Federal Open Market Committee Members Show Confusion Over Direction… During House testimony, Fed Chair Powell and several other members of the Federal Open Market Committee (FOMC) indicated in speeches that they are not convinced they have tamed inflation but also that they aren’t sure whether to raise rates at the July meeting.
What it means— Will they or won’t they? It turns out that even the FOMC members don’t know. Powell did a great job getting the members to vote for no change last week by pledging to call for another rate hike in this cycle, thereby appeasing the doves and hawks. But the economic data aren’t making the job easy. Employment remains strong, housing starts rose, and inflation isn’t close to 2% yet. However, the Treasury and Fed are draining liquidity from the economy and China’s recovery has run out of gas. This leaves investors wondering if they’ll get yet another liquidity squeeze through an additional rate hike or if they can invest for the eventual pivot. There’s no way to know, which is why we’ve preached caution for weeks.
Housing Starts Jump 21.7% in May… Housing starts rose from an annual rate of 1.34 million to 1.63 million, the highest increase since last April.
What it means— The Fed has to be wondering what it will take to lay this economy low. Just when it looked like the Fed might be getting ahead of inflation, housing starts pop. With little inventory available for buyers, it’s no wonder that people are turning to new homes, which require a lot of labor and supplies. Builders likely are breathing a collective sigh of relief, but the central bankers will strike a hawkish tone in their speeches next month. Short-term Treasury bonds paying more than 5% look like a good place to wait out the volatility.
Initial Jobless Claims Are Steady at 264,000, Continuing Claims Are Off Slightly, Down by 13,000 to 1.76 Million… The number of people filing for initial jobless claims remains above the short-term average of 220,000 but below the long-term average of around 335,000.
What it means— We rarely talk about these numbers as percentages of the labor force, which is unfortunate. While the current initial claims number is below the long-term average in absolute numbers, it is even lower on a percentage basis, because the labor force has grown over the past three decades. The same with continuing claims. The current rate of 1.76 million is very low compared with the long-term average of around 2.5 million to 3 million but is even lower as a percentage of the current labor force. Employment remains tight. The best sign that things are slacking off will be when you start getting good service again at restaurants.
Existing Home Sale Prices Dropped 3.1% Over May of Last Year, But One Third of Homes for Sale Received Multiple Offers… The National Association of Realtors estimates that 2023 will be the lowest year for home sales since 2012.
What it means— The price drop in May is the lowest since November 2011, but sales are moving higher and inventory remains tight. The current price drop says more about the bubble high last summer than the state of the market today. Homes are sitting on the market a mere 18 days. Potential home sellers would have to be very motivated to move from a 3% mortgage to a 7% mortgage. With rates this high, we shouldn’t expect a break in the market anytime soon.
Man Working at Oklahoma Gas Station Asked Friend To Find Someone To Rob the Place so He Could Go Home Early… Isaias Jones just wanted to go home, but he had to work. He called his friend, Alyia Locke, to see if she knew someone who might rob the store. She did: Steven Jones (no relation to Isaias). Steven Jones walked into the store with a note demanding the cash from the register, which Isaias Jones gladly handed over. That might have worked out, except the police intended to catch the thief. First, they found Steven Jones, who implicated Locke, which eventually led them back to Isaias Jones. All three face multiple charges, but at least Isaias won’t have to go to work anymore.
Data supplied by HS Dent Research
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