Market News Update - A New Stimulus Launched

Well the news everyone has been waiting for happened…The Fed announced the launch of QE3.  This announcement on Thursday morning spawned a rally in the stock market driving it up over 200 points.  Investors have been sitting patiently on the sidelines waiting for this news as the Fed’s intervention was not unexpected.  The recent poor employment reports along with increasing jobless claims has the government very concerned about the job market not improving.

The goal of the Fed’s 3^rd round of stimulus is to keep interest rates artificially low.  However, this is a delicate balance, because when investors believe that the stock market is going to do well, they take their money out of government bonds and purchase stocks.  This ultimately will have the opposite result that the Fed wants to accomplish.  When investors sell bonds to buy stocks, bond yields rise which indirectly causes mortgage rates to rise.  If mortgage rates rise, then the cost to finance a house rises.  If the cost of financing a home rises then….(Well you get the idea)

Immediate reaction to the Fed’s announcement was for the stock market to rally and, exactly as I said, bonds got hammered and rates actually went up. 

I truly understand what the Fed is trying to accomplish.  They believe that keeping rates super low will get the housing market really going.  Here is the challenge however.  We have seen mortgage rates down to the low 3% range, yet this did little to spur housing demand.  The latest round of stimulus is not expected to even bring rates down as low as they were before.

To make matters worse, the two sides of government don’t even talk to each other anymore.  The expiration of tax cuts, as well as the automatic trigger of huge spending cuts scheduled for the end of the year, has many people concerned about what is called the “Fiscal Cliff”.  If this is allowed to occur and Congress does not do anything to stop it, it is widely believed that the economy will fall back into recession.  The Fed can only do so much; however, until our elected officials decide to go back to work, nothing will change.

First Time Jobless Claims took an unanticipated jump all the way up to 382,000.  The Labor Department blames the jump on the effects of Hurricane Isaac on many states.  It is in those impacted areas that the biggest jump in layoffs had occurred.

Inflation on the wholesale level continues to remain under control when you don’t factor in the volatile food and energy prices.  The Producer Price Index rose a modest .2% which is in line with expectations.  What is interesting to note is that on Thursday when the Fed announced the new round of economic stimulus, the price of oil shot up to just under $99.00 a barrel.  It is likely that $100 a barrel is just around the corner.

Next week’s economic reports are:

• Tuesday September 18^th – Housing Market Index
• Wednesday September 19^th  – MBA Applications, Housing Starts and Existing Home Sales
• Thursday September 20^th – First Time Jobless Claims

 

I appreciate your business and look forward to talking to you soon! Have a great day!!!
 

Sincerely,

Cindy Tomlinson
Loan Officer

USLending Company

DRE Lic # 01520422
NMLS # 214851   

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Some States Back to Peak Employment

By Tory Barringer 

A report from Information Handling Services (IHS) showed that since the recession began, four states have reached or surpassed previous employment peaks while several more are within 1 percent of making that goal.

The report, put together by IHS U.S. Regional Economist Steven Frable, stated that Alaska, North Dakota, Texas, and Louisiana have all reached or passed their prerecession employment levels, with Alaska and North Dakota reporting peak employment in 2010-11.

These four states are also experiencing the most benefits from the current energy boom. Many other states have bounced almost all the way back, coming within 1 percent of their employment peaks.

On the other end of the spectrum, 16 states still have fewer than 95 percent of their prerecession job levels. Alabama, Florida, Arizona, Michigan, Rhode Island, and Nevada each have at least 7 percent to make up before hitting their previous peaks.

Half of the U.S. is expected to be back to peak job levels in 2012-13 while the other half will not completely recover until 2014 at the earliest. The majority of these states are expected to get back to their peaks in 2014-15, though states such as Arizona, Alabama, Florida, Connecticut, and Ohio are projected for a 2016-17 recovery. Nevada, Michigan, and Rhode Island are not expected to recover until past 2017.

Percentage of Jobs Below Peak Employment
(Bottom five states)

1. Nevada – 13 percent
2. Michigan – 11.4 percent
3. Florida – 9.3 percent
4. Arizona – 9.1 percent
5. Rhode Island – 7.6 percent