Cold shower! The US economy contracted in Q1 by -0.7%.
This was NOT a surprise. The Citi Macro Surprise Index signaled a bad Q1 reading.
The revised Q1 reading is even worse than the Atlanta Fed’s GDP NOW model.
What about Q2? So far. Q2 GDP growth looks like about 0.7%.
Goidman Sachs is predicting that GDP growth in the long-run is only 1.5%.
Not to worry! The government can always commission another George Clooney make-work, money-losing venture like “Tomorrowland.”
Ah, another housing report where homes become even more UNaffordable for the average American.
According to Case-Shiller, home prices rose 5.04% YoY in March while wages are growing at only 2.1% YoY.
The leader in house price growth? San Francisco. In last place? Washington DC and … Cleveland.
The problem for the average American household is that mortgage purchase applications have likely peaked for 2015.
Mortgage applications decreased 1.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 22, 2015.
The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index was essentially unchanged compared with the previous week and was 14 percent higher than the same week one year ago.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.07 percent from 4.04 percent, with points increasing to 0.35 from 0.32 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
Rising interest rates are not likely to help.
We are a few short days away from June 2015 and it will be 6 years since The Great Recession ended (according to the National Bureau of Economic Research or NBER). And real USA GDP growth still stinks.
According to the Atlanta Fed’s GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2015, the forecast was 0.8 percent on May 26, up slightly from 0.7 percent on May 19, but still below 1.0 percent.
At the same time, the globe is drowning in debt. While the UK and Japan are in the worst shape (near 500% debt-to-GDP), the USA is no slouch at 289% debt-to-GDP.
While low economic growth coupled with staggering debt load is bad enough, we then have the wizards of Constitution Ave talking about raising interest rates before the end of the year.
What could go wrong?
We all live in Yellin’s submarine!
The velocity of money is a measure of the economic activity. It looks at how many times a unit of currency ($1 in the case of the United States) flows through the economy and is used by the various members of the economy.
In the case of M2 velocity (includes cash and checking deposits (M1) as well as savings deposits, money market mutual funds and other time deposits), it is at an all-time low after peaking in 1998.
An alternative measure of velocity is MZM. MZM represents all money in M2 less the time deposits, plus all money market funds. Like M2 velocity, MZM velocity is at an all-time low.
Here is a chart of MZM velocity against the 10 year constant maturity Treasury rate.
What this chart says is that the economy is not catching fire despite the massive amount of money in circulation.
And wage growth is terrible as well, despite Fed intervention.
Here’s to our policy makers in Washington DC!
So much for re-inflation. Or inflating our way out of our Federal debt problem.
The Producer Price Index for April has been released. And it fell by the most since 2010.
This comes after yesterday’s dismal retail sales report where we discovered that the US Import Price Index by End Use All YoY NSA fell by 10.7 percent.
This is a recovery, right?
The weather is beautiful in the Northeast and Midwest USA.
But the Q2 GDP forecast is gloomy. In fact, The Atlanta Fed’s GDP NOW forecast model shows Q2 GDP of only 0.7 percent.
Here is the breakdown:
I am sure that Joe Lavorgna at Deutsche Bank is overly optimistic. But MY forecast model says something different.
Mortgage applications decreased 3.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 8, 2015.
The unadjusted Purchase Index increased 0.1 percent compared with the previous week and was 12.4 percent higher than the same week one year ago.
Of course, mortgage purchase applications remain in the doldrums thanks to declining wage growth. And home prices keep rising!
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.00 percent, its highest level since March 2015, from 3.93 percent, with points increasing to 0.36 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.