Fed Chairman Bernanke’s speech to the House Financial Services Committee was released this morning saying that that the Fed’s asset purchases are by no means on a preset course. Mr. Bernanke went on to say that Bond buying could be reduced at faster pace, a slower pace, or even increased for a time, depending on outlook and they could begin later this year.
Housing Starts declined by nearly 10% in June from May to 836,000 units annualized and below 958,000 expected to the lowest level since August 2012. The drop was attributed towards a big decrease in apartments. Building Permits, a sign of future construction, fell by 7.7% to 911,000 and below the 1 million expected.
Mortgage application volume continues to decline as the Mortgage Bankers Association reported today that its Market Composite Index, a measure of loan application volume, fell by 2.6% in the latest week. The refi index declined by 4.2% while the purchase index rose marginally by 0.5%. The slowdown in application volume could be attributed towards the recent rise in home loan rates.
Higher gasoline prices and a surge in sales of automobiles led Retail Sales higher in June, but the gains were offset by a decline in home improvement stores, bars and restaurants and department stores. Retail Sales rose by 0.4%, lower than the 0.7% expected and down from the 0.5% gain in May. Retail Sales account for 30% of consumer spending. When stripping out autos, sales were unchanged last month.
Manufacturing activity in the New York State region rose in early July as the index rose to 9.46 from 7.8 in June and above the 3.6 expected. However, within the report it showed that the employment component indicated little positive momentum.
In corporate earnings news, Citigroup reported that earnings jumped 42% in the second quarter as the banking giant cut costs and expanded its international presence. The bank earned $1.34 a share, exceeding the $1.19 that was expected and up from the $1 a share in the same quarter last year.
On the lighter side, Twinkies have made their long awaited return today to store shelves after being off the market for about a year. The maker of the long time treat, Hostess, went bankrupt last year due to problems with management and a stand-off with its second biggest union. Twinkies have made their new debut to Wal-Mart to 3,000 of the retail giant’s stores on Sunday.
The Labor Department reported that Americans filing for first time unemployment benefits rose by 16K in the latest week to 360K, highest level since the week ended May 11. A year ago this time, claims were at 363K. The higher number is due in part to the July 4 holiday, the annual retooling at automakers where they shut down for a few weeks and temporary layoffs related to the end of the regular school year. The four-week moving average of new claims, which smoothes out any seasonal abnormalities, were up by 6,000 to 351,750.
Freddie Mac reported today that the 30-year fixed conventional home loan rate rose to 4.51%, but to obtain that rate a potential borrow would have to pay 0.8 in points and fees. This is up from 4.29% last week and up from 3.65% a year ago. Home loan rates have been rising since the May 1 lows, due to ongoing talk that the Fed will pull back on its stimulus programs geared towards holding rates low.
Don’t look now, but gas prices at the pump could be spiking in the next several days due to rising oil prices. The current national average is at $3.51, up 3 cents since Tuesday. Gas prices were higher a month ago at $3.63…unrest in the middle east and the summer driving season will push prices up in the coming weeks. In addition, inventories in the U.S. dropped for a second week.
The Mortgage Bankers Association reported this morning that its Market Composite Index, a measure of loan application volume, fell by 4% in the latest week as home loan rates hit their highest levels in two years. The refi index fell 4% while the purchase index declined by 3%. Home loan rates have been rising since mid-May on comments from the Fed Chairman Ben Bernanke saying that it expects to wind down the pace of its Bond buying program later this year if the economy continues to improve.
Debt collectors across the nation received bulletins on Wednesday from the Consumer Financial Protection Bureau (CFPB) reminding them that they will be held accountable for unlawful practices when trying to collect debts. Unlawful conduct includes: -threatening action that the debt collector doesn’t have the authority to pursue -fairly representing the character, amount or legal status of the debt -misrepresenting that a consumer’s debt would be waived or forgiven -failing to properly post payments or credit to a consumer’s account with payments
Americans who are collecting unemployment benefits are going to see a cutback in their weekly checks beginning this month. The average weekly unemployment check has fallen by $43 due to the effects of the sequester federal spending cuts. The job markets have been improving in 2013, but many of the jobs that have been created are from the service sector and part time workers have reached an all-time high.
Small business owners weren’t feeling too optimistic in June. Uncertainty surrounding the endless stream of delays and capitulations of certain provisions of the new healthcare laws and as economic growth was revised down for the first quarter of the year. In addition, the growth forecast for the second quarter is not looking good. The National Federation of Independent Business’s monthly economic index fell nearly a point while six of the ten components fell.
