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Housing starts slide 14.4% in Aug.

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WASHINGTON (9/19/14)--After swelling in July, housing starts dropped by 14.4% in August to 956,000, according to numbers from the Commerce Department Thursday.

The biggest decline came in multifamily, or apartment construction starts, which fell by 31.5% for the month. Single-family starts slid 2.4% in August, but are still up 4.2% year-over-year ( Economy.com Sept. 18 ).
Overall starts remain 8.3% above their year-ago levels as well.

"Regionally, the decline in housing starts was broad-based, with all four census regions showing monthly declines," said Andres Carbacho-Burgos, Moody's analyst ( Economy.com ).

Housing completions, meanwhile, climbed 3.2% in August up to 892,000, which is 16.9% higher than the pace seen this time last year. The gain was driven by multifamily completions, however, as single-family completions fell.

Privately owned housing permits dropped by 5.6% from July to 998,000, but remain 5.3% higher than last year.

Despite the weaker data in August, many analysts chalk it up to mere volatility in the housing market.

"Overall, the weakness in this report reflects the expected giveback from the unexpected surge in activity the month before, and is not an indication of weakening underlying momentum in the sector," Millan Mulraine, deputy head of U.S. research and strategy for TD Securities, said ( MarketWatch.com Sept. 18).

Fed rate changes hinge on economic expansion, Hampel says

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WASHINGTON (9/18/14)--The Federal Open Market Committee (FOMC) announced Wednesday that interest rates likely will be held low for a "considerable time" after the asset-purchase program ends, which the Federal Reserve expects will happen next month.

While the committee didn't tip its hand on when exactly it will begin to increase rates, it did offer a bit of insight into what will go into making that decision.

"Chair (Janet) Yellen didn't tell us when rates would start to rise--no surprise--but she did suggest that the timing of the increase will depend on how rapidly the economy expands," said Bill Hampel, interim president/CEO of the Credit Union National Association. Hampel will resume his responsibilities as the trade association's chief economist Monday.

"If monthly job gains average more than 250,000 for the next several months, the increase could come as early as next spring," Hampel added. "If they fall back below 200,000, it could be the fall or later. In between, we're looking at next summer."  

For the past six months, monthly job gains, or nonfarm payrolls, have climbed by an average of 226,000. If that pace holds up, Hampel said, the Federal Reserve likely will begin pushing up rates at mid-year.

In its policy statement released at the conclusion of its two-day meeting Wednesday, the FOMC said the economy is expanding at a moderate pace, and inflation continues to stay below its longer-run goal.

Officials also elevated their estimate for the federal funds rate at the end of 2015 by 25 basis points. By the end of 2017, the Fed said, the rate will be at 3.75% (Bloomberg.com Sept. 17).

NEW: FOMC: QE likely phased out next month

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WASHINGTON (9/17/14 UPDATED 2:27 p.m. ET)--The Federal Open Market Committee (FOMC) said in today's policy statement that quantitative easing (QE), a tool the Fed has used to stimulate the economy since the economic downturn in 2008, likely will be entirely phased out next month.
 
In a statement released at the conclusion of the FOMC's most recent two-day meeting, the Fed said that it would drop its asset-purchasing program to $15 billion beginning in October.
 
"If incoming information broadly supports the committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the committee will end its current program of asset purchases at its next meeting," the statement said.
 
At that point, the spotlight will fall squarely on when the FOMC will begin raising interest rates.
 
In today's statement, the Fed maintained that if projected inflation continues to run below the committee's 2% longer-run goal, it will keep rates near zero for a considerable time after the QE asset-purchase program ends.
 
"When the committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%," the committee wrote in its statement. 
 
"The committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the longer run," the FOMC said.

Static PPI may stall Fed policy movement

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WASHINGTON (9/17/14)--The producer price index (PPI) stood pat in August, the Labor Department reported Tuesday, potentially signaling that, without upward inflation pressure, the Federal Reserve will delay movement on raising interest rates (The New York Times Sept. 16).

August's flat producer prices mark a second straight month of slowing after a strong gain in June, according to Moody's (Economy.com Sept. 16).

Declines in goods prices washed out increases in services for the month, and the overall producer price index sits just 1.8% above this time last year.

Gas prices dropped sharply, with diesel, natural gas and electricity prices all falling for the month. The final demand foods index retreated 0.5% after gaining 0.4% in July.

Falling pork, poultry and produce prices fueled the decline.

"The Fed has more time to allow monetary policy to work its way through the economy before feeling the need to raise rates," Jay Morelock, economist at FTN Financial in New York, told The New York Times.

