What Is Inflation And Why Is It So Important To Understand?

Inflation is the rate at which the general level of prices for goods and services is rising, and purchasing power of currency is falling.  It is very important to understand and know where current levels of inflation are because it effects our everyday lives.  It impacts our purchasing power and our government’s policies. 

Some recent reports that breakdown levels of inflation are the Consumer Price Index (CPI), the Producer Price Index (PPI) and the Fed’s favorite gauge, the Personal Income and Outlays (PCE).

Last week’s CPI report showed that inflation ticked slightly lower from 2.7% to 2.3%, but its “core” read, which subtracts out food and energy costs, stayed unchanged at 2.2%.  These are tamer reads, but are still over the benchmark 2%, which are at levels that we want to keep our eye on.

The PPI came in at 2.6% which is a slight drop from its 2.8% prior read.  The portion of the report that extracts food and energy costs gave it a hot 2.9%.  This is a hotter number, but inflation at the Producer level isn’t seen as impactful because producers can alter their margins to make it less impactful. 

The PCE report came in at 2.2% which dropped 0.1% from its prior read. Its “core” rate, that removes food and energy costs (which are very volatile), came in at the Fed’s target of 2%.  Still a tame number, but something we need to be aware of.

When there are higher levels of inflation, traders and investors tend to invest less in Bonds and Treasuries because inflation erodes the amount of income made on that fixed investment.  Because of this lowered demand or appetite for these types of investments, Bond and Treasury prices tend to drop and in-turn, impact interest rates negatively or push them higher.  We all need to keep our fingers on the pulse and be aware of our changing environment.  If inflation rises and demand for Bonds continue to lessen, we might see this push interest rates higher.   If inflation weakens and demand for Bonds and Treasuries increases then we will see a push for lower interest rates.


Low Unemployment and Continuous Demand for Housing

Weekly Jobless Claims, which is a report that represents the number of American workers who filed for unemployment benefits the previous week, dropped another 8,000 to a strong 207,000.  Jobless claims are now nearing 49-year lows.  Low unemployment levels point to higher economic growth. 

Mortgage applications for home purchases increased slightly across the US by 0.1%.  Mortgage application volume is now 3% higher than this time last year!  This is a good sign of strong demand since there is increased mortgage applications on homes that have appreciated by about 5.5% on average across the country, since August 2017, based on CoreLogic reporting.  This also points to strong housing demand, because this is also occurring in a higher interest rate environment.

Joel Kan, Mortgage Bankers Association Economist said, "Short-term rates have been increasing, but long-term rates have held somewhat steady, which should not pose too much of a headwind to home purchase activity, especially given the potential demand”

Owning a home is still one of the best ways to generate personal wealth. 


Federal Reserve Raises Interest Rates: Consumer Impact


As expected, the Federal Reserve raised the benchmark interest rate a quarter point, marking the eighth increase since December 2015 and third this year.  The federal funds rate, which serves as the baseline for multiple forms of consumer debt, now stands at 2.25%, up from 2% previously.  In addition, the Federal Open Market Committee projects one more rate hike before the end of the year, and three more in 2019.  This quarter point hike, along with indication of future rate hikes, reflects a booming economy, highlighted by a strong labor market.


Consumer Impact Areas

Credit Card Rates:  When the federal funds rate changes, the prime rate does as well, and credit card rates follow suit.  If possible, apply for a 0% APR transfer credit card to allow you to pay down debt interest-free.

Home Equity Lines of Credit (HELOC):  HELOC’s are tied directly to the prime rate.  As the federal funds rate increases, the prime rate follows.  Since HELOC’s are a variable rate, it will increase with each rate hike.  If possible, speak with your lender to see if a fixed rate option on the remaining balance is available.

Mortgage Rates: Mortgage rates are tied more directly to market forces specifically to the needs of bond investors.  In past rate hikes, mortgage rates have at times moved up and at other times they have moved down.  Mortgage rates, however, have been on a steady climb since the beginning of 2018.

Consumer Prices: Prices you pay at retail stores, gas stations, and the supermarket are directly impacted by a raise in the federal funds rate.  As the federal funds rate increases, the cost and availability of money decreases.  This will lessen the demand for goods and services, resulting in lower prices.








Forty Under 40 Awards 2018

Sep 27
Category | General News

2018 Forty Under 40 Award

Our very own Sean Clark was recognized for this year's annual Forty Under 40 Award.

Here is a quick breakdown of Sean's portion of the program:

Achievements: Recognized as a "Young Gun" by Mortgage Professional America in 2014; named to MPA's Hot 100 list in 2014 and 2015; licensed in 24 states, with three more in progress; led Advisors in being recognized by NJBIZ as one of its Best Places to Work in New Jersey for the past six years in a row.

What drives you in your career? : "It's simple, three people... my wife, Pam, my daughter MacKenzie and my son Colton.

What was the best (business) advice you ever received? : "That old saying "It's just business" is just plain wrong! Advisors' president and my brother-in-law, Steven Meyer, taught me this in my early years at the firm. If you care as deeply about your company and your employees as we do, it's all personal and it's never "just business.""


To view photos from the event, be sure to click here.

To view the full program from the event and read more about Sean, navigate to the page by clicking here.

Positive Sign for Housing

The National Association of Home Builders conducts a survey gathering information based on the general economy and housing market conditions and compiles it into a report called the Housing Market Index.  Builders who are surveyed are also asked to rate the present sales of new homes, sales of new homes expected in the next six months, and traffic of prospective buyers in new homes.  For the month of September, home builder confidence is reported at a level of 67.  This number is in-line with estimates and last month’s release, but it is at a low for the year. When digging deeper in the report, we see that the traffic component is bringing down the average, but the current sales component, along with the future sales component are very strong.

A "housing start" is defined as the breaking of ground to construct a private, residential building.  The U.S. Census Bureau and the U.S. Department of Housing and Urban Development release a report breaking down new “starts” every month.  In August’s report, we see that housing starts rose 9.2%, which is amounts to about 1.28 million units.  This a positive sign for the housing market as it opens up room for more inventory which is created to help placate the continued healthy and hungry levels of demand.


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