Over in the housing sector, CoreLogic reported this morning that the foreclosure front is on the mend. Foreclosure inventories have dropped by 29% from May of 2012 to May of 2013 and down 3.3% from April to May. In addition, serious delinquent mortgages are at the lowest level since December 2008. Corelogic went on to say that completed foreclosures fell 27% compared to May of 2012, but were up 3.5% from April to May. Corelogic said that it “continues to see a sharp drop in foreclosures around the nation and with it a decrease in the size of shadow inventory.”
One of the reasons for the tightening of inventories in key markets around the country has been due to large institutional investors buying up single family homes and turning them into rental properties. The increase in investor buying has been one of the key factors that has been driving home prices higher this year. In April, investors accounted for 10% of the homes sold in the nation’s 100 busiest real estate markets.
In its monthly National Housing Survey, Fannie Mae reported that home prices may enter the purchase market sooner rather than later as people feel that mortgage rates and home prices to rise. Within the survey it showed that those who feel that mortgage rates will go up in the next 12 months rose by 11% to 57%, the highest level in the three-year history of the survey.
As the housing market continues to recover, delinquencies around the country have fallen 43% from the peak levels of 2010 as reported by Lender Processing Service (LPS). In addition, the number of borrowers who are underwater on their current mortgage has declined by 47% from Q1 2012 to Q1 2013. In addition, LPS reported that originations were up 1.8% in April from March to 835,000 new loans originated.
There are no economic data points set to be released today and the rest of the week’s economic calendar is on the light side this week. Stocks are starting the week to the upside ahead of the start of quarterly corporate earnings season begins today. The big event this week will be the minutes from the June 19 Federal Reserve meeting. The members most likely discussed the ongoing stimulus program dubbed QE III and how long the Federal Reserve will continue to stimulate the U.S. economy.
There was a surplus of economic data from the labor sector this morning with readings on private payrolls, weekly initial jobless claims along with a report on planned layoffs at companies across the nation. The Bond markets will be closing early today at 2:00pm ET and Stocks will close at 1:00pm. All capital markets will be closed tomorrow in observance of Independence Day.
ADP reported that private employers added 188K new jobs in June, above the 150K expected and up from the 134K registered in May. The Labor Department reported that Weekly Initial Jobless Claims fell by 5K to 343K and below the 348K expected, but the number has been stuck in the current range for quite some time now. Outplacement firm Challenger, Gray & Christmas said that planned job cuts were 8.2% higher in June from May with the bulk of the cuts coming from the computer and education sectors. June’s layoffs were higher by 4.8% from June 2012, but they have improved in the first half of this year.
As a whole, the labor markets have been improving, but the Unemployment Rate still remains high at 7.6%. In addition, the Labor Force Participation Rate (LFPR) is at 63.4%, near low not seen since the late 1970s. The LFPR is the percentage of working-age persons in an economy who are employed or are unemployed but looking for a job.
Stocks and Bonds start the holiday shortened week on a positive note as both are trading higher. The Bond markets will close early on Wednesday at 2:00pm ET and Stocks will close at 1:00pm. All capital markets will be closed on Thursday in observance of 4th of July.
Manufacturing across the nation bounced back modestly in June after slightly contracting in May. The ISM Index rose to 50.9 from 49.0, which was the weakest reading in four years. Within the report it showed that the employment component fell to 48.7 from 50.1 in May. The report also showed that business conditions remain good to improving while weather conditions are causing uncertainty in agricultural markets within the machinery sector.
The rebound in housing pushed up construction spending in May rising by 5.4% from a year earlier. The Commerce Department reported that private residential construction rose 1.2% from April to May and was the highest level since October 2008. There was a decline in non-residential construction as spending declined for office buildings and shopping centers.
Consumer Sentiment rose in the final weeks of June to 84.1 and more than had been reported at the initial reading halfway through the month and nearly matched the six-year high of 84.5 registered in May. Optimism was seen in the higher-income families. A spokesperson for the survey said that consumers believe the economic recovery has achieved an upward momentum that will not easily be reversed. The Consumer Sentiment Index uses telephone surveys to gather information on consumer expectations regarding the overall economy.
The next big shoe to fall could be in the student loan sector. Interest rates on the loans are set to double on July 1 from 3.4% to 6.8%. Lawmakers on Capitol Hill will be on a recess this week for the 4th of July holiday and the feeling is that something will be done soon after the break. With the weak job market, student loan payments have been harder to keep up with and higher rates could spell more trouble.
The second quarter of the year comes to an end today and believe it or not, 2013 is already half over. Despite the extreme volatility in the markets, Stocks are looking to close out the quarter on a positive note. The closely watched S&P 500 Index rose 2.6% for the quarter, but is down 1.1% in June. Investors started to take profits at the end of May and in June after the Fed hinted that QE III will end sooner rather than later.