As posted by Steve Peterson and Tim Lampe.

National Summary.

Perhaps I am jumping the gun on the following. Many economists would argue that I am. But I sense some positive changes in the air and, in this update, point out a few of the reasons I'm inclined to feel that way.

Though the Fed continues to emphasize how important low rates are to the recovery, we have reached the point where rates as low as they've been of late have perhaps as many negative as positive effects. They don't attract investment in interest-rate bearing securities, for example. We've already seen that Treasury securities auctions go better if rates start a bit higher and investors are attracted by higher rates.

In any case, higher rates are nearly synonymous with economic recovery at this point. We won't see one without the other.

It's worth thinking positively--especially when the economic indicators seem to suggest an improving economy. For me, the time seems to have come to make sure our marketing programs and/or business activities are geared up for the changes in a recovering market. It won't be a smooth path higher; there will be further setbacks. But the underlying trends are looking better by the day.

 

KEY INDICATORS

 

Gold $1247.30/ounce [down]

Crude Oil (Brent) $78.90/brl [up]

U.S. Dollar to…

    Euro .7887 [up]

    Japanese Yen 83.59 [down]

6-mo Treasury Bill Yield 0.18%

10-yr Treasury Note Yield 2.75%

[6-month unchanged, 10-yr up 13 bps]

11th Dist Cost of Funds 1.753%[-]

30-yr Fixed-rate Mortgage 4.78%

15-yr Fixed-rate Mortgage 4.27%

1-yr ARM 3.88%

[HSH averages rates: 30-yr

up 2 bps;15-yr up 3 bps; 1-yr ARM up 3 bps]

 

Mortgage Bankers Association Mortgage Applications Index

week ending 9/3

  Overall

    880.0 (down 1.5%; up 2.7%

the week prior)

  Purchase Money Loans

    184.5 (up 6.3%; up 0.6%

            the week prior)

  Refinancing Loans

    4926.5 (down 3.1%; up 5.7%

the week prior)

 

Jobless Claims 9/4

    451,000 – prior week 472,000 – continuing claims at 4.478 m

 

Consumer Credit July

    Down 1.8% overall – revolving down 6.1% - non-revolving up 0.6%

 

 

Weekly Commentary

 

“Consumer credit balances are still retreating, as the decline accelerated slightly in July. Revolving credit balances are falling at a steady rate as retail sales have been disappointing in recent months. Meanwhile, demand for nonrevolving credit increased more slowly in July as the recovery of new vehicle sales has lost traction.” [Sean Maher, Moody’s Economy.com]

 In such a (relatively) calmed economic marketplace, little changes become more meaningful than they otherwise might be. The decrease in revolving credit (in credit card usage, for example) affirms that the American consumer is cutting back—putting into savings what might formerly have been put into purchases. The slight decrease in non-revolving debt (in auto loans, for example) reflects the slight slowing in automobile sales, which had picked up in recent months.

 Small changes, but indicative of major trends. The American consumer is deleveraging…reducing debt as much as possible, refraining from non-essential spending. This should demystify the slowness of the economic recovery. Consumer purchases make up the equivalent of 70% of the nation’s Gross Domestic Product, after all.

 Those purchases, though, are driven by the consumer’s confidence about his and her employment. Here, the news has been rather good of late. The September 2nd employment report, while certainly not dazzling, nonetheless surprised most analysts with its strength—particularly with 67,000 new jobs created by a broad range of private sector employers.

 Two days before, the Challenger Report—which measures the size of announced job cuts for the coming month—fell to a 10-year low. This suggests that American firms don’t have much more job-trimming ahead, and are operating with minimal numbers of employees. At some point, probably within the next three to six months, they will have to start hiring again.

 Also stoking the fires of optimism was the number of new claims for unemployment insurance, which fell from the prior week’s 472,000 to 451,000. (The number could have been affected by the four-day week; it deserves to be watched closely in the coming few weeks.)

Lastly, the mortgage applications indices for the week ending September 3rd were totally consistent with a market whose interest rates may be starting to rise. New purchase money loan applications grew by a significant 6.3%, as potential buyers sought to nail down today’s low interest rates. (Recall that the Pending Home Sale Index recently reported a 5.2% increase in the number of newly-signed purchase transactions.) And refi applications were down, as higher rates gave pause to possible refinancers.