Trade Deficit Narrows, Solid Jobs Report, Yield Curve Inversion

After a record trade deficit in first quarter, U.S trade deficit declined 1.3% to $85.5B. Exports increased by 1.2% to a record high $179B. The Dollar’s decline in value definitely helps with exports.

Mortgage Rates increased this week after falling nicely last week. The price of Mortgage Backed Securities declined due to a strong Jobs Report Rates are up approximately 2.5% from this time last year.

Jobs – 372,000 jobs were created in June which is stronger than the expected 250K. If you look into the household survey there were 315K job losses but the labor force decreased by 353K which made the overall unemployment rate remain stable for the wrong reasons. The all in or U-6 unemployment figure, which adds back folks who want a job but have not actively been seeking in the last 4 weeks, decreased significantly from 7.1% to 6.7%. Weekly earnings are up 4.2% year over year.

Yield Curve Inversion – the 10 Year and the 2 Year Treasury Yield inverted again this week which means the 2 year treasury Yield was higher than the 10 Year treasury – typically a bellwether for recessionary periods. The chart above shows when the yield curve inverted (red) and periods of recession (grey).

Home Values increased 1.8% in the month of May and were up 20.2% from the previous year. This is down slightly from April (20.9%) but still incredibly strong. Core Logic is now forecasting 5% growth in the next 12 months. While 5% looks marginal compared to 20%+ it is still an incredibly meaningful amount of appreciation. On a $400,000 home that is $20K in one year!

GDP – the Atlanta Fed revised their Q2 GDP estimate from 0% to -2.1%. If this prediction is accurate (it is often off) then we will meet the Wallstreet definition of recession of 2 consecutive quarters of negative GDP. We won’t have a final reading on Q2 GDP until September.

Mortgage Applications to purchase homes declined by 4% last week and are down 17% year over year. Refinance applications are down 78% year over year and comprise less than 30% of all transactions.

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