Recession fears were back in full swing this past week, thanks to the weakest manufacturing report since June 2009, which was the last month of the Great Recession.
Manufacturing makes up 12% of our economy, while consumer spending makes up nearly 70%. So even though the consumer remains strong, markets were spooked that this is the first sign of cracks within the U.S. economy.
Trade uncertainty, increased tariffs, and softening demand were reasons cited by respondents for the soft reading.
Stocks hate bad news, uncertainty, and recession talk, so the initial reaction was a significant stock selloff. Typically, when stocks struggle, bonds and home loan rates benefit, but the improvements were modest at best.
Here are three reasons rates have seemed to stall – think of a “wait and see” attitude.
- Markets are looking for confirmation of a slowdown in other parts of economy, besides manufacturing.
- The Fed is going to cut rates, likely two times before year-end to help the economy grow.
- U.S./China trade talks carry potential positive headline risk.
How the economy performs in the months ahead and responds to pending Fed rate cuts will likely determine which path home loan rates will follow. But the biggest story and wild card heading into October will be the U.S./China trade talks. Positive developments can change everything in a minute and home loan rates could suffer. And the opposite is also true.
Bottom line: If you are looking to take out a mortgage, it’s tough to see a better situation for the consumer. The economy remains strong and rates are at three-year lows. In order for rates to get much better, the economy would likely have to perform worse — potentially much worse.
Forecast for the Week:
There are only a few economic reports set for release this upcoming week, but the U.S. markets already have a lot to chew on with growth fears, the U.S./China trade issues, impeachment headlines, along with the tug-of-war between central banks and slowing global economies.
The economic highlight this week will be the inflation reading Consumer Price Index for September. The data comes after the tame reading in August, which was due in part to declining gas prices and energy costs.
The Treasury will be selling a boatload of securities via auction, with the 10-year Note in the spotlight. The added supply could weigh on Bond prices and can also keep rates from moving lower – we shall see.
Reports to watch:
- Inflation data on the wholesale level from the Producer Price Index will be released on Tuesday followed by the more closely watched Consumer Price Index on Thursday.
- The Consumer Sentiment Index will be delivered on Friday.