Friday Financial Five–August 30th, 2013

Friday, August 30, 2013

Dan Forbes, GoLocalProv Financial Expert

 

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With two-thirds of the year behind us, here are five areas to keep an eye on:

Rhode Island’s economy continues to limp along

The most important number for Rhode Island’s economy, the unemployment rate, saw an increase in July to 8.9 percent. While this continues to be a small improvement over 2012, it lags the national unemployment rate of 7.4 percent. The number of homes being sold continues to improve over last year, although the median price saw a recent decrease. 38 Studios continues to loom large over the state, but the interest payments on the bonds are included in the current budget. The future decision about whether or not to continue payments could have adverse ramifications on the local bond market.

A pause in real estate’s ascent

Yes, there was a huge drop-off in new home sales in July. Yes, interest rates hit a recent high of around 4.6 percent on a 30 year loan. Yes, mortgage applications are down, as refinances have taken a hit with rising rates. But, overall numbers for the year remain strong. Inventory has lowered, as has the number of days properties stay on the market. The 30 year mortgage recovered to a current level closer to 4.5 percent, and builders remain upbeat. Price increases may be slowing, but there is still a positive trend. With a recent Realtytrac report stipulating that nearly half of home purchases are now cash deals, expect the housing market to hold steady through the rest of the year.

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A micro-rebound for fixed income

The small piece of good news this week has been the drop in interest yields, helping pare some losses for fixed income holdings. This has temporarily stopped the bleeding for so many people that depend on bonds for income and diversification. The possibility of war has put increased tapering back on the table, which may stem bond outflows.

Durable goods down big

A telling number that came out this week was the drop in durable goods. The durable goods report tells us demand for items that last at least three years. Instead of the expected 4 percent drop, we experienced over a 7 percent drop. This presents a risk to GDP growth, as business investment has slowed and military investment has been subjected to federal budget cuts.

Geopolitical activity could be a monkey wrench

An unknown variable would be the market consequence of the United States getting involved in another wartime scenario. While war has historically been considered “good” for the economy, recent results and current economic weakness would suggest otherwise. This week saw a dramatic adverse reaction in the markets when the attack on Syria first came to light, especially as it pertains to oil prices.

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at [email protected].

 

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