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  • Writer's pictureDimitri Petit-Frere

Economic Update September 13

  1. Consumer prices continue to rise, which is beginning to impact how people are grocery shopping

  2. Unemployment continues to fall month-over-month, but there is still a lot to be done as experts anticipate elevated employment for several years

  3. Mortgage rates continue to fall, but lack of supply in housing has led to a rise in prices

Consumer Price Index. CPI rose 0.4% in August, amazingly up 1.3% from a year ago. Over the past three months, consumer prices are up at a 6.3% annualized rate, the fastest three-month pace of inflation since 2008. Energy prices rose 0.9%, due mostly to a 2.0% increase in the price of gasoline, which more than offset declining costs for electricity and natural gas. The 0.1% increase in food prices was driven by the ?food-away-from-home? category, which rose 0.3%, as Americans continue to shift away from grocery stores and back towards restaurants for their meals. One of the biggest drivers in August was used cars and trucks, where prices rose 5.4% because of low inventory due to trade-ins while experiencing a surge in demand. In a surprise, personal income has risen because of stimulus and enhance unemployment insurance. However, despite the increasing CPI, Americans have cut back on grocery store spending, which may be a sign that all is not quite well yet.

Consumer Price Index is at a new high

Unemployment rate. According to the Bureau for Labor Statistics, their Employment Report for August 2020 showed that the unemployment rate fell to 8.4%, a full percent lower than what many analysts had forecasted earlier in the week. This number is also lower than economists projected previously. Keep in mind the Great Depression, the unemployment rate was over 20% for four consecutive years (1932 ? 1935). During the Great Recession, the unemployment rate was at 9% or greater for thirty consecutive months (April 2009 ? October 2011). This April, the rate jumped to 14.7%, but has fallen each month since. Most economists believe the current rate will continue to fall monthly as the economy regains its strength. But the outcome will ultimately be determined by how quickly we can contain the virus. In their last Economic Forecasting Survey, the Wall Street Journal reported the economists surveyed to believe the annual unemployment rates will be 6.6% in 2021 and 5.5% in 2022, which is still higher than the 3.5% rate that we saw earlier this year, it is lower than the annual rate reported in 2011 (8.5%), 2012 (7.9%), and 2013 (6.7%).

Mortgage Rates Hit Record Low. Freddie Mac just released its Primary Mortgage Market Survey showing that the 30-year fixed-rate mortgage averaged 2.86 percent, the lowest rate in the Survey?s 49-year history (dating back to 1971)! Mortgage rates hit this historic low despite a late-summer slowdown in the economic recovery. These low rates ignited robust purchase activity, which is up 25% from a year ago and has been growing at double-digit amounts for four consecutive months. However, heading into the fall it will be difficult to sustain that momentum in purchases because the lack of supply is already exhibiting a constraint on sales activity. The eye-popping 2.86 percent for the week ending September 10, 2020, is down from last week when it averaged 2.93 percent. A year ago at this time, the 30-year mortgages averaged 3.56 percent.

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