“Celebrating 25 Years of Service: Unite, Ignite, and Empower”
“We train and support volunteer leaders of credit unions serving first responders to run stronger, more effective institutions.”
“Great things happen when credit unions serving first responders come together. Our face-to-face and on-line interaction is the platform where collaboration begins, and GREAT ideas are generated.”
Lower prices for gasoline and other
energy helped slow inflation in July, but a CUNA economist said
Wednesday that the Fed will want to see another set of reports on jobs
and prices before deciding how much to raise rates at its next meeting.
The U.S. Bureau of Labor Statistics
reported Wednesday that its seasonally adjusted Consumer Price Index
showed no change from June to July and was up 8.5% from a year earlier.
In June it was up a record 9.1% from a year earlier and up a seasonally
adjusted 1.3% from May.
For credit union members, prices were up on the items that require
their greatest borrowing: homes and cars, with the notable exception of
used cars.
NAFCU Chief Economist Curt Long said July had the slowest
month-over-month growth in prices since April 2020. Excluding food and
energy, he said core inflation slowed considerably from June’s 0.7%
growth to 0.3% in July.
Curt Long
“The CPI report was excellent and comes as welcome relief from the
under-fire Federal Reserve,” Long said. “Markets are fairly evenly split
on whether to expect a 50- or 75-basis point hike from the FOMC in
September, and that question will most likely depend on the incoming
data over the next month.”
CUNA Senior Economist Dawit Kebede said the overall monthly price
change remained flat in July as falling gas prices offset increases in
food and shelter prices. Core inflation was lower than expected because
of price declines for airfare, used cars and clothing.
However, Kebede said housing prices, which comprise a third of the CPI basket, rose at an annual 6% rate in July.
Dawit Kebede
“There is a lag up to 18 months between house price increases and its
full inclusion in the CPI measure. Hence, we will see more increases in
shelter CPI in the coming months,” Kebede said.
The National Association of Realtors will release July sales and
prices for existing homes Aug. 18. June marked the fifth month in a row
of sales declines, but prices continued to rise.
The median existing single-family home price was $423,300 in June, up
13.3% from June 2021. The median existing condo price was $354,900 in
June, an annual increase of 11.5%.
The U.S. Bureau of Economic analysis reported Aug. 3 that new
vehicles sold in July at a seasonally adjusted annual rate (SAAR) of
13.3 million, down 9% from a year earlier and up 2.6% from June.
Cox Automotive reported Wednesday that the average transaction price
for a new car was $48,182 in July, up 11.9% from a year earlier and up
0.3% from June.
It announced Aug. 5 that wholesale used-vehicle prices, which are
adjusted for mix, mileage, and seasonality, fell 0.1% from June to July.
Its Manheim Used Vehicle Value Index fell 12.5% from a year ago.
Cox Automotive estimated that used retail sales fell 13% from June to
July, and that used retail sales were down 16% from July 2021. Compared
to 2019, sales were down 29%, which was the worst comparison against
2019 since January.
Dealers held an estimated 48 days’ supply of used cars on July 31,
down from 52 days from June 30 but up from 41 days in July 2021.
The Fed’s Open Market Committee (FOMC) meets three more times this
year. Kebede has said he expects to raise the federal funds rate to 3.4% by year’s end.
Before the FOMC’s next meeting Sept. 20-21, Kebede said the
“data-driven Federal Reserve” will have had time to digest the August
jobs report to be released Sept. 2, and the August inflation report to
be released Sept. 13.
“We had a strong jobs report and growing wages earlier this week that
could potentially signal another aggressive rate hike from the Federal
Reserve,” he said. “However, this inflation report indicates slowing
down in some areas despite visible price pressures in others.”
WASHINGTON—The Internal Revenue Service (IRS) has released its five-year strategic plan for 2022 – 2026, laying out four major goals.
Those goals include:
Service. “Provide quality and accessible services to enhance the taxpayer experience.”
Enforcement. “Enforce the tax law fairly and efficiently to increase voluntary compliance and narrow the tax gap.”
