Fresh Unemployment Data: Initial jobless claims for regular state benefits rose back above 1 million last week, increasing by 135,000 to 1.106 million. Claims for emergency benefits also rose. This data suggests the recent decline in claims may be due, in part, to the expiration of supplemental benefits, while the increase might reflect the partial restoration of those benefits.
Continuing claims for regular state benefits, which lag initial claims by a week, continued their decline, falling by 636,000 to 14.844 million, their lowest level since early April. The decline suggests that some rehiring is occurring, which is encouraging. However, the number of individuals claiming benefits remains extraordinarily high—more than twice the peak of the Great Recession—underscoring that the labor market is a long way from healthy.
Oxford Economics Recovery Tracker Updated: As many of you know, we recently retained Oxford Economics for additional economic data and forecasting help for our Investment Committee. The depth of their research and breadth of resources can be overwhelming at times, but it has been a wise investment of time and capital.
Their US Recovery Tracker rose by 1.3ppts to 78 in the week ended Aug. 7—the largest gain since mid-June. (Its components may be viewed in the graph below.) Supporting this weekly rise was, in fact, the first increase in the health tracker since early June and included advances in five of the six tracker sub-components, led by employment and mobility.
The improvement in the health index, if sustained, will bolster the other dimensions in coming weeks. Mobility gains showed people were more comfortable driving, flying, and commuting in mid-August. Leading the employment advance was mainly the reduced claims for unemployment as hours worked firmed only modestly. A lingering employment shortfall is a risk, not to mention the unknown impact of C-19 through the end of Q3 and into year end. We have often remarked that a political component might be a wise addition to this tracking tool; though it is hard to know how one might quantify such a thing.
Housing Market Back to Pre-COVID Levels: Residential construction soared in July, bringing the pace of housing starts back to pre-pandemic levels. Housing starts rose 22.6% to a seasonally adjusted level of 1.496 million, the strongest pace of activity since February. Strong demand and a record level of home-builder confidence will support housing starts in the second half of 2020, but the still-widespread coronavirus, and an economy struggling to recover without fiscal support, may limit the upside.
Building permits, a more forward-looking gauge of residential construction, also surpassed expectations, increasing 18.8%. Permits for single-family starts, which make the larger contribution to GDP growth, rose 17%.
The Week on Wall Street: Last week, the Standard & Poor’s 500 rose 0.77% along with the MSCI ACWI Index, a broad measure of equity-market performance throughout the world, at 0.31%, and the Barclays Global Bond Index at 0.21%.
Homeowners Will Face New Mortgage Fees in September: Borrowers who rushed in droves to capitalize on low mortgage rates are in for a little surprise. Fannie Mae and Freddie Mac, the government-sponsored enterprises that back millions of mortgages, are adding a new 0.5% fee on all mortgage refinance transactions starting Sept. 1. The news comes as the rate on the 30-year-fixed mortgage is just off its all-time low of 2.96%, according to Freddie Mac.
Normally, a rate this low would be a boon for homeowners looking to refinance their current mortgage and lower their monthly payment, but the addition would cost the average consumer $1,400, according to the Mortgage Bankers Association. This would eat away at some savings during a very uncertain economic time.
“It’s a money grab,” said Greg McBride, chief financial analyst at Bankrate.com (a personal finance website). “It’s capitalizing on refinancing volume with the idea of putting more money into the coffers of Freddie Mac and Fannie Mae.”
Millennial & Boomer Comfort Levels Drop: Some interesting data across a variety of activities we all know and that some love more than others.
Planning Corner: The State of Play in Higher Education and our Ongoing Offer to Help: It’s that time of year when many clients check in with Compass Ion Advisors to help process tuition payments and education expenses from their 529 college savings accounts. This year is especially unique given the various uncertainties surrounding schools reopening in new ways. Some colleges remain committed to opening in person. Some are switching to a fully remote delivery. Many have hybridized both approaches.
Clients often ask how long the costs of higher education will rise at breakneck speeds. Surely the cost of college cannot continue outpacing the larger economy indefinitely. Yet college attendance via remote video chat this semester does not seem to be lowering expenses of many institutions. Two competing beliefs seem true: Families rightfully expect a reduction in costs for remote delivery of schooling for what was priced as an in-person experience. At the same time, colleges are incurring enormous costs by rapidly switching their delivery method and/or preparing campuses to be safe for the return of students.
Still, colleges will be held increasingly accountable for their value. Competing on a cost-vs-value basis may ultimately be the reason prices stabilize. Whatever the case, getting ahead of education costs with the early adoption of 529s is still the most effective way to prepare. Even if costs level off, it is still an enormous financial hurdle, and we are here to help you plan.