With states easing restrictions on the economic shutdown, job gains and consumer activity have surged. The Fed has added to that further news regarding their activity in the treasury and mortgage markets.
Although May and early June saw much economic growth, only time will tell how sustainable that is given the current social, political, and health climate we are in.
The Fed Helps Bonds
Stocks have been fairly volatile in recent weeks, but the mortgage market has been considerably calmer. The Fed has recently announced favorable news for the bonds market.
Since mid-March, the Fed has bought over $2 trillion in treasury securities and mortgage backed securities to stabilize the economy. In recent weeks, the Fed had been purchasing fewer and fewer of these securities. However, they recently announced that they will continue to buy bonds at their current rate. This has increased demand in mortgage-backed securities and has lowered mortgage rates even lower.
The Fed has also maintained that the federal funds rate will remain at zero or close to zero through at least 2022. Chairman Powell has also maintained that the Fed will continue to use all tools available to support recovery. Although the U.S. economy is predicted to shrink by 6.5% this year, the U.S. is expected to rebound by 5% in 2021.
The Fed is not hesitating to take action thanks in large part to a sharp decline in inflation. The core CPI in May was only 1.2% higher than one year ago and down from the annual rate of 2.4% from pre-COVID February.
Impressive Job Gains
In April, the United States lost a whopping 20 million jobs due to the COVID-19 pandemic. Most economists and forecasters predicted for an additional loss of 8 million jobs in May. Instead, the United States added an impressive 2.5 million jobs!
To put this into context, the average monthly increase in jobs for 2019 was only 200,000. Adding 2.5 million jobs dropped the unemployment rate a whole percentage point from 14.7% to 13.3%. Most economists were expecting to see unemployment over 20% by the end of May.
The leisure and hospitality industries added 1.2 million jobs in May after losing nearly 10 million in May. The construction industry accounted for an additional half million job gains. These were two of the largest industries initially impacted by the pandemic. They now show the largest gains.
Consumer Activity Spikes
With the economy essentially at a standstill during March and April, consumer activity was trending towards record lows. However, May saw a major spike in consumer spending. Retail sales in May were up 18% from April. Retail sales at clothing stores was up 188% from April, and sales at furniture stores was up 90%.
The real estate market seems to be recovering quickly too. New housing starts in May were up slightly from April but building permits rose 14%. Home builder confidence, according to the NAHB housing index, was up from 37 to 58, well above predictions. Several major home building companies have committed to rehiring workers and restoring supply chains as soon as possible.
A major trend arising from the COVID pandemic is a move from urban to suburban locations. Major cities experienced the first and most extreme shutdowns. Plus, record-low mortgage rates, low inflation, and increased bond purchases by the Fed have spelled good news for the industry.
Looking ahead, investors will continue to pay close attention to Fed announcements and COVID related news. With many states easing restrictions, many cities are starting to experience spikes in cases. How this is handled in the ensuing weeks and months will play a major role in how well the economy can truly rebound.
For further information on the loan and real estate market, get in touch with one of the title and escrow specialists at Plymouth Title Guaranty Corporation.
Information accredited to MBSQuoteline.
Please note: The safety of our staff and clients is our highest priority. Effective immediately, Plymouth Title Guaranty Corp. will be taking the following precautions to limit the spread of the COVID-19 virus:
All purchase transactions need to take place at a Plymouth Title Guaranty Corp. closing office
- If a party to the closing is not feeling well, please contact your closer prior to the closing so appropriate precautions can be taken.
- We ask visitors to utilize the restroom in our building upon arrival to thoroughly wash hands before entering our office.
- Only individuals required to sign and/or deliver documents at closings will be allowed in our office. Specifically, closings will be limited to borrower(s), seller(s), agents, and lenders.
- All pens used in the closing will be given to the client after use.
- All closing rooms will be cleaned and disinfected in-between each closing.
- Those picking up checks at our office will be instructed to call our main line and request to speak to a staff member who will make arrangements for delivery to the lobby or parking lot of our office; and
- All staff will refrain from shaking hands before or after closings and ask clients do the same
Please be advised that our staffing may be impacted during this unprecedented event. While we are committed to continuing to provide outstanding service, we ask for your patience in the face of this pandemic.
This is a fluid situation and we will continue to adjust our protocols as necessary while following the CDC guidelines.