Not everyone is sanguine about the effects on housing from higher rates.
“One of the fundamental underpinnings to this recovery has been the recovery in the housing market,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC. “Rising rates could choke up one of the things that helping boost household net worth, which is good for spending, as well as work counterproductively to things the Federal Reserve is attempting to do.”
Manufacturing Gauge
Manufacturing is another area that’s shown increased confidence. The Institute for Supply Management’s factory gauge jumped in July to the highest level in more than two years. The 4.5-point increase in the purchasers’ gauge from the prior month was the biggest since June 1996, the group’s production measure was the strongest since May 2004, and orders also advanced.
Since 1960, there have been only eight cases in which the ISM index has seen comparable “outsized” gains in production and orders that did not reflect rebounds from “sharp” declines a month earlier, according to research by Joseph Carson, director of global economic research at AllianceBernstein LP in New York, with $435 billion in assets under management.
Six of those periods occurred in the very early stages of an economic recovery following a recession, and in all cases gross domestic product picked up over the next year, he said.
“The manufacturing survey really surprised me in terms of its strength,” said Carson. “It’s a gain that usually signals the start of the cycle, which is really surprising given that we are in the fifth year of this cycle.”
Economic Recovery
The recovery from the last economic slump started in June 2009, according to the National Bureau of Economic Research, the accepted arbiter of when U.S. recessions begin and end.
The recent jump in interest rates “reflects both a reassessment of economic performance and a reassessment of the Fed’s intentions,” Carson said.