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Chrisman's Corner: What Is Nudging Interest Rates?

JMAC’s brokers know that service to their borrowers is of paramount importance. Yet some borrowers are still very focused on interest rates. What happened last week? Tom Brady is still suspended. Rory McIlroy is coming back for the PGA championship - does he want to be like Tiger, hurt yourself and then come back too early and risk long term playability?

Sports chatter aside, our brokers are more focused on the economy and the Federal Reserve is right on track to have a short term rate hike later this year. There has been more job growth, (215,000 payroll jobs to be exact) which the Fed says over and over than they need a strong labor market. The service sector remains strong, with the ISM Non- manufacturing Index jumping 4.3 points to 60.3, the highest reading in more than a decade.

The ISM manufacturing index, however, weakened slightly in July to a still strong 52.7. Why is the ISM manufacturing index so strong? Given the headwinds to manufacturing output from the stronger dollar, reduced oil field activity and plateauing auto sales, we expect to see less push to the economy from manufacturing going forward.

Personal income increased by 0.4% and an earlier report by Wells Fargo said that a major part of economic growth going forward would be consumer spending. In July, Wells Fargo expects to see an increase in real consumer spending coming off high number of auto sales.

With further deterioration in oil and commodity prices coupled with the ongoing strength of the dollar, it is understandable for one to worry about future growth in the U.S. economy. Although this is a drag on the economy, this doesn’t paint the whole picture; a strong labor market allows for more consumer spending which is the driving force for future growth. And that is exactly why JMAC’s brokers, and many others, believe that the Fed will push short term rates higher.