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Market

GDP numbers indicate U.S. economy hitting its stride

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WASHINGTON (1/31/14)--U.S. gross domestic product--which measures output produced in the U.S.--grew at a rate of 3.2% in the fourth quarter, down from the third quarter's 4.1% pace but in line with economists' predictions, according to data released Thursday by the Bureau of Economic Analysis.
 
The economy grew at a 1.9% pace across 2013, compared with a 2.8% rate in 2012. The last time the growth rate was above 3% annually was 2005, when it reached 3.4%. The Federal Reserve has forecast the economy will grow between 2.8% and 3.2% this year (The Wall Street Journal Jan. 30)
 
Strong spending by consumers and businesses and an increase in exports helped drive fourth-quarter growth and offset declines in the government and residential sectors. Imports--which decrease the GDP--rose in the fourth quarter, but they were offset by higher exports.
 
Personal consumption expenditures, which account for more than two-thirds of GDP, moved upward by 3.3%, the strongest increase in three years. Purchases of services and nondurable goods such clothing and footwear helped offset cutbacks in autos and household goods.
 
Real disposable income increased 0.8%, down from a 3% gain in the prior quarter. Since spending growth outpaced that of income, the saving rate fell from to 4.3% from 4.9% (Moody's Economy.com Jan. 30)
 
Businesses boosted spending by 3.8%, but growth was restrained by reduced inventory investment. Inventories remained elevated in the fourth quarter because businesses boosted their stockpiles in the prior three months.
 
Many companies are focusing on short-term projects or replacing existing equipment but aren't adding capacity, said Wells Fargo chief economist John Silvia ahead of the report.
Residential investment decreased by 9.8%. Colder weather may have slowed construction, economists said.
 
The price index for personal consumer expenditures--a measure of inflation--rose at a 0.7% annual rate in the fourth quarter--below the Fed's 2% annual target.

Interest rates ticked upwards in December, says FHFA

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WASHINGTON (1/31/14)--The Federal Housing Finance Agency (FHFA) reported that interest rates for both adjustable- and fixed-rate mortgage loans crept up slightly in December.
 
The National Average Contract Mortgage Rate for the Purchase of Previously Occupied Homes by Combined Lenders, used as an index in some adjustable-rate mortgage contracts, was 4.25%, based on loans closed in December--an increase of 0.03 points from November.
 
The average interest rate on conventional, 30-year, fixed-rate mortgage loans of $417,000 or less increased six basis points to 4.54% in December. The rates are calculated from the FHFA's Monthly Interest Rate Survey of purchase-money mortgages. Interest rates are typically locked in 30-45 days before a loan is closed. Consequently, December data reflect market rates from mid-to-late November.
 
The effective interest rate was 4.40%, up two basis points from 4.38% in November. The effective interest rate accounts for the addition of initial fees and charges over the life of the mortgage.
 
The average loan amount for all loans was $277,600 in December--up $12,700 from $264,900 in November.

Fed 'serious' about tapering, exiting QE, says CUNA economist

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WASHINGTON, D.C. (1/30/14)--Wednesday's vote by the Federal Open Market Committee to continue to reduce its asset-bond purchases by $10 billion per month shows the Fed is committed to exiting the quantitative easing program, said a Credit Union National Association expert.
 
The FOMC statement "confirmed to market participants that the $10 billion reduction in the pace of asset purchases announced in December was not a head fake," said CUNA Senior Economist Steve Rick.
 
"Even though the Fed said its 'asset purchases are not on a preset course,' if the Fed continues to decrease its asset purchase program by $10 billion every six weeks, the Fed will exit the quantitative easing program by its Dec. 17 FOMC meeting," he said.
 
Starting in February, the Fed will add $30 billion per month rather than $35 billion per month in mortgage-backed securities to its holdings. Longer-term Treasury securities will drop to $35 billion per month down from $40 billion per month. The Fed's balance sheet is just shy of $4 trillion--$1.43 trillion in mortgage-backed securities and $2.14 trillion in Treasury securities.
 
