According to data reviewed for MGIC’s Market Trend Analysis report, the US economy continued to show improvement as it gained momentum during the second quarter. Although some would argue that the economic recovery should be further along, especially as we are into the sixth year of expansion, the fact is, the economy generally continues to post solid gains. The second quarter of the year saw employment growth, rising home prices and cheaper fuel costs. In addition, there was stronger business investment as well as additional commercial construction and consumer spending. Here are some of the key indicators that were apparent.
The US economy grew 3.9% in the second quarter, substantially better than the weather-impacted 0.6% gain in the first quarter of 2015 and exceeding most economists’ forecasts. It was driven by improved consumer spending. Looking forward, there is speculation that some slowing may occur in the third quarter as businesses manage through excessive inventory and a slowing in China’s economy. Further, the strong US dollar continues to impact trade. GDP growth for the third quarter may come in under 2%.
Despite August and September not meeting most economists’ forecasts, employment is growing at a steady rate. Approximately 1.8 million workers were added to the payrolls since the beginning of the year. This is slightly less than the total from a year ago, but still puts the US on track to add nearly 2.5 million jobs this year. California, Florida and New York recorded some of the strongest gains. On the opposite end of the scale, Alaska, Louisiana, North Dakota, Oklahoma, West Virginia and Wyoming recorded year-to-date losses — all of these states were negatively impacted by lower energy prices. Most economic forecasts have employment rising nearly 2% in both 2015 and 2016 and full employment is expected by the middle of 2016.
The US unemployment rate moved from 5.7% in January 2015 to 5.1% in September. Over the past year, there was a 9% decline in initial jobless claims as well as a 12% reduction in continuing claims. Even under the broadest measure of unemployment (all persons who are marginally attached to the labor force plus those employed part-time due to economic reasons), the rate fell almost 2 percentage points during the year. Labor force participation is at one of the lowest points in a number of years; however, the general thinking is that the current rate may really reflect the “new normal,” based on the makeup of the labor force.
Different from other recovery periods, housing is not leading the way. To some, it has been disappointing. Even so, home price appreciation is generally ranging between 5% and 6%. Home sales are up in many markets; however, they are restricted by the lack of supply. Mortgage interest rates remain low. First-time homebuyers account for only 32% of the market, the lowest level in almost three decades, versus the historical average near 40%. It appears that many potential homebuyers in this category are hindered by high student debt and/or the lack of sufficient down payment. As a result, the rental market has been very strong.
Looking forward, we will keep a close eye on changing trends in the US economy, including employment, wage growth, interest rates, oil prices, new home construction and housing affordability. We will continue to report our findings in the Market Trend Reports.Tags: Economy, Employment, GDP, housing, Housing Market, Mortgage Industry