Treasury yields shot up this week amid resilient economic activity. As markets adjust their expectations for longer-term rates, the yield on the 10-year has moved to its highest level since the months preceding the global financial crisis. This development has numerous implications for the path of the economy and the Federal Reserve’s policymaking. Chair Powell acknowledged that the recent jump in yields intensifies the financial tightening already under way in the economy, noting that the Federal Reserve is paying attention to financial conditions as it charts the course of monetary policy.
The run-up in yields set off a surge in mortgage rates, nudging the housing market back toward recession. This week, the average 30-year fixed mortgage rate reported by Freddie Mac hit a near 23-year high of 7.6%. Higher frequency data from Mortgage News Daily suggest that mortgage rates are currently hovering above 8.0%, adding a new layer of financial and psychological strain for prospective homebuyers. Housing demand was in retreat long before this week’s increase, however. Existing home sales have posted four back-to-back declines culminating in a new cycle low in September, when sales sank to their slowest pace since 2010. With near-term affordability relief out of sight, the persistent downward trend in mortgage purchase applications suggests that resales likely have further to fall.
Single-family building has remained fairly resilient amid rising pressure on housing demand. In contrast to weakening resales, builders have found success using mortgage rate buydowns and price discounts to sell new construction. A pickup in new home sales sparked a trend rise in single-family permits since the start of the year, which notched its eighth back-to-back upswing in September. Tides may be turning as spiking mortgage rates test builders’ ability to bridge the affordability gap. The NAHB Housing Market Index gauging builder sentiment fell to a nine-month low in October, reflecting a worsening sales outlook. Meanwhile, multifamily construction continued to downshift as builders battle tighter credit conditions and rising trend in apartment vacancies. Despite a bump in multifamily starts in September, multifamily permits plunged to their lowest level since October 2020.
Higher financing costs are also pressuring the manufacturing sector. An uptick in manufacturing output drove industrial production 0.3% higher in September. That said, prior revisions revealed that manufacturing has largely flatlined since late last year. We expect manufacturing to continue to flounder as tighter credit conditions create an unfavorable environment for new capital investment. The ISM Manufacturing Survey has long signaled that higher rates are reducing demand for manufactured goods, and that sentiment was echoed this week in the Federal Reserve’s October Beige Book. Better inventory management is also taking some air out of production as producers opt not to stockpile into a slowdown.
This Week's State Of The Economy - What Is Ahead? - 25 March 2022
Wells Fargo Economics & Financial Report / Mar 27, 2022
The fact that capital goods shipments surprised on the upside was one of the few things that went right in this week\'s durable goods report.
This Week's State Of The Economy - What Is Ahead? - 15 April 2022
Wells Fargo Economics & Financial Report / Apr 18, 2022
What do pollen and the Consumer Price Index (CPI) have in common? Answer; both are hitting new highs. This week’s U.S. economic data was led by the largest month monthly increase in the Consumer Price Index (CPI) since September 2005.
This Week's State Of The Economy - What Is Ahead? - 02 July 2021
Wells Fargo Economics & Financial Report / Jul 13, 2021
We added 850,00 jobs in June, but much of that was State governments school districts in some parts of the Country reopening just in time for summer break.
This Week's State Of The Economy - What Is Ahead? - 14 October 2020
Wells Fargo Economics & Financial Report / Oct 14, 2020
The global mobility playing field is equalizing. Major European countries such as Germany and France have seen a slowdown in recent weeks, leaving them right in line with the United States relative to the January baseline.
This Week's State Of The Economy - What Is Ahead? - 18 March 2022
Wells Fargo Economics & Financial Report / Mar 21, 2022
it was a big week for economic news as the Astros allowed the TWINS of all teams to sign Carlos Correa to the type of short-term deal that the Astros have historically been open to.
This Week's State Of The Economy - What Is Ahead? - 24 January 2020
Wells Fargo Economics & Financial Report / Jan 25, 2020
Fears of an escalating coronavirus outbreak reached the United States this week, as a Washington state man became the first confirmed domestic case and the international total reached more than 800.
This Week's State Of The Economy - What Is Ahead? - 10 September 2021
Wells Fargo Economics & Financial Report / Sep 13, 2021
Data from the opening weekend of College Football indicates that we will have to endure another season of Nick Saban deification.
This Week's State Of The Economy - What Is Ahead? - 07 June 2024
Wells Fargo Economics & Financial Report / Jun 11, 2024
The U.S. labor market continues to defy expectations. Employers added 272K net new jobs in May, which was stronger than even the most bullish forecaster among 77 submissions to the Bloomberg survey.
This Week's State Of The Economy - What Is Ahead? - 06 August 2021
Wells Fargo Economics & Financial Report / Aug 16, 2021
Back to the economy, issues with supply constraints remains a broken-record reference, but data this week highlighted the economy\'s resilience in spite of those continuing problems.
This Week's State Of The Economy - What Is Ahead? - 4 October 2019
Wells Fargo Economics & Financial Report / Oct 05, 2019
Survey evidence flashed signs of contraction in the manufacturing sector and indicated weakness spreading to the services side of the economy, while employers added a less-than-expected 136K jobs in September.
