wage growth than forecasted. The increase in the unemployment rate is not necessarily bad news because it indicates that more long-term unemployed are re-entering the workforce. Indeed, the labor participation rate did increase as well, but remains near all-time lows. Keith Stewart - 773-529-7000

Chicago's Mortgage Choice - January 10, 2017 Real Estate Report - The Employment Situation

We just saw the last unemployment report of 2016. The December numbers came in at 156,000 jobs added for the month, which was a bit lower than expected--but the previous two months were revised upward by almost 20,000. The unemployment rate came in at 4.7%, as expected. Wage growth came in higher than expectations. With the year ending and a changeover in Presidents, it also gives us the chance to see how this important economic indicator is doing, not only for the past year, but for the past several years as well. For all of 2016, the economy gained just over 2 million jobs. This is an impressive number, but it was down from 2.7 million jobs added the year before and 3.1 million jobs added in 2014. In addition, the unemployment rate started 2015 at 5.0% and ended the year at 4.7%. Finally, the labor participation rate started the year at 62.6% and ended the year at 62.7%, virtually flat for the year. It was over 66.0% before the recession hit. Looking back eight years, at the end of 2008, the unemployment rate was 7.3% and reached 10.0% during the first year of the Presidency, when the country was mired in recession. Overall, the economy lost 8.7 million jobs during the recession, which bridged two administrations. Since the end of the recession, we have averaged a net gain in jobs of 190,000 per month, or just under 2.3 million per year. This means we have recovered the jobs lost during the recession and more, but if you average the job gains over 10 years, to include the first stages of the recession, the annual average job gains have totaled much less. In conclusion, we have made up much ground, especially when looking at the unemployment rate. However, there is more work to be done with regards to adding more jobs and increasing the labor participation rate. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - June 21, 2016 Real Estate Report - Economic Headwinds

The Federal Reserve Board's decision not to raise interest rates last week was not a surprise by any means. After the weak jobs report for May, the decision was a no-brainer. Thus, the words of the Fed were more important than the decision to stand pat. In their statement, the Fed cut its forecast for U.S. economic growth in 2016 to 2%, down from 2.2% earlier. Chairperson Yellen pointed to "headwinds blowing on the economy" as a factor in this reduced outlook. In addition, the statement indicated that they "expect economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate." This means no increase now and less of a chance of an increase in July and possibly for September. One factor the markets will be watching very closely will be any signs of the kindling of inflation. The Fed continues to have leeway, as long as there is no inflationary pressure. For the past year, we have had one important deflationary factor -- plunging oil prices. Now that oil prices seem to have stabilized close to $50 per barrel, it is time to keep our eyes out for other evidence of rising prices. For example, while the retail sales report released last week was as expected, the news that import and export prices rose more than expected is important in this regard. Producer prices came in higher than expected last week as well. Another factor affecting the markets is the referendum on Britain's proposed exit from the European Union. Most economists have forecasted that such a move could throw the UK into recession. Though we will know the results of the referendum this week, any terms of a separation would still have to be negotiated. We do know that the markets do not like uncertainty and a vote to leave will leave the western world with plenty of uncertainty -- another factor that could tie the hands of the Fed. Keith Stewart - 773-529-7000

Chicago's Mortgage Choice - June 7, 2016 Real Estate Report - Jobs and Yellen

The Chairperson of the Federal Reserve Board spoke at an event at Harvard University on the last Friday of May. The probability for a June or July rate hike increased because of her statement that a rate hike is "probably" appropriate in the near term, given an improvement in economic data. "As I have said in the past, it's appropriate I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably, in the coming months, such a move would be appropriate," she said. A very important slate of this data was released this week, headlined by the May jobs numbers released one week after Yellen's talk. The job numbers were very weak with only 38,000 jobs added, while the unemployment rate fell from 4.9% to 4.7%. These numbers could be seen as contradictory, but the fact that more people dropped out of the job force, lowering the labor force participation rate, shed doubt about the lower unemployment rate. All in all, it will be seen by the Fed as a sign that the economy is not improving as much as we would like. Other numbers released recently have been mixed, with positive numbers from the real estate sector and consumer outlays, but lower construction spending and slightly lower readings for consumer confidence. What does this mean? The jobs numbers are the most important, and this means that the chances for an immediate rate hike by the Fed have decreased significantly. We won't have to wait long to find out about a rate hike in June as the Fed's Open Market Committee meets next week. Keith Stewart 773-529-7000

Chicago's Mortgage Choice - May 10, 2016 Real Estate Report - Spotlight on Jobs

Just one week after the Federal Reserve Board decided not to raise rates for the first time in 2016, the all-important jobs report was released. The Fed's statement regarding the industry was a mixed message. On the positive side of the coin, the statement indicated that international factors were not as grave a threat to the economy as feared earlier in the year. On the other hand, the Fed acknowledged that economic growth continues to be weak. This weakness was confirmed the last week in April, as the first estimate for economic growth for the initial quarter of 2016 came in below consensus estimates at 0.5%. Even though this number will likely be revised upward in the coming months, it is clear that the economy is as weak as the Fed has indicated. Thus far this year, the greatest areas of strength the economy has been displaying is within the areas of the creation of jobs and the real estate sector. Which brings us back to the employment report. On Friday, the Labor Department indicated that the economy had produced 160,000 jobs in April, less than expected. However, the average hours worked was higher and so were wages. The unemployment rate came in unchanged at 5.0%. What does this mean? The economy has produced approximately 800,000 jobs in the first four months of 2016, which is pretty impressive. The best chance for a revival of economic growth is continued growth in consumer spending and to do that, we need to create jobs. Thus far this year, we are doing just that; however, we will want to make sure that the slower economy will not filter down to employment growth. Keith Stewart 773-529-7000