Rates Edge Up Slightly In September – Fixed Income Overview

Bond yields edged higher in September, rebounding from the lows reached in August. The 10- year Treasury bond yield rose from 1.47% at the beginning of September to 1.68% at the end of the month. The rise in yields affected loan rates as they had just reached lows in August not seen in years.

Additional rate cuts in Europe by the European Central Bank (ECB) pressured bond yields lower in Europe and Asia. Bond markets are eagerly awaiting indications of any further rate reduction in the U.S. by the Fed, perhaps prompted by economic data.

Low mortgage rates continue to fuel home sales nationally, with the rate on a conventional 30-year fixed mortgage at 3.64% at the end of September, down from 4.51% at the beginning of the year. (Sources: FreddieMac, ECB, U.S. Treasury)

Cost of Raising Kids – Financial Planning

Since 1960, the U.S. Department of Agriculture (USDA) has provided estimates of expenditures related to raising a child from birth to age 17. Related expenses range from food and housing to education and medical care. The USDA closely follows and identifies the various incomes for families, as well as the number of children in families. What it has determined over the past 55 years of collecting data is that families with different incomes spend differently on their children. In addition, single parent families spend less than dual parent families who have the ability to afford greater expenses in raising children. Certain expenses rise as children grow older no matter what income group a family might be part of. These expenses include food, transportation, clothing, and health care expenses. As children grow, they tend to eat more as well as spend more on transportation once they start commuting to more activities at ages 15-17. Childcare and medical expenses were generally higher for children under the age of 6.

The USDA estimates that a child born in 2015 will cost a dual parent family $349,380 from birth until high school graduation in 2032. The $349,380 figure is the average estimate among low-income, mid-income, and high-income dual parent families with two children. Various savings plans designed for children may allow parents to adequately save for planned costs, as well as for unforeseen expenses. Having accounts set up solely for schooling and healthcare expenses not covered by health insurance is a good idea. As an example, some children will require braces in their early teen years, costing an average of $5,000, and in most instances not covered by health or dental benefits. Savings set aside for these purposes tend to smooth out expenses as they occur, as opposed to having to place expenses on credit or borrow at excessive rates.

Federal Deficit Projections Top $1 Trillion – Fiscal Policy Review

The Congressional Budget Office (CBO) establishes budget forecasts based on various factors that are constantly changing. Among the factors are fiscal policy, economic projections, as well as trade policy initiatives. Projections are revised on a regular basis by the CBO and may change or be modified contingent on fiscal policy and government outlays such as Social Security and health care expenses.

The most recent projections reveal a federal budget deficit exceeding $1 trillion in 2020, an estimate based on current fiscal circumstances and the economic environment. Projections over the next 10 years show an average annual budget deficit of $1.2 trillion between 2019 and 2029. The estimate represents a deficit of 4.4% to 4.8% of GDP, above the 50-year average. Even though tax revenues are estimated to grow, GDP is expected to expand at a more conservative pace. Current estimates show GDP growing at 2.3% in 2019, yet the CBO projects an average annual GDP growth rate of 1.8% over the next 10 years.

The three largest expense items for the federal government have been and are projected to be Social Security, health care programs, and interest paid on government debt. Rising interest rates may become more of an issue as rates may eventually head higher for government debt, with future debt issuance becoming more expensive for the U.S. as rates slowly rise. (Sources: CBO; Update To The Budget & Economic Outlook 2019-2029)

China No Longer Biggest Trade Partner With U.S. – International Trade

The United States maintains a favorable trading relationship with many countries all over the world, yet only a handful encompass the bulk of all trading activity. For years, Mexico, China and Canada have been the top three trading partners with the United States, sending imports and exports across borders made up of all types of products and materials. Trade treaties with Mexico and Canada have facilitated trade with the U.S. for years, yet recently imposed tariffs on Chinese imports have reduced trade activity with China and increased activity with Canada and Mexico. Since the imposition of new tariffs with China, some manufacturers and suppliers have shifted their operations to Canada and Mexico in hopes of averting additional tariffs.

Trade data released this past month has validated the effects of the newly imposed tariffs, with China no longer the top trading partner with the United States. Mexico and Canada are now the top trading countries with China, third ahead of Japan. Unknown to many, Mexico and Canada have been top trading partners ahead of China before, with Canada the top trading partner through the 2000s up to 2014. Ten years ago in 2009, China represented 14% of total trading activity with the U.S., reaching 16.4% of all trading in 2017. The latest trade data shows China representing 13.2% of total trade activity, with Mexico and Canada each representing roughly 15% of total trade.

Source: U.S. Commerce Dept., Census.gov