Market News – July 29, 2019

THE U.S. ECONOMY GROWS AT 2.1% RATE IN THE SECOND QUARTER:  The following are second quarter GDP growth predictions that came out in the last couple of weeks:

• Merrill Lynch 2.3%
• Goldman Sachs 1.4%
• New York Fed 1.4%
• Atlanta Fed 1.6%

Last week, the U.S. Bureau of Economic Analysis announced  that U.S. GDP increased at an annual rate of 2.1% for the quarter.  The first quarter rate was 3.1%.  Personal consumption expenditures increased by 4.3%, but residential investment decreased by 1.5%.  Inventory activity, a big boost in the first quarter, subtracted about 1.5% points of growth from the the U.S. GDP number.

The personal consumption number was encouraging because household spending had slowed from October through March.  Spending on durable goods such as cars, furniture and appliances had its best quarter in five years.  But the first quarter was the worst quarter for durable goods in a decade.

EARNINGS DRIVE MARKETS:  U.S. second quarter earnings reports strongly influenced the markets all week.  So far, 40% of earnings reports are out, and 76% have beaten expectations.  Between that and a generally encouraging GDP report, U.S. stock indices had a good week and hit new highs once again.

HOME PURCHASE DELAYED:  Younger Americans are not buying homes.  The median age of a home buyer in the U.S. is currently 46, the oldest that number has been since records started being kept in 1981.  Many young people came of age in a job market during the financial crisis that crimped their earnings potential.  Meanwhile, home prices continued to rise.  About 40% of Americans aged 25-34 own homes (according the Freddie Mac).  That figure was 48% in 2001 when Gen X-ers were the young adults.  From 2000 to 2017, after adjusting for inflation, home prices are up 21%.  During the same period, household income is up 2%.  There are potential long-term consequences.  In a recent report that examined people turning 60 and 61, those who bought their first home between 25 and 34 had a median household net worth that was double those who waited until after age 35.  In short, the late homebuyers are not making up for the lack of home equity with other wealth building savings.  According to the Fed, right now the median net worth of homeowners is $230,000 and for renters it is $5,000.

HOME PRICES:  The median price for new houses sold in June in the U.S. was $310,400.  The average price was $368,600.  In 2002, 30% of homes sold in the U.S. were worth $150,000 or less.  The number of new homes sold that were under $150,000 in June of 2019 was almost zero percent.

EUROS:  I went to the bank to get some Euros this weekend.  I’ll let you know why later.

REFERENCES:
THE U.S. ECONOMY GROWS AT 2.1% RATE IN THE SECOND QUARTER: https://www.calculatedriskblog.com/2019/07/q2-gdp-forecasts-14-to-23.html; https://www.calculatedriskblog.com/2019/07/bea-real-gdp-increased-at-21-annualized.html; https://www.barrons.com/articles/u-s-gdp-is-better-than-it-seems-but-watch-investment-and-government-spending-51564153721?refsec=feature
EARNINGS DRIVE MARKETS: https://www.wsj.com/articl; es/google-just-added-goldman-sachss-worth-of-market-cap-11564165577; https://finance.yahoo.com/news/us-indexes-higher-friday-july-224433424.html
HOME PURCHASE DELAYED:  https://www.wsj.com/articles/financial-crisis-yields-a-generation-of-renter