What Now for Borrowers and Savers After the Fed Move?

Now that the Fed has raised the effective federal funds rate a quarter of a percentage point to 0.9%, and indicated its intention to raise twice more this year, the effects will ripple out to most borrowing rates, but only to some savings rates.

Borrowing Rates

The bank prime rate, which is the short-term borrowing rate available to the most credit-worthy customers, has already fully adjusted. The prime rate usually rises within one day of a Fed hike. Ditto for home equity lines of credit, which are tied to the prime rate. Continue reading “What Now for Borrowers and Savers After the Fed Move?”

Finding and Keeping the Workers You Need

While labor shortages have been most severe for technology and health care businesses, they are cropping up in more and more industries, now that the U.S. unemployment rate has fallen. A recent survey of small businesses found that half of them can’t find enough qualified job applicants. The question: What can businesses do to make sure they have the workers they need? The answer, human resources professionals say, comes down to a three-part strategy: Recruit, retain and train.

With good workers increasingly scarce, employers are having to get creative about recruiting. A job ad posted on the company website might not cut it anymore. Companies may need to hire recruiters in order to find the social media websites or career niche websites where folks with desired skills tend to hang out. Recruiters can make sure that want ads are mobile-friendly for the millennials who never use desktop PCs, for example. They can arrange for quick interviews using Skype or Facetime. Some also offer applicant tracking systems. Continue reading “Finding and Keeping the Workers You Need”

Even Without Tax Cuts, Consumers Will Boost Economy

Consumers will shoulder the burden of keeping the economy on track in 2017 while waiting for Donald Trump’s tax cuts to be passed. Low unemployment, job and wage growth will keep money in consumers’ pockets, while the rise in the stock market since the election will provide a bit of an extra bump up to spending.

Consumer spending should rise by about 2.8% in 2017, up from 2.6% in 2016. 2017 will be the fourth straight year that consumer spending growth will have been markedly higher than overall GDP growth, indicating how much this spending is carrying the economy. Continue reading “Even Without Tax Cuts, Consumers Will Boost Economy”

Steel Prices on a Sharp Upswing

Prices for steel will rise through early 2017 on the expectation of more infrastructure spending by the Trump administration and robust construction of hotels, office and school buildings. Over the longer run, though, production overcapacity in China will help temper increases.

The cost of steel plate products, used in bridge construction, pipelines, etc., are already up sharply—a 20% increase since the presidential election. Buyers are also shelling out 7% more for steel-reinforcing bar used in road and bridge and building construction. Also up: Prices for hot- and cold-rolled steel, used to make cars, appliances and more. Hot-rolled steel is up 14%; cold-rolled 11%. Meanwhile, scrap metal is selling for 16% more. Continue reading “Steel Prices on a Sharp Upswing”

What Rising Interest Rates Mean for the Housing Market

Low inventories of homes, especially those at the lower end of the price range, should keep rising mortgage rates from pulling down sales growth much. But home price gains are likely to slow, especially for homes at the higher end of the price range and ones in large metro areas of the West where price growth had been high for a while.

Thirty-year fixed mortgage rates have risen by about half a percentage point since the election. For a new $250,000 loan with a 20% down payment, the principal and interest payment has risen by $55 per month. The annual income a borrower needs to qualify for that loan is now $44,000, up from $42,000 earlier. Qualifying income for those who make a down payment of 5% has risen from $50,000 to $53,000. For a $350,000 loan with 20% down, the increase in the monthly nut will be $80, with qualifying income at $65,000, versus $62,000 earlier.

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How the Next Fed Rate Hike Will Affect You

We expect the Federal Reserve to raise its federal funds interest rate from 0.25% to 0.5% at its meeting on December 14. This will have a domino effect, boosting some loan and deposit rates for consumers, but not all of them.

How the Fed Rate Hike Will Affect Your Loan Rates

When the Fed raises, the bank prime rate will immediately jump by the same quarter percentage point. Interest rates on home equity lines of credit will also rise by the same amount, to a minimum of 3.75%. Auto and personal loan rates should rise, too. In fact, auto lenders may nudge their rates up a tick more in the months to come as delinquencies on subprime auto loans creep up.

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The Friday Jobs Report: Setting the Stage for the Federal Reserve’s December Rate Hike

The days of job gains of 200,000 or more per month are likely in the past as the labor market continues to tighten and employers struggle to find qualified workers. Instead, expect a gain of 170,000 jobs to be reported for September. Despite the modest number, this is still likely to cause a slight drop in the unemployment rate, to 4.8%, and push up wages by 2.7% from a year earlier. That’s a bit faster than the yearly rate of 2.4% recorded in August.

A decent jobs gain of 150,000 or more, a drop in the unemployment rate and faster wage gains would signal the further improvement in the labor market that the Federal Reserve is looking for to justify its first quarter-point interest rate hike in a year. The end of the next Fed meeting is November 2, and it’s obvious that Fed Chair Janet Yellen has enough political sense not to do anything the week before the presidential election, lest she be blamed by one side or the other for trying to influence the results. Therefore, the Fed move will likely take place on December 14, safely after the election.

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Brexit Vote Puts Damper on Interest Rates

10-year T-notes at 1.4% by end ’16

The vote by Britain to leave the European Union has completely changed the outlook for interest rates. Rates should stay low for an extended period of time as U.S. Treasury notes and bonds remain important safe haven investments in the face of uncertainty over growth in Europe and Japan.
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