Top-Level Takeaways
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- July came to a climactic end with several key data reports suggesting moderating growth.
- The July jobs report was notably weak and included sharp downward revisions to the prior two months.
- Home prices have fallen in recent months across much of the country, yet affordability remains historically low.
July closed with a bang, with the final week providing multiple economic reports of consequence and a Fed meeting. Overall, the data points to a still good but slowing U.S. economy. The initial estimate of second quarter GDP showed overall growth bouncing back following a negative first quarter, but much of that swing was attributable to inventories and trade. Excluding those categories, real final sales to domestic purchasers have fallen from 3% to 1.5% to 1.1% in the past three quarters.
The week capped off with the July jobs report, which included significant downward revisions to the payrolls growth estimates of the prior two months. The latter was enough to spark a sharp bull steepening of the Treasury curve, with front-end yields falling 25 to 28 basis points on expectations for more dovish Fed policy. Following the July 30 FOMC meeting, the market was pricing low odds of a September rate cut given the tone of the official statement and press conference. By the end of the next day, the market essentially priced in an extra 25-basis-point cut through the end of next year, and the probability of a September cut was raised closer to 90%.
The July jobs report was undoubtedly weak. Nonfarm payrolls added 73,000 jobs, which was softer than expected but not a terrible figure in isolation. However, the July figure was greatly overshadowed by a 258,000 downward revision to the prior two months, bringing the April and May payrolls growth figures to just 19,000 and 14,000, respectively. This would appear to align more closely with numerous business surveys this year suggesting that trade uncertainty was causing many to pause on investment and hiring decisions. The unemployment rate also ticked higher to 4.2% and was close to being 4.3% (4.248% unrounded).
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Jason Haley joined ALM First in 2008 and is the firm’s chief investment officer. He heads ALM First’s Investment Management Group (IMG), which is responsible for leading the investment process and investment theme development. Haley also oversees all capital markets activities, including portfolio management, trading, market research and commentary, and execution of hedging and funding strategies for the firm’s depository clients. He holds an MBA with a concentration in finance and a BBA with a concentration in marketing, both from The University of Mississippi.