Americans Seeing Personal Benefits of Brexit as Costs Hidden

  • Plunge in mortgage rates opening another refinancing window
  • Jobless claims, ADP signal employers’ outlook still resilient

Following Britain’s vote to leave the European Union, mortgage rates in the U.S. have approached record lows and fewer people are being fired from their jobs than at any time in the last four decades. In other words, so far, so good for the American economy.

Brexit prompted investors to pour their money into the safety of U.S. Treasuries, pushing the average rate on a 30-year fixed home loan down to 3.41 percent this week, a three-year low and closer to the 3.31 percent reached in November 2012 that was the lowest in the modern era. The number of people filing claims for unemployment benefits last week declined to 254,000, the least since mid-April, which in turn were the fewest since 1973, according to figures Thursday from the Labor Department.

Jobless Claims Near Four-Decade Low

The immediate impact on rates and the so-far lack of bearing on the U.S. job market is helping underpin consumer confidence. While the Bloomberg Consumer Comfort Index was little changed last week, measures of personal finances and the buying climate improved, making up for a slump in views on the general economy -- no doubt caused by the turmoil in global equity markets thanks to the shocking news from the U.K.

“From a financial standing point of view, the consumer is actually slightly better off today in the U.S. than they were at Brexit,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets LLC in New York. “You’re getting this added benefit of artificially low interest rates because of what’s going on around the world. And I don’t think that’s going to end anytime soon.”

While the longer-term implications on American companies are unclear, the Brexit fallout has had an instantaneous positive effect on the things that matter for household finances. Yesterday, no fewer than four people on the Bloomberg economics team in Washington, a savvy group, were discussing refinancing their homes. Applications to refinance home loans jumped 20.8 percent in the week ended July 1 as borrowing costs slid, according to Wednesday data from the Mortgage Bankers Association. 

The implication of what lower monthly mortgage payments could do to boost purchasing power for other goods and services and the economy is obvious.

The caveat, of course, is the longer-term impact on business confidence. Figures from the ADP Research Institute in Roseland, New Jersey, Thursday also showed companies were still boosting staff, suggesting there is no loss of conviction in the short-term economic outlook. Friday’s report from the Labor Department of the state on the job market in June will go a long way in determining the resolve of employers.

Without the hiring that has bolstered household confidence, near record-low interest rates may not matter much.

“We’ll definitely monitor business confidence -- that’s probably going to be the most sensitive to all this,” Oubina said.

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