After Wednesday's announcement, the 10-year Treasury interest rate dropped to 2.67%, the lowest in two months. "Nevertheless, we expect the 10-year Treasury interest rate to rise over 3.25% as faster economic growth and Fed tapering reduce the demand and increase the supply of government debt," Rick said. "Higher long-term interest rates will boost credit union yield on assets this year, bringing to an end the four-year slide in credit union net interest margins."
 
He said there was no real change in the Fed's forward guidance on when short-term interest rates would begin to rise.
 
The FOMC statement said it "continues to anticipate ... that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below the Committee's 2% longer-run goal."
 
"The operative phrase in that sentence being 'well past,'" Rick said. "We don't expect an increase in the fed funds rate in 2014, which in turn means credit union cost of funds will remain at record-low levels for another year."
 
 

Consumer confidence 'back on track,' report says

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NEW YORK (1/29/14)--A measure of consumer confidence improved this month to its highest level since August, offering more evidence that the recovery has picked up steam after October's partial government shutdown.
 
The Conference Board's measure of consumer confidence was up 3.2 points to 80.7, according to a report published Tuesday by the research group. December's reading was revised down to 77.5 from 78.1.
 
The component gauging outlook on present conditions was up 3.8 points to 79.1--its highest level since April 2008--while the future expectations component was up 2.8 points to a four-month high of 81.8 (Economy.com Jan. 28).
 
The share of respondents who believe current business conditions are "good" rose 1.3 percentage points to 21.5%. The percentage of those who feel that the conditions are "bad" is the same, but the proportion dropped 0.7 percentage points.
 
Meanwhile, opinions of the labor market are slightly more rosy, according to the survey, with 12.7% of those polled saying they feel that jobs are "plentiful"--an increase of 0.8%. The percentage of those who feel that jobs are "hard to get" was down 0.3 points to 32.6%, and the proportion of those who feel jobs are "not so plentiful" fell 0.5 points to 54.7%.
 
Optimism about job growth, however, did not increase. The share of those expecting more and fewer jobs in six months were both down by 1.7 percentage points and 1.1 percentage points to 15.4% and 18.3% respectively, while 66.3% expect payrolls to stagnate--up 2.8 percentage points from December.
 
Consumers' predictions cast a pall over the otherwise mostly positive survey. The percentage of respondents who said they wanted a buy a home in the first six months of 2014 was down almost 2 points, to 5.5% from 7.4%. The share of those who reported plans to buy a major household appliance in the same time was also down to 44.9% from 49.3%, while 12.1% of respondents said they planned to buy an automobile--up slightly from 12% in December. Moody's said this aversion to purchasing big-ticket items could be an indication that rising interest rates are impacting consumers.
 
The ratings and research firm did say, however, that the survey bolsters predictions that January's jobs report will reveal improved growth--particularly due the narrowing gap between those who reported jobs are "plentiful" and those who say they're "hard to get." The firm's analysts did warn that three applicants are still fighting for every vacancy--below the post-recession peak of seven-to-one, but about equal to the ratio during the dot-com bust recession in the first few years of the millennium.
 
Moody's is still predicting that the economy will add slightly more than 200,000 jobs per month this year, and 250,000 per month in 2015.It also said that a relatively smooth raising of the debt ceiling should cause consumer confidence to grow.

NEW: Fed continues to reduce bond-buying program

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WASHINGTON, D.C. (1/29/14, UPDATED 2:20 p.m. ET)--The Federal Open Market Committee will continue with its "measured reduction" in its monthly asset-bond purchases program, known as quantitative easing (QE), it announced today.
 
The policymaking group said in February it would add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month.
 
The decision was made "in light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions," according to the Fed's statement.
 
If the FOMC continues with $10 billion in reductions at each of its eight meetings this year, it should be done with QE by year's end ( Barron's Jan. 28). However, the Fed statement noted that "asset purchases are not on a preset course, and the committee's decisions about their pace will remain contingent on the committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases."
 