The Federal Open Market Committee concludes its two-day meeting today where it could announce a change to the forward guidance it will use to shape forthcoming decisions about when to raise interest rates, which it has kept near zero percent since the economic downturn.

While gains have been made in the labor market, manufacturing and retail, the Fed continues to hold inflation as one of the critical markers for making its policy decisions.

"If (Fed Chair Janet) Yellen is looking for evidence of slack in the economy, and thinking that inflation is too low, then PPI final demand prices fill the bill," Chris Rupkey, chief financial economist at MUFG Union Bank, told The New York Times.

FOMC meeting watch: Change in forward guidance expected

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WASHINGTON (9/16/14)--Should the Federal Open Market Committee's (FOMC) quantitative easing program come to an end in October as many predict, the Federal Reserve's monetary-policy making body likely then must decide how it will determine when to raise interest rates from near-zero levels.

Evidence of what will go into that decision could emerge Wednesday when the FOMC concludes a two-day meeting and releases its always-anticipated policy statement.

Some economists believe at the end of the meeting the Federal Reserve will announce an alteration to the forward guidance that will shape that decision, often referred to as its "exit strategy."

But as mere statements about monetary policy from the Fed can shake up markets dramatically, there's no guaranteeing what the FOMC will release, Paul Ashworth, Capital Economics chief North American economist, told Forbes.com .

"Whether or not the forward-looking guidance will be tweaked at this upcoming meeting, is nevertheless, still up in the air," Ashworth said. "It is possible that officials can't reach an agreement on the exact wording. With the first rate hike still at least six months away, a decision doesn't need to be taken immediately."

The Fed has maintained that it plans to keep interest rates pinned down long after the asset-purchase program expires, especially if "projected inflation continues to run below the committee's 2% longer-run goal, and provided that longer-term inflation expectations remain well anchored" ( MarketWatch Sept. 15).

If that language is removed from the policy statement this week, however, that could signal a hastening of when the FOMC plans to raise those rates from mid- to late 2015 to perhaps March of next year, according to some.

"We expect the Fed will begin to set the stage (this) week by signaling that its zero-bound interest rates policy will soon be history," Bernard Baumohl, chief global economist at The Economic Outlook Group, told MarketWatch .

Buoyed by autos, Aug. retail sales surge

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WASHINGTON (9/15/14)--Retail sales climbed rapidly in August, with the majority of the gain driven by auto sales, according to numbers from the Commerce Department Friday.

Total sales ramped up 0.6%, which is the fastest pace since April, though that number falls to 0.3% when excluding auto sales, which jumped 1.5% for the month, the largest increase since March (Economy.com Sept. 12).

In addition to autos, the uptick in retail sales was fueled by miscellaneous retailers and building supply stores, while department stores and gas stations experienced declines for the month.

Excluding automobiles, overall retail sales, which account for one-third of consumer spending, has climbed 4.1% higher since this time last year.

"The August retail sales report posted a much more positive picture of sales growth than the previous one," said Scott Hoyt, Moody's analyst (Economy.com Sept. 12). "Not only did sales rise at a healthy pace, with non-auto sales exceeding expectations, but material upward revisions to June and July removed the slowing trend from the data."

Upward revisions from previous months were widespread, including in department stores, sporting goods and hobby stores, auto dealers, nonstore retailers and apparel stores.

In August, auto dealers, drugstores, restaurants and nonstore retailers led the increase in growth, while department stores and gas stations posted sales below their year-ago levels.

MBA survey: Weekly mortgage apps plummet 7.2%

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WASHINGTON (9/12/14)--Even accounting for the Labor Day holiday, mortgage applications stumbled this week, sinking by 7.2%, according to data from the Mortgage Bankers Association's weekly mortgage application survey ( Economy.com Sept. 10).

Refinance applications fueled the drop with a 10.7% retreat for the week, while purchase applications fell by 2.6%.

On a four-week moving average, refinance activity has gained 0.5% over the past month, but still sits 25% lower than this time last year. Refinance applications currently constitute about 55% of all applications.

Purchase activity, meanwhile, has declined 1.3% over the last month and falls 11.6% below year-ago levels.

With these latest readings, the overall mortgage application gauge has hit its lowest level since 2000.

"There appears to be little impetus for purchase activity to noticeably improve over the next few months, given that most Americans are just doing OK, but not great," said Gregory Bird, Moody's analyst ( Economy.com ).

Mortgage rates also continue to hover near their record-low post-recession levels.

The 30-year fixed-rate conforming mortgage rate climbed 2 basis points to 4.27% for the week, which is 8 points below the rate seen four weeks ago and 53 points below levels this time last year.

Five-year adjustable-rate mortgage rates fell by 7 basis points down to 3.12%, which is 47 basis points lower year-over-year.