Economic update for the week ending August 3, 2019
U.S. economy adds 164,000 new jobs in July – The Bureau of Labor Statistics reported that 164,000 new jobs were created in July. The unemployment rate held steady at 3.7%, which was just above a 50-year low set earlier in the year. Average hourly wages were up 3.2% from one year ago.
Fed Cuts interest rates for the first time since 2008 – Federal Reserve Chairman Jerome Powell announced that the fed had dropped its target rate by .25% to 2% on July 31. That rate cut, the first cut in over a decade signaled a change in policy by the Fed. Chairman Powell stated, “the U.S. economy was favorable, and this action is designed to support that outlook. The cut is intended to ensure against downside risks from weak global growth and trade tensions.” After the cut was announced stocks dropped, and bond and mortgage interest rates dropped.
Stocks markets drop sharply following Fed rate cut – Stock markets recorded their worst week of the year following a rate cut by the Fed that many felt would be welcome news for investors. Unfortunately, the rate cut made investors worry that the economy was not in as good of shape as everyone thinks, and possibly the Fed knows something we don’t. Corporate earnings have also been mixed, as second quarter earnings are being released. Lastly, President Trump announced more sanctions on China and Russia this week which further scared investors. It’s important to note that this was just one of the few down weeks of the year. Stocks are just below record levels, and stock markets have risen year to date at record pace. The Dow Jones Industrial Average closed the week at 26,485.01, down 2.6% from 27,192.45 last week. It’s up 13.5% year to date. The S&P 500 closed the week at 2,932.05, down 3.1% from 3,025.86 last week. It is up 17% year to date. The NASDAQ closed the week at 8,004.07, down 3.9% from 8,330.21 last week. The NASDAQ is up 20.6% year to date.
Treasury Bond Yields – Bond yields dropped sharply this week. The 10-year treasury bond closed the week yielding 1.86%, down sharply from 2.08% last week. The 30-year treasury bond yield ended the week at 2.39%, down from 2.59% last week. We watch treasury bond yields because mortgage rates often follow bond yields.
Mortgage rates lower this week – The August 1, 2019 Freddie Mac Primary Mortgage Survey showed mortgage rates for the most popular loan products as follows: The 30-year fixed mortgage rate average was 3.75%, unchanged from 3.75% last week. The 15-year fixed was 3.20%, up slightly from 3.18% last week. The 5-year ARM was 3.46%, almost unchanged from 3.47% last week. Rates dropped after the Fed rate cut. Next week’s rates will be lower.