In December, the Fed voted to "modestly reduce the pace" of its monthly asset-bond purchases to $75 billion per month from $85 billion. This month it added $35 billion per month of agency mortgage-backed securities to its holdings, down from $40 billion. Additionally, long-term U.S. Treasury securities dropped to $40 billion per month, down from $45 billion.
 
Analysts suspected that the Federal Reserve committee would replace the 6.5% unemployment threshold with another labor-related market indicator when making interest rate decisions ( MarketWatch Jan. 28).
 
The FOMC reaffirmed its expectation that the "current exceptionally low target range for the federal funds rate of 0% to 0.25% will be appropriate at least as long" as the unemployment rate remains above 6.5%. The rate will remain stable as inflation in the next one to two years is projected to be no more than a half-percentage point above the Committee's 2%. Longer-term inflation expectations continue to be well anchored, it said.
 
This was the last meeting for Fed Chairman Ben Bernanke whose eight-year term ends Friday, and Janet Yellen rises to the top Fed position effective Saturday.
 
Voting for the FOMC monetary policy action were Bernanke, Yellen, Vice Chairman William Dudley, James Bullard, Charles Evans, Esther George, Jerome Powell, Jeremy Stein, Daniel Tarullo and Eric Rosengren.

New home sales end good year on bad note

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WASHINGTON (1/28/14)--A strong year for the housing market ended with a whimper last month.
 
New home sales dropped in December by a seasonally adjusted annualized rate of 7% despite climbing by 4.5% on a year-over-year basis, according to Commerce Department data released Monday.
 
The absolute number of sales, on a seasonally adjusted annualized basis, was 414,000, a drop from a downwardly revised November total of 445,000.
 
The supply of new single-family homes on the market, meanwhile, was down 2.8% to 171,000 on a seasonally adjusted annualized basis.
 
The seasonally adjusted median new home price subsequently dropped last month by 3.3% to $267,300, while the months' supply of homes for sale increased to 5, up from 4.7 in November (Economy.com Jan. 27).
 
Sales declined in all but one of the census regions, with purchases dropping by 36.4% in the Northeast, 8.8% in the West and 7.3% in the South. Sales were up by 17.6% in the Midwest.
 
Throughout 2013, however, 428,000 new homes were sold--an annual increase of 16.4% and a five-year high. After the housing bubble burst in 2008, sales hit a record-low of 306,000 in 2011. During the boom years, the number peaked at 1.28 million in 2005 (Bloomberg.com Jan. 27)
 
Moody's said that the drop-off appears to mirror meager payroll gains in December. The ratings and research firm's analysts attributed the dip to temporary uncertainty over interest rates driven by the Federal Reserve's quantitative easing tapering, which was announced in the middle of the month.
 
They intoned that a "surge in November housing starts" should entice buyers throughout the next few months and that developers aren't anticipating the weak demand to be lasting. But they also warned that if the economy doesn't add roughly 200,000 jobs per month this year, new-home purchase statistics will continue to be unimpressive.
 
The analysts did, however, say that 2014 will probably see improved economic growth, with uncertainty over the federal budget likely to be minimal for the next two years.
 
Bloomberg analysts, meanwhile, said that the weather could have contributed to the tepid demand. Snowfall was 21% above normal, and last month was the coldest December since 2009, the newswire said, citing a report from weather-data provider Planalytics.
 
A median forecast of 75 economists polled by Bloomberg has predicted December sales to be at 455,000. The lowest prediction in the survey, at 420,000, was higher than the number reported by the Commerce Department.

Final Bernanke FOMC: Fed likely to continue to slow tapering

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WASHINGTON (1/28/14)--Today marks the last Federal Open Market Committee meeting that Chairman Ben Bernanke will reside over, and it is expected that the policymaking body will continue to slow its monthly asset-bond purchases.
 
At its December meeting, the Federal Reserve officials began to wind down the quantitative easing program--reducing its monthly purchases of mortgage-backed securities to $35 billion and long-term Treasuries to $40 billion.
 
The FOMC begins its two-day meeting today in Washington.
 