People. “Foster an inclusive, diverse and well-equipped workforce and strengthen relationships with external partners.”
Transformation. “Transform IRS operations to become more
resilient, agile and responsive to improve the taxpayer experience and
narrow the tax gap.”
‘Important Progress’
“We also continued to make
important progress in our compliance programs, with a particular focus
on abusive tax shelters, including syndicated conservation easements and
micro-captive insurance arrangements,” IRS Commissioner Chuck Rettig
said in comments reported by Taxcontroversy360.com.
According to
the report, the strategic plan vows an increased focus on noncompliant,
high-income and high-wealth taxpayers, partnerships and large
corporations, which the report asserts “make up a disproportionate share
of the unpaid taxes.”
“The IRS intends to improve efforts to
collect unpaid taxes with effective deterrence and enhanced enforcement
capabilities,” Taxcontroversy360.com reported. “Employees will also have
access to Enterprise Case Management, which will provide agents with
the full history of a taxpayer, along with other tools to prevent and
address noncompliance. The IRS also wants to reduce the burden on
taxpayers by decreasing the time between filing returns and compliance
issue resolution. Finally, the IRS plans to improve public confidence by
promoting compliance through publicizing criminal prosecutions and
civil enforcement efforts.”
ID’ing Fraud Schemes
Additionally,
Taxcontroversy 360.com said the IRS announcement points to increasing
efforts to proactively identify fraud schemes. Its Office of Fraud
Enforcement is creating a new Virtual Currency Learning Academy for all
IRS personnel—from beginners to experts—with training focused on
cryptocurrencies, blockchain tracing, anti-money laundering compliance
and Altcoins, Taxcontroversy360.com stated.
The Consumer Price Index climbed 8.5 percent in July, a bigger slowdown
than expected, but inflation may remain uncomfortably high for some
time.
Inflation
cooled in July as gas prices and airfares fell, a welcome reprieve for
consumers and economic policymakers but not yet a conclusive sign that
price increases are turning a corner.
The
Consumer Price Index climbed 8.5 percent in the year through July,
compared with 9.1 percent the prior month, a bigger slowdown than
economists had projected. After stripping out food and fuel costs to get
a sense of underlying price pressures, prices climbed by 5.9 percent
through July, matching the previous reading.
On
a monthly basis, the price index did not move at all in July. That’s
because fuel prices, airfares, and used cars declined in price,
offsetting increases in rent and food costs.
Core
inflation was also slower than economists had expected on a monthly
basis, climbing by 0.3 percent. In June, that figure was 0.7 percent.
Today’s
report is probably welcome news at the White House and the Federal
Reserve, both of which have been waiting for inflation to decelerate.
But
it’s easy to overstate how much July’s slowdown matters. Inflation is
still abnormally high. The decline is owed in large part to gas prices, and
they can always jump again.
There
are some real reasons to believe inflation will slow in the months
ahead: Supply chain pressures, for instance, show signs of easing.
But there are also reasons to worry. Wage growth remains rapid. And housing costs, particularly rents, continue to climb, which could keep inflation high for some time.
Consumer
Price Index inflation cooled meaningfully in July as gas prices
declined, which is good news for the Federal Reserve, though not yet
enough for policymakers to conclude that America is through the worst of
its burst of rapid price increases.
While
costs finally stopped increasing at an accelerating rate, they are
still climbing at an unusually rapid clip, making everyday life
expensive for consumers. And a big chunk of the pullback in July came
from dropping gas prices, as the average cost of a gallon of fuel began
to fall back toward $4 after peaking at $5 in June.
Fuel
costs are notoriously volatile, and with Russia’s invasion of Ukraine
injecting heightened geopolitical tensions, officials are unlikely to
stake victory on a slowdown that could quickly reverse itself. That
said, the report contained other good news: Airfares came down in price,
which was expected, but so did the cost of apparel, hotel rooms used
cars. The slowdown in core prices, which strip out volatile food and
fuel costs to give a sense of the underlying trend, was more pronounced
than economists had expected.
