Economic Wrap for week ending 8/2/14: Q2 GDP at 4%, beats estimate of 3%: The Q2 GDP blew estimates out of the water, this is in result of a surge in Inventories and Fixed Investment spike, both of which added over 2.5%, while exports added another 1.23% to the GDP number. The economy also received a boost from business investment, government spending and investment in home building. Trade, however, was a drag for a second consecutive quarter as some of the increase in domestic demand was met by a surge in imports. Domestic demand rose at a 2.8 percent pace, the fastest since the third quarter of 2011. It increased at a 0.7 percent pace in the first quarter. Growth in the second quarter was driven mainly by consumer spending and a swing in business inventories. Consumer spending growth, which accounts for more than two-thirds of U.S. economic activity, accelerated at a 2.5 percent pace, as Americans bought long-lasting manufactured goods and spent a bit more on services. Consumer spending had braked to a 1.2 percent pace in the first quarter because of weak healthcare spending. Despite the pick-up in consumer spending, Americans saved more in the second quarter. The saving rate increased to 5.3 percent from 4.9 percent in the first quarter as incomes rose, which could mean more future spending. The “second” estimate for the second quarter, based on more complete data, will be released on August 28, 2014. Fed Meeting Breakdown: The Federal Reserve meet this week and announced they will continue with the sixth reduction, phasing out QE3—again a $10 billion cut. QE3 purchases are now comprised of $15 billion in U.S. Treasuries and $10 billion in mortgage-backed bonds monthly, to begin in August. The taper loosens further the artificial cap that the Fed has placed on mortgage rates. As QE3 shrinks, mortgage rates are expected to rise. The moves did not surprise Wall Street. The Fed Funds Rate is expected to remain near zero percent deep into 2016; and the Federal Reserve has been vocal that QE3s wind-down would be measured and steady, barring economic shock. The moves did not surprise Wall Street. The Fed Funds Rate is expected to remain near zero percent deep into 2016; and the Federal Reserve has been vocal that QE3s wind-down would be measured and steady, barring economic shock. The Fed signaled in its monetary-policy statement earlier this week that interest rates will remain low for an extended period. Policy makers took note of improvement in labor market, but they said a range of labor market indicators suggest that there remains significant underutilization of labor resources. With a strengthening labor market, Fed is expected to further reduce its purchases of Treasury bonds at a pace of $15 billion per month rather than $20 billion per month and mortgage-backed securities at a pace of $10 billion per month rather than $15 billion per month. The assertion that the labor market is still far from normal could dampen speculation that declining unemployment and rising inflation will force the Fed to start raising its benchmark short-term interest rates earlier than expected in 2015. The statement conceded that inflation has moved somewhat closer to the Feds 2% annual target. But it added that long-term inflation expectations remain stable. Freddie Mac Mortgage rates hold steady: 30-year averaging 4.12% Freddie Macs weekly survey came out yesterday and showed the average rate for a 30-year fixed-rate home loan is 4.12%, practically unchanged from last weeks 4.13%. In the month before the latest surveys, Freddie reported the following averages for the 30-year loan, the most widely used home-financing option: 4.13%, 4.15%, 4.12% and 4.14%. The 15-year fixed rate mortgage edged lower to 3.23% from 3.26%. The 5-year Treasury-indexed hybrid adjustable rate mortgage averaged 3.01%, up from 2.99%, while the 1-year Treasury-indexed ARM averaged 2.38%, down from 2.39%. U.S. Adds 209,000 Jobs in July, Unemployment Rate at 6.2%: As long as wages remain stagnant, putting pressure on consumer prices low and keeping inflation below the Fed’s target rate, analysts remain doubtful that the Fed will shift their timing for rate hikes ahead of the current projected timeline for liftoff of mid-2015. The steady growth in jobs is encouraging, but it’s not sufficient, for us or for the Fed. We need more jobs, and we need higher wages. Wage gains remained sluggish in July. Average hourly earnings rose 1 cent from June to $24.45 last month, up 2% from a year earlier. The labor market isn’t delivering, but it’s making progress. And one sign of progress is that more people are actively looking for that job they hope is out there. Stock Market Ends July in Dive, but Analysts Are Upbeat: Thursday was noted as the worst day in months for financial markets. The stock market ended July with the sharpest decline in the Standard & Poor’s 500-stock index since April, while the Dow Jones industrial index fell more than 300 points, enough to eliminate all of its gains for the year. Energy stocks fell the most after Chevron reported weaker oil and gas production. Exxon Mobil had reported disappointing production figures the day before. The Dow industrial average lost 110 points to 16,454 as of noon Eastern time. The blue-chip index lost 317 points the day before, its biggest one-day drop since February. The S & P 500 index fell 12 points to 1,918 and the Nasdaq composite fell 39 points to 4,329. The S&P 500 index is down 3 percent for the week and is heading for its worst week of the year. Market Closed Friday with across the board drops: Dow fell .42 percent (-69.93), 16,493.37. NASDAQ fell .39 percent (-17.13), 4,352.64 and S&P fell .29 percent (-5.52), 1,925.15. Factors for the drop included weak corporate earnings from big companies such as Exxon Mobil, which also reported disappointing results this week. The S&P’s information technology sector is broadly lower, down 0.25% as investors sell tech stocks, with the notable exception of a few heavyweights like Apple, Facebook. Economic sanctions on Russia that have increased tensions with the West also played a role, as did Argentinas debt default Wednesday. And theres also the general worry by investors that stocks are overpriced. For the last two years, investors have typically stepped in to buy any major fall in the stock market. A sell-off would often be met the following day with modest buying. Traders said that Fridays selling, on top of what happened the day before, is not a good sign. US Government Bonds Rise after Jobs data. Treasury bonds rose today as the U.S. employment report for July soothed concerns that the Federal Reserve may raise interest rates sooner than investors expect. 10 year Treasury yield jumps to 3 week high. In recent trading, the benchmark 10-year note was 9/32 higher, yielding 2.523%. The 10-year notes yield has fallen from 3% at the start of the year. Bond yields fall when their prices rise. The two-year note was 3/32 higher, yielding 0.492%. The five-year note was 10/32 higher, yielding 1.699%. Yields on short-dated notes are directly influenced by the Feds interest-rate policy, while long-dated bonds are more influenced by inflation which chips away the value of bonds over time. Applications for U.S. home mortgages fall this week as refinancing applications drop. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 2.2 percent in the week ended July 25. The MBAs seasonally adjusted index of refinancing applications fell 4.0 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, rose 0.2 percent. Syd Leibovitch, Owner Rodeo Realty
Posted on: Sat, 02 Aug 2014 16:00:01 +0000
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