Analysts said that they believe the Fed wants to get out of the program, but the timeline varies. Bernard Baumohi, chief economist of Economic Outlook Group, told MarketWatch that the Fed "will continue to scale back the program and end it this year."
 
However, Jennifer Vail, head of fixed income research at U.S. Bank Wealth Management, thinks the Fed will accelerate the pace beyond a $10 billion-per-month drawdown. "We expect the Fed to be done with bond purchases by September," Vail also told MarketWatch (Jan. 27). "They want to get out of this business."
 
This is the final meeting for Bernanke before Janet Yellen takes over as chair Feb. 1. Her immediate challenge is seen in an inflation rate that continues to hover below the Fed target of 2%. The 0.9% inflation rate is gaining over the unemployment rate as the barometer for Fed action (FOXBusiness Jan. 17).
 
Too-low inflation increases the possibility that a "negative shock" could lead to deflation, said Eric Rosengren, president, Federal Reserve Bank of Boston. "Furthermore, persistently low inflation can theoretically undermine the credibility of the central bank," Rosengren said in a Jan. 7 speech (Bloomberg.com Jan. 26).
 
Rosengren was the only dissenting member of the Fed policymaking body to the decision to cut the asset-bond purchases by $10 billion per month.

Unemployment claims remain low, stable

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WASHINGTON (1/27/14)--The latest Labor Department report on jobless claims indicates that the economy is in marginally better shape after the holiday season.
 
Jobless claims rose for the first time in three weeks by 1,000 to 326,000 for the week ending Jan. 18, according to data published Friday. The claim washed out a downward revision of the previous week's figure, which was also initially reported as 326,000.
 
But between December and January reference periods--defined by the Bureau of Labor Statistics as the week with the 12th day of the month--initial claims fell by 54,000 and the four-week moving average of the statistic was down 12,250 (Economy.com Jan. 24). Weekly data during the holiday period is notoriously unreliable.
 
Moody's expected the number of initial claims reported, while the median prediction in a survey of 50 economists conducted by Bloomberg forecast that claims would rise to 330,000 (Bloomberg.com Jan. 24).
 
The four-week moving average of initial claims fell 3,750 to 331,500, and continuing claims for the week ending Jan. 11 were up 34,000 to 3.1 million. A four-week moving average of continuing claims rose 31,000 to 2.9 million.
 
Bloomberg reported that the numbers for only one state and the District of Columbia were estimated. States with the largest increases in initial claims for the week ending Jan. 11 were Texas, California, Pennsylvania, Indiana and Florida. States with the largest decreases that week were New York, Georgia, Wisconsin, Alabama and South Carolina.
 
Friday's report was the first that accounts for the 1.35 million people who lost emergency unemployment benefits Dec. 28. Earlier this month, Republicans declined to approve a plan that would have extended the program, which, at the end of 2013 provided a maximum of 73 weeks of benefits.
 
Moody's said that January's report on payroll gains should be much better than December's, which initially reported a gain of 74,000--a net loss of 60,000 jobs last month can be explained by cold weather, the ratings and research firm said. It still expects hires to increase by 200,000 per month in 2014. Bloomberg also expects monthly payroll gains to increase by 200,000 this year.
 
Expectations for increased hiring in 2014 have informed the Federal Reserve's decision to rein in its quantitative easing program. Earlier this month, it started buying $75 billion worth of bonds every month, down from $85 billion.
 
Fed policy makers are set to meet this week in Washington.
 

FHFA house price index rose 0.1% in November

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WASHINGTON (1/24/14)--Increases in U.S. house prices showed signs of slowing in November, with a slight bump up of 0.1% on a seasonally adjusted basis from the previous month, according to the most recent Federal Housing Finance Agency (FHFA) monthly House Price Index (HPI).
 
November 2013 marks the twenty-second consecutive monthly price increase in the purchase-only, seasonally adjusted index.
 
While the November year-to-year house prices were up 7.6% according to the index, it showed that they are 8.9% below its April 2007 peak and about equal to the April 2005 index level.
 
The FHFA HPI is calculated using home sales price information from mortgages either sold to or guaranteed by Fannie Mae and Freddie Mac.
 