Despite
all those positive developments, costs continue to climb rapidly across
many goods and services. Rapidly rising rents are likely to
particularly stick out to the Fed, because they make up a big chunk of
overall inflation.
The
big question on Wall Street is what the new data will mean for the
Fed’s policy path ahead — and investors on Wednesday interpreted the
fresh data as likely to allow the central bank to slow down its rapid
rate increases.
The
Fed raised interest rates by three-quarters of a percentage point in
both June and July, and officials have signaled that another one of
those abnormally large increases should be up for debate at their upcoming meeting
on Sept. 20-21. But investors are betting that slower inflation and
moderating inflation expectations could shore up support for a smaller
move.
Still, Fed officials have warned against reacting too much to one data point.
“It
can’t just be a one month. Oil prices went down in July; that’ll feed
through to the July inflation report, but there’s a lot of risk that oil
prices will go up in the fall,” Loretta Mester, president of the
Federal Reserve Bank of Cleveland, said during a recent appearance. It would be a mistake to “cry victory too early.”
MADISON, Wis.–Credit unions are smashing records when it comes to lending so far in 2022.
In
the 31 years CUNA has collected monthly data on credit union
performance, Deputy Chief Advocacy Officer for Policy Analysis and Chief
Economist Mike Schenk said the numbers go way beyond anything that had
been forecast for this year at the end of 2021.
“The results of
the data really reflect the continuation of trends we have reported. The
trends are really important and in a lot of respects surprising given
the volatility we see in the economy overall and the concern people have
over a recession,” Schenk said.
But there’s nothing resembling a recession among credit union members when it comes to borrowing.
CUNA’s
data show lending was up 2.4% in June, which as Schenk noted would
represent nearly 29% growth over 2022 should the second half of the year
match the first.
“That’s the fastest-ever June in 31 years,” said Schenk, noting the average for the month is around 1%.
The previous record for lending growth in any one month was May of this year, when loans were up 2.3%.
Meanwhile, overall loan growth came in at 10.2% for the first half of the year among credit unions.
A Whole Year in 6 Months
“That’s a little bit more than we thought loans would grow for the entire year
when we put forecast at end of 2021,” said Schenk. “That’s the fastest
first half in credit union history. The previous record was 5.9% for the
first half of 1994. The interesting thing about that is in 1994 we were
in almost the exact same economic position. We were coming out of a
recession and inflation pressures had spiked. The Fed stepped in and
began to raise rates aggressively, 330 basis points over a year…There
was fear of a recession then that did not happen for three or four years
after. That gives us hope looking forward that even though the Fed is
raising rates we may be able to sidestep economic downturn.”
More Good News
A big driver of lending in the
first half of the year were auto loans, which were up 12%, or 24%
annualized. The previous record for auto loans over the first half of a
year was 11.3% in 1994, according to the CUNA data, Schenk said.
“Overall,
there is some really good news in monthly credit union data,” said
Schenk. “We’re also seeing loan quality overall maintained. The overall
delinquency rate stood at .24%, an all-time low for the fourth
consecutive month.”
More detail on CUNA’s Monthly credit Union estimates can be found here.
Car sales in July continued to run well below last year’s pace, while prices remain high and parts shortages persist.
NAFCU Chief Economist Curt Long said the combination will take the air out of sales for the rest of the year.
But countering that were reports from credit unions that showed strong gains in auto lending, and a jobs report Friday
that showed ample paychecks to buy cars. The U.S. Bureau of Labor
Statistics reported job creation remained strong in July and
unemployment dipped to 3.5% — a record low set just before the COVID-19
pandemic.
Long said the price of a new car is about $46,000 and the Manheim
Used Vehicle Value Index showed used car prices were up 0.7% in the
first half of July from a month earlier. TrueCar Inc. of Santa Monica,
Calif., said it expects the average transaction price in July was
$45,352, up 12% from a year earlier and about the same as June.
