By Gregory Heym, BHS Chief Economist and and host of Crossing The Line
After a week off, The Line returns with the latest news on jobless claims, mortgage rates, and consumer confidence.
Jobless Claims Rise to their Highest Level in Three Months
Initial claims for unemployment rose by 22,000 to 242,000 last week, their highest level in three months. That said, 242,000 claims per week are still very low historically. How low you ask? Jobless claims data goes back to 1967, and in that time the average has been just under 363,000.
For those of us looking for any sign of a slowing labor market to help bring down inflation, this provides a bit of hope. However, when the data is still over 100,000 below the average of the past 58 years, it’s still too early to tell.
Mortgage Rates Fall for the Sixth Straight Week
The average 30-year conforming mortgage rate decreased to 6.76% this week, from 6.85% the week before. This marks the sixth straight weekly decline in rates, which are now at their lowest level since mid-December. It’s also worth noting that one year ago, rates were averaging 6.94%.
While housing remains unaffordable to many Americans, the recent decline in mortgage rates combined with an uptick in inventory provides hope for the future. The U.S. is still adding jobs at a good pace, the unemployment rate is sitting at 4.0%, and the economy grew at a 2.3% annual pace in 4Q24.
While there is hope for an uptick in home sales in the coming weeks, the most recent reports haven’t been so rosy. Existing home sales—which are based on closings—fell more than expected in January. Pending home sales—which are based on signed contracts—fell by 4.6% to a record low in January. Some of that decline may be due to the coldest January in 25 years, but it’s still a pretty weak number.
Consumer Confidence Posts its Largest Decline Since 2001
Since consumer spending accounts for roughly 70% of GDP, we are always interested in how consumers are feeling. The Conference Board’s February report tells us it’s not too great, as consumer confidence fell by the largest amount since August 2021.
Why did consumer confidence drop so much when Greg just pointed out in the prior item how strong the economy is right now? One word: expectations. Consumers have grown more pessimistic about the future, likely due to signs of a slowing economy and higher inflation.
Time will tell if these concerns are warranted, but at the end of the day when consumers get pessimistic, they spend less. When they spend less, the economy slows down. So, it basically becomes a self-fulfilling prophecy. I have to say I can’t blame them for worrying, as inflation has started moving in the wrong direction lately.