From November 2012 to November 2013, house prices were up 7.6%. The U.S. index is 8.9% below its April 2007 peak and is roughly the same as the April 2005 index level.
 
Use the resource to read more from the FHFA monthly report.

Refis boost weekly mortgage volume

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WASHINGTON (1/23/14)--Mortgage refinancing boosted overall industry activity for the week ending Jan. 17, according to Mortgage Bankers Association data published Wednesday.
 
The MBA refinance index was up 9.9%, driving the overall composite index up by 4.7%. A measure of purchase activity was down by 3.6%.
 
Homeowners are being encouraged to refinance by lower mortgage interest rates (Economy.com Jan. 22). The average rate for 30-year fixed mortgages fell by nine basis points to 4.57%--a seven-week low and 0.07 percentage points lower on a monthly basis. The average rates for 30-year fixed jumbo mortgages and five-year adjustable mortgages fell by one basis point and five basis points to end the week at 4.57% and 3.23%.
 
Refinance applications accounted for 64% of all activity and 57% of prospective loan volume, while the adjustable-rate mortgage share of activity was down 1% to 7% of all applications.
 
Long-run measures of mortgage market activity still show the industry in a bit of a rough patch, despite the MBA composite index's third straight week of advancement. A four-week moving average of the refinance activity is down by 5% on a monthly basis and 65% on a year-over-year measurement. A similar gauge of the purchase index is up by 1% on a monthly basis, but down 7.5% from a year ago.
 
Thirty-year fixed-rate mortgage interest rates and five-year adjustable-rate mortgages are both up on a year-over-year basis, by 95 basis points and 62 basis points respectively.
 
Moody's said that conditions unfavorable to first-time homebuyers are holding back purchase activity. Student debt is a major contributing factor to this, according to a recent quarterly report published by the New York Fed, with 90-day student loan delinquency rates up to 11.8% for the third quarter of 2013, despite declining delinquency rates in other credit markets. The Fed also found that the percentages of 90-day student loan delinquencies has almost doubled since the start of the Great Recession.
 
A 12-week moving average of the purchase index is at 182.1, its lowest level since March 2012. A measure of that purchase index not seasonally adjusted was 15% lower on a year-over-year basis.

Business confidence riding a record high, survey says

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WEST CHESTER, Pa. (1/22/14)--Business optimism reached an all-time high for the week ending Jan. 17, according to an 11-year-old survey conducted by Moody's.

Growth in firms' expectations for the next six months was up to record levels, the weekly report released Tuesday revealed (Economy.com Jan. 21). A net 65% of survey respondents expect business conditions to improve over the next half-year--up from 63.3 the prior week. An assessment of present conditions was also up slightly, to 42.3 from 41.4.

More than half of the responses to the nine questions in the survey were positive, which, Moody's said, was a record number, eclipsing the average proportion of roughly one-third.

Overall business confidence around the world fell slightly, to 39 from 39.3. Confidence among U.S. firms was measured at 45%. Four-week moving averages of confidence around the world and in the U.S. were at 38% and 43%, respectively.

Moody's attributed the robust confidence to record stock market performance and the apparent end of fiscal uncertainty in Washington for the next two years. Businesses reported regulatory and legal issues being their utmost concern, with up to 40% of the survey's respondents citing the worry as their foremost.

Bloomberg said that receding fears of a sudden downturn and the need to invest in capital goods is driving the improvement in mood (Bloomberg.com Jan. 19). It cited an index of bonds which showed increased demand in 2013 for securities issued by high-risk Eurozone governments such as Greece, Spain, Ireland, Italy and Portugal.

The research and news firm did warn that slack demand could see confidence tumbling soon. Andrew Lapthorne, head of quantitative strategy for Societe Generale in London, told Bloomberg that capital expenditures have outpaced revenues for three years, and that both total debt and investment levels, at 7% of total sales, are higher than before the financial crisis.

Just less than half of the survey's respondents, however, said they plan on hiring, with "a very small percentage" reducing staff.