Ford reported improving inventory conditions, but Honda and Toyota
are still struggling. Domestic production grew again in June but remains
24% lower than June 2019, Long said.
“Prices remain high and reflect tight inventory conditions,” Long
said. “Persistent affordability issues mean that auto sales will remain
muted and volatile over the rest of the year, as relief from supply
shortages looks increasingly unlikely in 2022 and many car buyers are
turned off by higher rates and recessionary concerns.”
Curt Long
But some credit unions have been reporting strong gains and data from
the Fed and the NCUA showed record increases in automotive loan
balances this year.
Randolph-Brooks Federal Credit Union
of San Antonio ($15.5 billion in assets, 1.1 million members) and BECU
of Tukwila, Wash. ($29.5 billion, 1.4 million members) both reported
strong second-quarter originations of auto loans.
In the St. Louis metro area, First Community Credit Union of
Chesterfield, Mo. ($3.9 billion in assets, 366,167 members) originated a
monthly record of more than $100 million in auto loans in July.
President/CEO Glenn D. Barks said the Fed’s rate increases have yet
to dent auto lending at First Community, which is a major lender in the
area.
“Auto loans have always been what we do best,” Barks said. “Over the
last 20 years we have built a robust indirect dealer network here in St.
Louis while continuing to close a high volume of loans directly,
in-house.”
Glenn D. Barks
“I’m not going to say we will always have the lowest rate but we do
have some great rates and we do everything we can to keep our rates
highly competitive,” he said.
But the overall market is not as robust.
TrueCar Inc. of Santa Monica, Calif., estimated new vehicle sales
were 1.12 million in July, down 10% from a year earlier and down 2% from
June.
That came out to a seasonally adjusted annualized rate of 13 million
cars and light trucks sold in July, down 11% from July 2021 and about
the same as June. Retail sales, which exclude fleet sales, were 975,597
vehicles, down 14% from a year ago and down 1% from June 2022.
TrueCar said it expects used vehicle sales for July 2022 to reach
three million, down 17% from a year ago and up 4% from June 2022.
Zack Krelle, industry analyst at TrueCar, said automakers began
addressing affordability concerns by increasing incentives in July for
the first time in nearly 20 months. Incentive spending is still 54%
lower than in July 2021, but it rose slightly from June 2022.
“Even before the latest bump in federal interest rates, consumers
were facing rising challenges to vehicle affordability,” Krelle said.
“As rates go up, consumers are faced with increased monthly payments,
even as average transaction prices remain flat.”
However, CUNA Senior Economist Dawit Kebede said Friday’s jobs report
will increase pressure on prices. Kebede said the nation added 528,000
jobs in July, double the size of expected amount, recovering all
employment lost during the pandemic.
“The labor market remains very tight,” Kebede said. “There are more
job openings than the number of unemployed people and quit rates are
remarkably high.”
Dawit Kebede
Also, he said the labor force participation rate, which was expected
to increase as COVID-19 concerns receded, fell slightly in July. “This
sustained imbalance in labor demand and supply will lead to an increase
in wages adding more inflationary pressure,” he said.
“The Federal Reserve will likely stay the course of interest rate
hikes announced in its June Federal Open Market Committee projection —
3.4% by year end — despite recent reports of slowdown in consumer
demand,” he said.
NAFCU’s Long called the jobs report “a summer scorcher” that eases concerns that the economy is souring.
“An economy adding over 500,000 jobs per month is not one that’s in
recession,” Long said. “But wage gains show no sign of weakening, and
that does not bode well for a Federal Reserve tasked with reining in
inflation. Unless the data turns between now and then, another 75-basis
point hike from the Fed in September looks likely.”
WASHINGTON–Mortgage rates last week just barely slid below the 5%
mark for the first time since April, declining to 4.99%, according to
Freddie Mac.
In Freddie Mac’s weekly Primary Mortgage Market Survey report,
the data show that fixed mortgage rates remained volatile due to a tug
of war between inflationary pressures and a clear slowdown in economic
growth, according to Freddie Mac Chief Economist Sam Khater.
