Weekly Economic Summary – June 13 – June 17, 2011

Greece is still looking for someway to meet near term financing needs making the economy quite volatile has brought some resistance to safety buying of the United States dollar denominated securities such as mortgage and treasuries backed securities, which is used to base home loan rates. This did help the home loan rates and the bonds over the last week, a good sign, due to the fact that inflation was rising which would have caused home loan rates and bonds to become worse on inflation news.

What you must remember is that inflation erodes the value of the fixed return that is provided by a bond, thus making home loan rates increase. Last week, the Producer Price Index, which measures inflation at the wholesale level and the Consumer Price Index, which measures inflation at the consumer level were reported to be at higher levels. The core Consumer Price Index rose by 0.3 percent which is the highest monthly increase seen in the past three years. The Fed still claims that inflation is transitory which means it is only temporary, however, with more signs of inflation in the next few weeks or months may stop home loan rates and bonds from improving.

First Drop in US retail sales in almost a year

Retail sales in May dropped for the first time in eleven months. The estimates out for May’s retail sales dropped to $387.1 billion, which is a 0.2% decrease from April, according to the latest figures reported by the Census Bureau last week.

Even though the figures are down, it is still up from what was seen last year showing 7.7% higher than May of 2010.  Total sales for the month of March through May were up 7.5% from the same time last year.

Car sales were the main reason for the drop, which fell 2.9%. Not counting car sales, core retail sales rose 3%. Gasoline stations were up 3% also.

David Semmens, Standard Chartered’s U.S. economist stated, “The better-than-expected core retail sales are the key data release this morning,” and went on to say, “It indicates that the U.S. consumer has the potential to recover from the gasoline-related hit.”
 
the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% in the month of May on a seasonally adjusted basis, the Bureau of Labor Statistics published last week. Over the last 12 months, the all-items index rose 3.6% before seasonal adjustment.
 
The index for all items not counting food and energy rose 0.3% in the month of May, which is the largest increase seen since July of 2008. Apparel, shelter, new vehicles, and recreation were major contributors to the increase, gaining more in May than in the month of April.
 
Food prices were up for May; with the food at home index increasing 0.5% due to the fact that four of the six major grocery store food group indexes increased, with the index for meats, poultry, fish and eggs rose the most.
 
Retail sales at the gas stations rose, however, the gasoline index feel for the first time since June of last year. As reported by the Bureau, the overall energy index fell for the month.

The Producer Price Index (PPI) showed about the same performance for the month of May, with the PPI for finished goods increasing 0.2% for the month, the Bureau of Labor Statistics explained last week. Even though the figures were up, May’s PPI indicated a slowing in advances. May’s 0.2% gain came after increases of 0.8% in the month of April and 0.7% in the month of March.
 
In housing, construction permits issued for private housing in May were at a seasonally adjusted annual rate of 612,000, as reported by the Census Bureau and Department of Housing last week. This was an 8.7% increased over April’s revised rate of 563,000 and was 5.2% above the May 2010 estimate of 582,000. Permits for single-family home construction issued in the month of May were at a rate of 405,000, which is a 2.5% above the revised April figure of 395,000.
 
Construction starts on private homes in the month of May has a seasonally adjusted annual rate of 560,000, which was a 3.5% over April’s revised estimate of 541,000, but was still 3.4% below the May 2010 rate of 580,000. Starts on single-family homes in the month of May were at a rate of 419,000, 3.7% over April’s revised figure of 404,000.
 
Employment news saw initial claims for unemployment insurance drop to 414,000, a fall of 16,000 from the prior week’s figure of 430,000, as reported by the Employment and Training Administration. The four-week moving average was 424,750, being unchanged from the prior week’s average of 424,750.
 
Total insured unemployment during the week that ended on June 4 fell to 3,675,000, which is a decrease of 21,000 from the prior week’s level of 3,696,000. The four-week moving average was 3,709,000, a drop of 15,250 from the prior week’s revised average of 3,724,250.

Retail Sales Increased in March

We saw a fall in the trade deficit of 2.6 percent to land at $45.76 billion in the month of February from $46.97 billion seen in the month of January. Economists had thought the trade deficit would be at of billion. Exports decreased 1.4 percent to $165.12 billion, while imports fell 1.7 percent to $210.88 billion.

The Mortgage Bankers Association reported its seasonally adjusted composite index of mortgage applications for the week that ended on April 8 decreased 6.7 percent, while refinancing applications fell 7.7 percent along with purchase volume that decreased 4.7 percent.