Real estate firms were feeling most positive, with manufacturers recording the relatively gloomiest outlook.

The all-time low of the Moody's confidence measure was negative 44%, in late December 2008, while its previous peak was close to 41% in early March 2011.

Consumer confidence takes surprising dip in Dec.

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ANN ARBOR, Mich. (1/21/14)--A preliminary measure of consumer confidence retreated slightly in January, raising doubts about the resilience of the recovery's recent strength.
 
The Thomson Reuters/University of Michigan preliminary index of sentiment dropped by 2.1 points to 80.4 from 82.5. Moody's predicted that the measurement would expand by more than a point, while a Bloomberg poll of economists forecast a one-point advancement (Economy.com Jan. 17, Bloomberg.com Jan. 17).
 
The component gauging current conditions fell by 3.4 points to 95.2, while the input measuring economic outlook fell by 1.2 points to 70.9.
 
The monthly survey also revealed that Americans' expectations about short-term inflation are unchanged--respondents collectively predicted prices to rise 3% over the next 12 months.
 
Expectations about price increases over the next five years were up slightly, to 2.9% from 2.7%.

January's reading comes after the weakest monthly job growth reported since January 2011. A Labor Department report showed the economy adding just 74,000 jobs at the end of 2013 after a 241,000 expansion in the payrolls in November. The unemployment rate receded to 6.7% from 7%, but that was largely due to a labor force contraction, according to Bloomberg.
 
The research firm and news service said that the initial January survey is consistent with its Consumer Comfort Index, which fell for the week ending Jan. 12.
 
Bloomberg said that rising equity prices and household values, however, are keeping consumer expenditures up.
 
Moody's echoed that assessment and pointed out additional reasons economic growth doesn't appear to be on the verge of a significant slowdown. Reports indicate that manufacturing firms are increasing output, which should boost an improved housing market throughout 2014.
 
The preliminary decline in January does not entirely erase the 7.4 point December gain in the Thomson Reuters/University of Michigan index, either. Moody's is still predicting that payrolls will expand by 2.75 million in 2014, and 3 million in 2015, and the economy will reach full employment by late 2016.
 
In the five years before the official start of the Great Recession in December 2007, the index averaged 89. Throughout the 18-month-long decline of GDP, the measure averaged 64.2, according to Bloomberg.

Drop in jobless claims indicates improvement

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WASHINGTON (1/17/14)--Initial jobless claims dropped for the first full week of 2014, indicating continued labor market improvement.
 
First-time filings fell by 2,000 to 326,000, according to Labor Department data published Thursday. Initial claims for the week ending Jan. 4 were revised down, to 328,000 from 330,000.
 
Moody's said the number was "slightly higher than we anticipated" (Economy.com Jan. 16), while a Dow Jones poll of economists predicted 331,000 claims (The Wall Street Journal Jan. 16).
 
The four-week moving average of initial claims fell by 13,500 to 335,000--pushed by decline of 19,000 over the past two weeks. Moody's said that the measure appears to be stabilizing after the traditionally volatile holiday season, but said that another week of data will be required to make a more confident analysis. The Wall Street Journal pointed out that many companies let holiday employees go in the first week of January.
 
Labor Department data also showed continuing claims increased to 3.03 million for the week ending Jan. 4. A four-week moving average of the measure rose to 2.908 million from 2.87 million.
 
The number of people on emergency benefits rose 63,626 to 1.35 million for the week ending Dec. 28--the day that the program ended. Moody's predicted that Congress' continued failure to reinstate these benefits will hold back real GDP growth this year by between 0.1 and 0.2 percentage points. A deal to restore the program fell through Tuesday.
 
The ratings and research firm also said that the withdrawal of benefits may explain the contraction of the labor force that drove December's 0.3% unemployment rate drop, to 6.7%. It expects the labor force to continue to shrink in January, and predicts that trend will shave an additional 0.2% off the unemployment rate.
 
