What the Economy is Telling Us

October 19, 2020

As we head into the second half of October, and toward Halloween, the volatility of interest rates has picked up ever-so-slightly. Housing and jobs drive our economy, but investors keep an eye on inflation, and that has shifted slightly. Should Orion’s brokers be concerned for their clients?

Inflation data out over the last week shows consumer prices continued their overall upward trend, but not every category saw increases. Thankfully for all of us who eat, grocery prices fell for the third consecutive month following the initial stockpiling that occurred when social restrictions were implemented. Conversely the cost of dining out saw its highest monthly increase in 12 years as restaurants may be trying to recoup lost sales as well as implement costly virus acceptable protocols.

September also saw the first increase in producer prices since the pandemic began in March. Typically, inflation concerns would have a negative impact on the bond markets, and higher rates for Orion’s broker’s clients, or at least leading to expectations for higher rates. In this case, however, given the recent change in the Fed’s tolerance for inflation, no significant changes to monetary policy would be expected unless prices really started to move up.

For the time being, the focus remains on the labor market and the 25.3 million unemployed who are still receiving benefits. Despite an impasse on another round of fiscal stimulus from the federal government, retail sales rose 1.9 percent in September as consumers continue to shift spending from services to goods. It remains to be seen if consumers will shift spending back to the much larger services sector of the economy once this wave of goods purchases subsides.

So what should Orion’s brokers expect ahead, and/or tell your clients? As a nation we continue to receive mixed signals, but, frankly, few point to any kind of economic expansion. We hear from our brokers that clients are showing the strain, but are saving money. That is a good thing in the long run. In terms of rates, given the lack of strength of the U.S. economy, and the uncertainty of the election, we expect mortgage rates to fluctuate in a narrow band but to do little for quite some time.

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