Recent manufacturing and service data suggest continued growth pressure. Makers of goods say they intend to boost production in the coming months and the service sector, although showing a slight slowdown, have the largest backlog of orders since 2015.
This data suggests a higher GDP number reaching 3.5% with high optimism and pressure to add employees. The FED is seeing these same pressures and they will react by raising interest rates in order to begin to slow down the demand and ease pressure. Rates are going to rise and the first place we will see the impact is in the housing industry. We have seen it in this week’s new home construction number that fell slightly. As mortgage rates rise fewer people can qualify for a loan, thus a slowdown in one of the pillars of strength in our economy.
Let’s hope the FED doesn’t go too far. They have a history of doing just that; sowing the seeds of the next recession.