Signs of long run labor market improvement include people on extended benefits numbering just 145--a drop of three on a weekly basis and about 850 on an annual basis. The number of Americans on emergency unemployment benefits when they ran out was down by more than 700,000 on an annual basis. Initial claims not seasonally adjusted were also down 4% on a year-over-year-basis.
 
States reporting the biggest drop in first-time claims for the week ending Jan. 4 were Michigan, New Jersey and Massachusetts. Those reporting the largest increase were New York, Georgia and South Carolina.

1st increase in 3 months seen in cost of living

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WASHINGTON (1/17/14)--The most prominent measure of inflation rose in December for the first time in three months, according to U.S. Labor Department data.

The consumer price index increased by a six-month high of 0.3% after stagnating in November and receding by 0.1% in October. The core CPI, which excludes fuel and food costs, only expanded by 0.1%, down from 0.2% in November.

Cost of living increases were driven by the price of energy, a measure of which rose by 2.1%. Seasonally adjusted gasoline prices, which were up by 3.1%, led the expansion. The CPI for food and beverage, meanwhile, was only up by 0.1%.

Core CPI growth was driven by rent indexes, which were up by 0.2% after growing by 0.3% in November. Measures of new and used vehicles, medical care, household furnishings and airfare either stagnated or declined (Economy.com Jan. 16). Medical goods and services plunged particularly dramatically, with prescription drug costs falling by 0.8%--their largest drop since 1967 (Bloomberg.com Jan. 16).

On an annual basis, core CPI, energy and food inflation were at three-year lows. Core inflation finished 2013 at 1.5%, a decrease of 0.2 percentage points from 2012. The energy index rose by 0.4%, down from rates above 7% in 2010 and 2011. Moody's said that the acceleration in food prices declined to their smallest increase since 1976.

Despite prices increasing only modestly throughout the year, real income barely grew. Hourly earnings adjusted for inflation were only up by 0.2% in 2013, after a 0.3% drop in December.
Moody's is predicting that prices will rise at a faster pace in 2014, driven by wider economic growth. The ratings and research firm said that the apparent end of fiscal policy uncertainty in Washington D.C. has improved its outlook, but that relatively weak inflation should keep the Federal Reserve from tapering its asset purchases by too much.

Bloomberg said that demand-push price increases in rental housing and clothing indicates that the Fed has succeeded in reversing deflationary pressures, allowing the central bank to continue to reduce quantitative easing over the coming months. It highlighted recent remarks by Chicago Fed President Charles Evans about a possible reduction in asset-purchases allowing the bank to focus on keeping nominal interest rates near zero for a longer amount of time.

Mortgage applications up for week, but MBA dims forecast

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WASHINGTON (1/16/14)--A report indicating strong performance by the mortgage market last week was eclipsed by news of industry-wide difficulties.
 
The Mortgage Bankers Association market composite index was up by 11.9% for the week ending Jan. 10, according to data published Wednesday by the trade association. The MBA, however, said Tuesday that it reined in its forecast of market activity this year. Its predictions for purchase and refinance originations in 2014 were lowered to $677 billion and $440 billion, from $711 billion and $463 billion.
 
Compounding the sector's woes was another Wednesday report on the country's most prominent mortgage lenders' fourth quarter. Bank of America, the third-largest originator by market share, saw originations decline on annual basis by 46%, to $11.6 billion from $21.5 billion. Wells Fargo and J.P Morgan, the top two mortgage originators, saw originations drop on a year-over-year basis by 60% and 54%, to $50 billion and $23 billion, respectively (MarketWatch Jan. 15).
 
The MBA weekly survey however, showed that purchase and refinance activity were both up by 11.5% and 11.2% for the week ending Jan. 10.
 
Long-term problems for the industry are also evident in the recent MBA data, however. The four-week moving average of the refinance index is down by 16% over the past month and 65% over the past year. A similar measure of the purchase index is down by 4.4% on a monthly basis and 6.5% on a year-over-year basis. A 12-week moving average of the refinance applications component is at its lowest level since 2008, while a similar measure of the purchase index is at a two-year low (Economy.com Jan. 15).
 
