U.S. Economic, Housing and Mortgage Market Outlook – July 2024 | Spotlight:

In this Issue

• Economic growth for Q1 2024 slows to the lowest level since Q2 2022 while the labor market also shows signs of cooling.
• Home sales continue to remain low even as mortgage rates ease slightly, and while we see improvement in inventory, it remains below pre- pandemic averages.
• While credit card and auto loans are performing worse than their pre-pandemic average, mortgage loans are performing better. We also find that non-mortgage credit performance is better for people with mortgages as compared to people who do not have one. MORE

Recent developments

U.S. economy: The third estimate of U.S. economic growth released by the Bureau of Economic Analysis (BEA) in June showed GDP growth at a 1.4% annualized rate in Q1 2024, a slight increase from the second estimate of 1.3%. Downward revisions to imports and upward revisions to nonresidential investment and government spending led to the upward revision of Q1 growth. Consumer spending, however, experienced a slowdown from 2.0% annualized growth in the second estimate to 1.5% in the final estimate for Q1 2024. Consumption spending’s contribution to GDP also declined from 1.3% in the second estimate to 0.9% in the final estimate. Real Gross Domestic Income (GDI) increased 1.3% in Q1 2024. The average of GDP and GDI, a supplemental measure of economic activity that equally weights GDP and GDI, increased 1.4% in Q1 2024.

The final estimate for Q1 2024 GDP released in June was 18 basis points below the first estimate released in April. On average, the revisions to GDP from the preliminary to final estimate have been around 17 basis points since Q3 1965 (Exhibit 1). While there is no discernible pattern in the revisions to GDP estimates, typically, there are downward revisions to GDP at the beginning of a recession.¹ However, during the pandemic recession in Q2 2020, there was an upward revision to the GDP estimate mainly due to the relaxation of the stay-at-home orders which led to an uptick in economic activity.

The labor market cooled as per the latest employment report from the Bureau of Labor Statistics (BLS). Total nonfarm payroll gains were 206,000 in June and along with that April and May total payroll gains were revised down by a combined 111,000 (57,000 for April and 54,000 for May). Around three-fourths of the job gains in June occurred in healthcare and social assistance and government. Year-to-date job growth for 2024 is 1.3 million with an average of 222,000 jobs added each month (down from an average of 247,000 jobs last month). However, the unemployment rate ticked up further to 4.1% and is now at the highest level since November 2021.

The Job Openings and Labor Turnover Survey (JOLTS) report released by BLS showed job openings rose to 8.1 million in May, after April was revised down by 140,000 to 7.9 million. Job openings for April were at the lowest level since March 2021. The job openings to unemployed ratio for May at 1.22 was at the lowest level since June 2021. The quits rate was unchanged at 2.2% for the seventh consecutive month. Overall, the job market appears to be cooling with the unemployment rate rising over the last few months and substantial downward revisions to job gains.

On the inflation front there was some encouraging news as the Federal Reserve’s preferred inflation gauge, the core Personal Consumption Expenditure Price Index, which strips out volatile food and energy prices, rose 0.1% month-over-month and was up 2.6% year over year in May 2024.² The annual increase was the lowest since March 2021. Prices for goods decreased 0.4% month-over-month led by declines in gasoline and other energy goods along with recreational goods and vehicles. Prices for services were up 0.2% month-over-month in May and within services, healthcare had the largest increase over the month followed by housing and utilities.

Overall, while economic growth for Q1 2024 was the slowest since Q2 2022, it still reflects a growing economy. There has been some moderation in inflationary pressures, and per the Fed dot plot, there might be only one rate cut this year. The higher for longer rates are affecting consumer delinquencies, which we discuss in detail in this month’s Spotlight. The labor market, while still strong by historical standards, is showing some signs of cooling as the unemployment rate sits at the highest level since November 2021.

U.S. housing and mortgage market: The…