Retail sales increased 0.4 percent to $396.3 billion in the month of March after seeing 1.1 percent increase in the month of February. This made it the ninth straight month in a row for gains, which put the year over year basis that retailers saw at a rise of 7.1 percent.

Total business inventories increased 0.5 percent in the month of February to $1.46 trillion, which is up 9.1 percent from what we saw a year ago. Total business sales rose 0.2 percent to $1.17 trillion in the month of February, which is also up 10.9 percent from what we saw a year ago.

The producer price index that tracks wholesale price inflation increased 0.7 percent in the month of March after a 1.6 percent increase in the month of February. Core prices not including food and fuel increased 0.3 percent in the month of March.

Industrial production at our nation’s factories, mines, and utilities increased 0.8 percent in the month of March, after seeing a 0.1 percent rise in the month of February. Comparing this figure to a year ago, production is up 5.9 percent. Capacity utilization was at 77.4 percent in the month of March.

Consumer prices increased a seasonally adjusted of 0.5 percent in the month of March, after seeing a 0.5 percent increase in the month of February. Seasonally adjusted consumer prices are up 2.7 percent, for the year.

First unemployment benefit claims increased by 27,000 to 412,000 for the week that ended on April 9, while continuing claims for the week that ended on April 2 decreased by 58,000 to 3.68 million, which is the lowest seen since September of 2008.
Economic Reports Upcoming
April 18 – housing market index
April 19 – housing starts
April 20 – existing home sales

Mortgage Defaults Drop Again in California

The last quarter saw fewer homeowners being pulled down the road of foreclosure. In California, homes sales were up 33 percent from what was seen in February. In the Bay area, the housing market is experiencing more sales with prices down.

There were a total of 68,239 Notices of Default in January to March from JP Morgan Chase & Co, JPM UPBank of America Corp, BAC DOWN Wells Fargo Company, and WFC UPA.

This figure is down 2.2 percent from what was seen in the previous quarter of 69,799 and is down 15.8 percent from what was seen in the first quarter of 2010 as reported by DataQuick. DataQuick is a San Diego firm follows trends nationally of the real estate market through public property records.

During the last quarter, the Notices of Default were at the lowest seen since the 2nd quarter of 2007, which were 53,493. It was also just a tad over the half of what was seen in the first quarter of 2009, which were 135,431.

John Walsh, DataQuick president stated, “Lenders and servicers have put various temporary holds on foreclosure filings while they work on procedural issues and respond to regulatory and legal challenges. It’s unclear how much of last quarter’s decline can be attributed to market factors and strategic decisions, and how much can be attributed to the formalities of the foreclosure process.”

The majority of the loans went into default during 2005 through 2007, which is the median origination quarter for defaulted loans and is still the 3rd quarter of 2006, which is used as weak underwriting standards peaked at that time, which has been seen the last two years. The majority of the loans established in 2006 are serviced or owned by companies that did not make the loans.

The majority of the active “beneficiaries” in the formal foreclosure process during the last quarter included JPMorgan Chase with 9,634, Wells Fargo with 8,329 and Bank of America with 7,158.

The services with the highest number of defaults during the last quarter included ReconTrust Co (mainly for Bank of America and MERS), Quality Loan Service Corp (Bank of America), California Reconveyance Co (JPMorgan Chase), NDEx West (Wells Fargo) and Cal-Western Reconveyance Corp (Wells Fargo).

The most costly zip codes in California noticed had more mortgage defaults with a slight rise quarter to quarter while their defaults decreased less on a year-over-year basis than in the overall market. California’s 80 zip codes with median sale prices of $800,000 or more last quarter reported a 5.8 percent quarter-to-quarter rise in default notices and a 4.7 percent year-over-year fall.

However, zip codes with medians prices below $200,000 reported first-quarter defaults dropped 5.5 percent from the prior quarter and drop of 17.7 percent from a year ago.

On primary mortgages, California homeowners were on average behind on their payments six when the lender filed the Notice of Default. The borrowers owed a median $15,818 on a median $323,667 mortgage.

On home equity loans and lines of credit in default, borrowers owed a median $4,076 on a median $67,222 credit line.

Even though 68,239 default notices were filed during the last quarter, the defaults only involved 66,251 homes due to some borrowers being in default on multiple loans

The least common area of California to see default home loans was in San Francisco, Marin and San Mateo counties. On the other end, the most common areas for default home loans were in Tulare, Madera and San Joaquin counties.