“The
high uncertainty surrounding inflation and other factors will likely
cause rates to remain variable, especially as the Federal Reserve
attempts to navigate the current economic environment,” Khater said in a
statement.
The last time mortgage rates were in the fours was the week of April 7, when they stood at 4.72%, the data show.
According to the Freddie Mac:
The 30-year fixed-rate mortgage averaged 4.99% with an
average 0.8 point as of Aug. 4, 2022, down from last week when it
averaged 5.3%. A year ago at this time, the 30-year FRM averaged 2.77%.
The 15-year fixed-rate mortgage averaged 4.26% with an
average 0.6 point, down from last week when it averaged 4.58%. A year
ago at this time, the 15-year FRM averaged 2.10%.
The 5-year Treasury-indexed hybrid adjustable rate mortgage (ARM)
averaged 4.25% with an average 0.3 point, down from last week when it
averaged 4.29%. A year ago at this time, the 5-year ARM averaged 2.40%.
Stronger Signal Being Sought
Separately, George Ratiu, Realtor.com manager of economic research, said good economic news has helped bring rates down.
“However,
the number of job openings softened, even as the labor market remained
tight," Ratiu said in a statement. "Capital markets are seeking a
stronger directional signal about economic activity amid the
push-and-pull of consumer spending and business investments. While
underlying economic conditions show resilience, the recession narrative
is playing an important role in market psychology and investor
expectations, as we see the sharp upward push in rates moderate more
visibly.”
WASHINGTON– Blowing past nearly all forecasts, the U.S. economy
during July added 528,000 jobs, according to data from the Bureau of
Labor Statistics.
Curt Long
The gain was more than double the 250,000 what many economists
has been expecting, and the U.S. has now regained all jobs lost during
the pandemic, after expecting a blowout.
The data show the
unemployment rate continues to decrease, declining to 3.5% in July after
steadily holding at 3.6% for the past four months. The July jobless
rate matched the half-century low last seen in February 2020.
The
new numbers mark the 19th consecutive month of job growth and is the
highest monthly gain since the economy added 714,000 jobs in February.
Challenge for Fed
“The
July jobs report was a summer scorcher, and will likely be seen as
uncomfortably warm for policy makers focused on cooling off inflation,”
said NAFCU Chief Economist and Vice President of Research Curt Long. “On
the bright side, the most pressing economic anxieties can be safely put
to bed, at least for now. An economy adding over 500,000 jobs per month
is not one that’s in recession. But wage gains show no sign of
weakening, and that does not bode well for a Federal Reserve tasked with
reining in inflation. Unless the data turns between now and then,
another 75-basis point hike from the Fed in September looks likely.”
According
to the federal data, the employment growth was widespread across
sectors, with leisure and hospitality seeing some of the biggest gains.
However, employment in that key service sector is still more than
one-million jobs below its pre-pandemic level, according to the BLS.
The
labor force participation rate ticked down to 62.1% from June’s 62.2%.
Average hourly earnings rose by 0.5% from the prior month and are up
5.2% over the past year, BLS data show.
'Labor Market Very Tight'
CUNA
Senior Economist Dawit Kebede noted "The labor market remains very
tight. There are more job openings than the number of unemployed people
and quit rates are remarkably high. The labor force participation rate,
expected to increase as COVID concerns recede, declined slightly in
July. This sustained imbalance in labor demand and supply will lead to
an increase in wages adding more inflationary pressure.
“The
Federal Reserve will likely stay the course of interest rate hikes
announced in its June Federal Open Market Committee projection, 3.4% by
year end, despite recent reports of slowdown in consumer demand.”
The banking landscape is becoming more congested and fragmented every
day. New fintech challengers continue to crop up, and it’s estimated
that the neo and challenger bank market will reach $578 billion by 2027,
according to a Facts & Factors research report. The reality is,
credit unions now face an existential threat in the face of rising
competition from fintech platforms that offer more simplified,
streamlined and personalized banking experiences – all on consumers’
mobile phones.
