Feeling wealthier after last month? Try 0.2%. Personal income for U.S. citizens rose by 0.2% in November, including a 0.4% bump in wages and salaries. The savings rate dropped to 4.2% in November (down from 4.5% in October). Consumer spending rose 0.5% in the month, as folks geared up for holiday gifts and travel.
These incremental changes seem small, but they translate to billions of dollars. For example, spending on retail and food services in November rose 0.7% in November after seasonal adjustments. This actually translates to $3 billion more in spending for the economy, bringing the total number from about $429 billion to $432 billion.
The Dow Jones Industrial Average set another record high to begin the trading day today. Meanwhile, the broad-based S&P 500 index reached gains of 28% for the year.
Third quarter U.S. GDP growth was revised up to 4.1% from 3.6.%. Demand (and sales) came in better than expected, which helped account for the sharp increase.
Put it all together, and the U.S. economy generally shows more signs of slow improvement heading into the new year.
The Federal Reserve seems to agree.
The big news last week came as the Federal Open Market Committee (FOMC) decided to reduce the Fed’s “quantitative easing” stimulus program by easing monthly bond purchases from a total of $85 billion to $75 billion. The FOMC identified “cumulative progress” in the U.S. employment situation.
The QE program has had a major impact on mortgage rates. In mid-2012, the Fed added $40 billion in monthly mortgage-backed security bond purchases per month. This action helped rates drop to record low levels and spur a refinance and buying boom.
Reduction of QE would remove some of the downward pressure on rates, and investors wanted to make sure to get ahead of the curve. Speculation about “tapering” of QE went on for much of 2013. As the year progressed and economic data improved, mortgage rates began to rise – even as the Fed continued QE in full. These jumps occurred as markets began to “price in” the eventual reduction of QE, modifying their bets for the future.
Though the December decision was a bit surprising (expectations seemed to shift to Q1 of 2014 as the date), markets were prepared, and mortgage rates made very little movement.
Read more about the decision – including how the Federal Reserve is able to affect mortgage rates – over on our website, where we covered the event in full.
Happy holidays! Hope you enjoy your week.