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Will The Real Economy Please Stand Up?. Presented by: Elliot F. Eisenberg, Ph.D. President: GraphsandLaughs, LLC January 16, 2014 Boston, MA. Inflation? What Inflation!. Import Prices for all Commodities: No Inflation!!. Three Types of Producer Prices: No Inflation!!.
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Will The Real Economy Please Stand Up? Presented by: Elliot F. Eisenberg, Ph.D. President: GraphsandLaughs, LLC January 16, 2014 Boston, MA
Inflation? What Inflation!
Federal Reserve Behavior • Yellen & Fischer are excellent • New appointees are likely to be dovish • Tapering ends by 1/1/15 • Tapering in $10 billion increments/meeting • Tapering equal amounts of MBS & Treasuries • Remember, short-term rates @ zero till 1/1/15 • Or as long as: • unemployment is “elevated” • as long as inflation is “low”
Refinance Activity is Just 60% of Total Applications! Down 72% from peak, Decline in Renovations Alterations and Repairs, HARP will help
Monthly Refinancing (Down) and ARM Shares (Up) Refinancing activity is way down
Interest Rate Movements • In the near future, nothing is happening. • Longer term, (end of 2014) remain very vigilant • 10-Year Treasuries end the year @ 3.5% to 3.6% • 30-Year Mortgage rates end at 5.0% to 5.2% • Ideally this happens slowly as economy improves • Every two months a rise of 10 BP. • But don’t bet on it because the data doesn’t cooperate • Think HELOCS, and ARMS • Refi activity will be flat in 2014 • Risks to forecast: economy gets better faster!!! • ***Like the Jeffersons, rates are “moving on up”
The Economy? It’s Finally Improving!
Hiring and Separation Rates Slowly ImproveNone are Where they were, but all are getting better and openings are getting close!
STEADY Labor Market Improvement: Involuntary Separation Unemployment falls to 6.5% by year end
STEADY But Slow Labor Market Improvement Job growth rises to 215K/month by year end
Unemployment By Duration LT 5 Weeks is Back to Normal and 5 to 14 Weeks is close
Tighter Labor Market than Perceived? The number of Unemployed / Job Opening Keeps Falling!!!!!
Fewer of Us are Working in State and Local Gov’t! But, These Losses are Reversing at the State & Local Level
Annual Y-o-Y Percent Change in GDPGDP will rise by 1% in 2014!
Households are Repairing their Balance SheetsTrillions in Net Worth Recovered and now at a New Record Level
Households are Repairing their Balance SheetsMore Income to Spend Elsewhere
Best of All, No Recession is in the Cards!Coincident Economic Indicators for the USA, at highest level since Great Recession!
Best of All, No Recession is in the Cards!Yield Curve Inversion Test: 1-Year Treasury Yield – 10-Year Treasury Yield
What About Real Estate? It’s Improving but In Fits and Starts!
Office Vacancy Rates are S-L-O-W-L-Y Recovering?No Construction Activity and no Demand
Household Formation is Up and RisingMay even get above Trend growth
Single-Family and Multifamily Starts Are UpMF Has Almost Fully Recovered. Hello Renters!!!
MBA Mortgage Purchase Apps – Underestimate Reality! 1st time applications are weak, 4-week MA down 11% Y-o-Y
Existing Home SalesNow 1.2% below the year ago level, very different from new home sales activity
Existing Home Sales & New Home Starts Converging Once Again!
Delinquencies & Foreclosures Trending LowerDelinquencies down 12% Y-o-Y Foreclosures down 27% Y-o-Y