The Economy Isn’t The Most Important Issue Facing The Country

In the week of January 31st, the MBA applications composite index increased 5% weekly after increasing 7.2%. The purchase index fell 10% after rising 5%. On a yearly basis, growth was higher as it was 11%. In the past 3 weeks, average yearly growth has been 12%. The housing market looks to be continuing where it left off last year. The refinance index was up 15% weekly after increasing 5%. Low rates are motivating people to refinance again. In the week of February 6th, the average 30 year fixed mortgage rate fell to 3.45% which is just 4 basis points above the record low in July 2016.

As you can see from the chart above, the difference between the current mortgage rate and the effective rate on debt outstanding (with a 1 quarter lag) implies refinancing will increase. That’s exactly what’s happening according to the MBA report we just reviewed. As homeowners refinance, they gain extra spending power which improves their confidence. As you can see from the Gallup poll below, only 10% of Americans mentioned economic issues as the most important problem facing America which is the lowest ever (since 2001).   

Services PMI Improves

The Markit services PMI increased just as the ISM non-manufacturing PMI did. The final January Markit services PMI was 53.4 which was up 0.6 from December and 0.2 from the flash report. This was a 10 month high as you can see from the chart below. This improvement pushed the composite PMI up from 52.7 to 53.3. The Chief Business Economist at Markit commented on the economy’s momentum by saying, “Growth has gained some momentum from the lows seen in the fall as the service sector enjoys stronger growth and manufacturing has also shown signs of the trade-led downturn easing.”

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