With every great challenge, however, comes great opportunity. The
challenge presented by the booming fintech market also provides an
opportunity to transform their businesses, fill the gaps that fintech
challengers still leave in their wake, better meet the banking needs of
consumers, and become the consumer’s preferred choice.
The credit union that succeeds in this regard will be the institution
that creates an experience centered around the full lifecycle of retail
banking – from member onboarding to ongoing financial wellness, to
major financial moments – on a single, unified platform accessible from
anywhere, from the branch to the member’s smartphone. In other words,
the credit union that is there for its members daily, with easier,
quicker and more personal banking, will be the institution that survives
and thrives in years to come.
Fast, Bundled Origination
It all starts with the first impression. First impressions matter, so
it should come as no surprise that delighting members starts with
getting them in the door smoothly. Seamless onboarding and origination
mean making the experience fully digital, removing friction and getting
members on board in a way that wows them. However, research from Marous
showed that only 50% of institutions engage in customer onboarding.
Automation and digitization are key here. Offering a superior digital
experience means making the best possible first impression, which
becomes a self-reinforcing cycle. Consumers will keep coming back if
their experience is high quality from the get-go.
Credit unions, therefore, need to remove the traditional pain points
of onboarding and product origination and create instant member
satisfaction. One of the most important factors here is allowing members
to complete a digital identity verification – traditionally one of the
most painful parts of onboarding where financial institutions see the
most drop-off. By using instant photographs of an ID, then having the
member complete a live check via a self-recorded video, credit unions
can have them onboarded in a matter of minutes.
Digital onboarding can go further, though, and enable members to
originate multiple products in one go, increasing member stickiness and
loyalty. By putting multiple product offerings in front of the member
in-app, in a clear and helpful way, credit unions can offer a bundled
approach to onboarding. This allows them to cross and upsell and
provides value for both the member and credit union. For example, with
the right digital experience at sign-up, a member could be prompted to
open a checking and savings account simultaneously or even add on a
credit card, getting engagement up instantly. For this approach to pay
off, though, the execution has to be almost instant, meaning members
need to be able to see the sign-up through in mere minutes, with minimum
inconvenience.
Powering Healthy Financial Lives
Once a member is in the door, the challenge becomes keeping them
there – again, this is reflective of the rise in fintech challengers
competing for attention and offering additional value elsewhere. Credit
unions therefore need to shape their everyday digital banking
capabilities to keep members interested and expand in-app engagement.
This depends on delivering maximum value across a member’s entire
financial life.
With the right digital technology in place, institutions can deliver
smart app features that give members value they can’t get elsewhere,
such as an in-depth view of financial wellness to empower their everyday
decisions. By delivering a holistic view of all accounts and financial
products in one place – including an overview of any accounts or
products with other financial institutions and fintechs – credit unions
can provide unique, meaningful insights to help members get a better
handle on their overall financial well-being.
But true financial wellness depends on not just having an overview of
all accounts, including investments and debts; it also requires
insights into the impact of new decisions on overall financial health.
Digital technology allows credit unions to add capabilities such as
smart savings features, which help members analyze their transactions;
set new, lower budgets for certain expenditures (like their daily
latte); and re-allocate the extra money saved into separate savings
accounts for the things they care about most – such as a holiday. What’s
more, by offering an instant view into a member’s credit score via
their app, credit unions can digitally suggest actions a member could
take to impact their overall financial picture. This could include
suggestions to consolidate credit cards or the creation of a digital
budget to help control spending behavior in certain areas. By using
analytics and automation, credit unions can deliver in-app experiences
like this, enabling them to advise members on how to make better
decisions for their financial well-being, and instantly show the
potential impact of change. This is the type of market-beating value
that will translate into member loyalty.
Personalizing Experiences to Pivotal Moments in Life
Key moments in our lives are always tied to financial implications.
That’s why, to deliver more value and become the banking app that
members love, credit unions need to better understand how their members’
needs change at pivotal moments in life and get ahead of what
personalized services can be offered in response.
