According to Bloomberg’s Matthew Boesler, the U.S. economy reached an important milestone in October that ought to put it on a more sustainable footing going forward: wage growth eclipsed mortgage rates for the first time since 1972. In data published earlier this month, the Labor Department announced that average hourly earnings comprising more than 80% of the US private sector work force rose 3.8% year over year. Meanwhile, according to Freddie Mac, the average 30-year fixed mortgage rate was approximately 3.7% in October. We can essentially thank the Fed for the recent crossover – a year ago the average 30-year fixed mortgage rate was roughly 4.9%.
This reality should have multiple positives. First, lower interest rates mean lower mortgage payments. Second, higher earnings mean more money to meet these mortgage obligations without crimping discretionary spending in other areas.
While there is no “magic” to such an occurrence, the implications could be meaningful for the US economy in 2020 and beyond. It’s no secret that the consumer is driving the economy in the US – frankly, it has driven the economy for some time purportedly accounting for over 70% of economic activity depending upon how such things are calculated. However, this driver of growth has become even more important as businesses have put off capital spending in the face of global trade uncertainty.
Simply said, if we are to avoid a recession in the next 12 months, we cannot lose the consumer. With more money in their pockets and lower housing costs could keep the party going even longer.
The views presented herein are those of Validus Growth Investors, LLC (“Validus”) as of December 2019 and are provided for informational purposes only. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend might begin. The information is based on the economic and market conditions as of this date. The information is not intended as a discussion of the merits of a particular offering and should not assume that any discussion or information provided herein serves as the receipt of, or as a substitute for personalized investment advice from Validus or any other investment professional.
This material is provided for informational purposes only and does not constitute a solicitation. The material is not intended to be relied upon as a forecast, research or investment advice and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any forecasts made will come to pass.