Meaningful, digital and well-analyzed data can empower employees to
craft more impactful member interactions. For example, by using data and
automation, credit unions can provide tailored advice on cross and
upsell opportunities that match key milestones members are experiencing.
And these communication points can be executed across various digital
channels, like via a push notification on a member’s mobile phone, that
invites them to take out a product that is hyper-relevant to their
needs. Better and faster access to data means harnessing the power of
the cloud, allowing institutions to be proactive. That being said, a
recent IBM report stated that while 91% of financial institutions are
using cloud services, there is a missing gap in which only 9% of
mission-critical regulated banking workloads have shifted to a public
cloud environment. This is a much lower number then other industries. By
having a clear, aggregated view of all member data in one place –
tracking their habits and recording every previous touchpoint they’ve
had with their financial institution – while combining that with smart
analytics and automation, credit union employees can be more productive
and efficient with member relationships. They can send in-app prompts
that give members the ability to originate new products that underpin
key moments in their lives, such as car loans or mortgages.
Customer Banking for the Future
It’s not enough to just compete in the current banking environment.
In order to survive, credit unions need to be the orchestrators of easy,
but personal digital experiences, creating engagement with members that
goes far beyond what they currently get from core banking services.
Financial institutions need to personalize every facet of the banking
experience with the goal of improving their customers’ or members’ daily
lives, while also increasing operational efficiency for themselves. And
this can only be achieved by taking a platform approach to technology,
where all data, products, channels and touchpoints are centralized and
feed into one another to create intuitive, smart and – crucially –
pleasant digital experiences.
Vincent Bezemer
Vince Bezemer is SVP, Strategic Business Development at the Atlanta-based Backbase.
The number of job openings fell well below 11 million in June as the
labor market begins to cool from record demand for workers in yet
another potential sign of recession.
The total number of job
openings fell to 10.7 million in June, with 6.4 million hires and 5.9
million separations, which includes all reasons an employee may leave a
company, according to a Bureau of Labor Statistics
(BLS) report Tuesday. Economists told the Daily Caller News Foundation
that the figures were an ill omen, fearing inflation and proposed
changes to tax policy would lead to layoffs and reduced demand for
workers.
“We are now in the early stages of a whiplash effect,”
E.J. Antoni, a research fellow and economist at The Heritage Foundation,
told the DCNF. “Employers are still scrambling to hire workers but will
soon have to stop hiring and then begin layoffs; some firms have
already started this move, but it’s not widespread yet.”
“Consumers
are running out of disposable income as prices continue rising,” Antoni
said, noting that as consumers cut back on spending due to inflation,
businesses will need fewer employees, leading to layoffs. Small
businesses are already feeling the effects, with job openings at small
businesses “reaching their lowest levels since September 2021,” Antoni
said.
Wages increased 5.1% in the second quarter compared to last year, as companies try to retain and attract workers, The Wall Street Journal reports. Adjusted for inflation, incomes fell 0.3% in June compared to last year, the DCNF reported.
The
decline in job openings is just the latest indicator showing a
softening labor market,” Alfredo Ortiz, President and CEO of the Jobs
Creation Network, told the DCNF. Ortiz also noted that the low
unemployment rate does not reflect the fact that labor force
participation has been declining, and that if those on the “workforce
sidelines were considered unemployed, the unemployment rate would be
dramatically higher than today’s rate suggests.”
There were 5.9
million unemployed people looking for work in June, representing an
unemployment rate of 3.6%, which has been consistent since March
according to a July BLS report.
The labor force participation rate in June was 62.2%, down 1.2% from
Feb. 2020, but consistent with recent months, according to the BLS.
“If
Senate Democrats succeed in passing their proposed massive tax hike on
businesses and ordinary Americans, this labor market cooling will turn
into a freeze and even the topline unemployment rate will be
significantly impacted,” Ortiz told the DCNF.
The number of job openings peaked in March at 11.9 million openings,
according to the WSJ. In July, initial jobless claims, a common proxy
for layoffs, reached their highest levels since November 2021,
indicating that while the number of job openings remains historically
high, the labor market may be slowing, according to the WSJ.
The
increase in claims represents “some pretty serious weakness in the labor
market, and potentially a signal for a recession coming in the future,”
Dante DeAntonio, an economist at Moody’s Analytics, told the WSJ.
A
weakening labor market also makes workers more likely to hold onto
their jobs, as fears of a recession mount, DeAntonio told the WSJ.
50,000 less people quit their jobs in June compared to May, according to
the BLS.
The BLS will report employment data for July on Friday, according to The Wall Street Journal.
The Federal Reserve has a simple inflation-fighting playbook. It goes
like this: Keep applying upward pressure on interest rates until
business and consumer spending across the economy weakens and inflation
recedes.
Over the past week, mortgage rates have declined fast. As of Tuesday,
the average 30-year fixed mortgage rate sits at 5.05%, down from June, when mortgage rates peaked at 6.28%.
Those falling mortgage rates give sidelined homebuyers immediate
relief. If a borrower in June took out a $500,000 mortgage at a 6.28%
rate, they’d pay $3,088 monthly in principal and interest. At a 5.05%
rate, that payment would be just $2,699. Over the course of the 30-year
loan that’s a savings of $140,000.
What’s going on? As weakening economic data rolls in, financial markets are pricing in a 2023 recession. That’s putting downward pressure on mortgage rates.
“The bond market is pricing in a high probability of a recession next
year, and that the downturn will prompt the Fed to reverse course and
cut [Federal Funds] rates,” Mark Zandi, chief economist at Moody’s Analytics, tells Fortune.
While the Fed doesn’t directly set mortgage rates, its policies do impact how financial markets price both the 10-year Treasury yield and
mortgage rates. In expectation of a rising Federal Funds rate and
monetary tightening, financial markets increase both the 10-year
Treasury yield and mortgage rates. In expectation of a reduced Federal
Funds rate and monetary easing, financial markets price down both the
10-year Treasury yield and mortgage rates. The latter is what we’re
seeing now in financial markets.
While lower mortgage rates will undoubtedly prompt more sideline
buyers return to open houses, don't pencil in the end of the housing
correction just yet.
"The bottom line is the recent decline in mortgage rates will help at
the margin, but the housing market will remain under pressure with
mortgage rates at 5% (fewer sales, slowing house price growth)," wrote
Bill McBride, author of the economics blog Calculated Risk, in his Tuesday newsletter. The reason? Even with the one-percentage-point drop in mortgage rates, housing affordability remains historically low.
"If we include the increase in house prices, payments are up more than 50% year over year on the same home," writes McBride.
There's another reason housing bulls shouldn't get too overconfident:
If recession fears—which are helping to drive mortgage rates lower—are
correct, it would cause some additional weakening in the sector. If
someone is afraid of losing their job, they're not going to jump into
the housing market.
"While lower rates by themselves are a positive for housing, that
isn’t the case when accompanied by a recession and quickly rising
unemployment," Zandi tells Fortune.
Where will mortgage rates head from here?
Researchers at Bank of America
believe there's a chance that the 10-year Treasury yield could slip
from 2.7 to 2.0% over the coming 12 months. That could make mortgage
rates fall to between 4% and 4.5%. (The trajectory of mortgage rates
correlates closely with the trajectory of the 10-year Treasury yield.)
But if mortgage rates fall too quickly, a rebounding housing market
could mess up the Fed's inflation fight. If that happens, the Fed has
more than enough monetary "firepower" to once again put upward pressure
on mortgage rates.
“Whether we are technically in a recession or not doesn’t change my
analysis. I’m focused on the inflation data...And so far, inflation
continues to surprise us to the upside," Neel Kashkari, president of the
Federal Reserve Bank of Minneapolis, told CBS on Sunday. "We are committed to bringing inflation down, and we're going to do what we need to do."
Curt Long
Dawit Kebede
Source: AdobeStock.
Glenn D. Barks
Vincent Bezemer