Moody's said that the recent pessimism evinced by the MBA can likely be attributed to the rising cost of mortgage financing. Institutional investors have driven demand in recent months, but rising prices and a shrinking supply of distressed homes is slowing that trend. It's unclear if first-timers and homebuyers trading-up can pick up the slack, the ratings and research firm said.
 
 
MarketWatch, however, reported that falling demand could see conditions improve for borrowers, with recent Federal Reserve research indicating that bank loan officers are loosening mortgage standards. Mortgage interest rates measured by the MBA also receded slightly for the week ending Jan. 10. The averages for 30-year fixed-rate mortgages and 30-year fixed-rate jumbo mortgages both fell--by 6 basis points and 8 basis points to 4.66% and 4.58%. The five-year adjustable-rate mortgage was down by 5 basis points, falling to 3.28% at the end of the week.
 
The fixed-rate for 30-year conventional mortgages and the adjustable five-year mortgage rate are both up on an annual basis--by 105 and 62 basis points.

Economy setting moderate pace, says Fed Beige Book

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WASHINGTON (1/16/14)--The 12 Federal Reserve districts indicated economic activity expanded across most regions and sectors from late November through the end of the year, according to the Fed's Beige Book.
 
"The economic outlook is positive in most Districts, with some reports citing expectations of  'more of the same' and some expecting a pickup in growth," the Fed report said of the data collected on or before Jan. 6 in the Atlanta, Boston, Cleveland, Chicago, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, St. Louis and San Francisco districts.
 
The Beige Book provides anecdotal information about the economy to the Federal Open Market Committee two weeks prior to its scheduled meetings. The policy-making committee meets Jan. 28-29.
 
Wednesday's report from the Fed found retail spending was "modestly to moderately higher" in most areas compared with a year earlier. The Kansas City district said holiday sales were lower than expected, "which retailers there attributed to a shorter selling season and harsh weather conditions."
 
No substantial changes were reported in loan volume, although New York noted a "moderate" decline. Philadelphia, Richmond, Atlanta, Chicago, Dallas and San Francisco cited "slight to moderate growth." "Contacts in some Districts expressed concern about new banking regulations and their potential negative impact on lending and operating costs," the Fed reported.
 
Philadelphia, Chicago and San Francisco cited instances where financial institutions relaxed their underwriting standards, which was attributed to more competition in the lending field.
 
The decline in residential real estate loans in New York, Cleveland, Atlanta, Chicago and Kansas City was primarily due to reduced refinancing activity rather than fewer first mortgage applications. The latter has slightly increased in some districts, the Fed said.
 
Demand deposits volume increased in the Cleveland and Dallas districts, remained stable in Kansas City and decreased in the St. Louis district.
 
According to the Beige Book, most districts reported increases in home sales in the closing months of 2013 compared with last year, but some indicated that year-over-year residential sales growth had slowed relative to earlier quarters in 2013.
 
Home prices continued to trend upward in Boston, Atlanta, Chicago, Minneapolis, Kansas City and San Francisco, and remained stable in the Cleveland and Richmond districts.
 
 

Small-biz optimism edges upward

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WASHINGTON (1/15/14)--A measurement of small business health improved slightly at the end of 2013, according to the National Federation of Independent Businesses.

The trade association's Small Business Optimism Index advanced by 1.4 points in December to end the year at 93.9. The measurement indicates that while small business' outlook has recovered from the partial government shutdown in October, many entrepreneurs have yet to reap the full benefits of the recovery.

The components of the index gauging optimism drove the overall measure's expansion. The percentage of respondents who said the economy will deteriorate over the next half-year was down by 9 points, while the percentage who said sales will strengthen over the next quarter was up by 5 points. The percentage of firms reporting plans to make capital outlays in the next three to six months was up by 2 points, while the proportion of companies planning to shrink inventories also dropped by 2 percentage points.

The proportion of firms reporting weaker sales over the past quarter remained steady, as did those reporting at least one "hard to fill" job opening. Hiring in December, as measured by the survey, was up by a net 0.24 workers per firm.

Components pulling the index down were the share of firms that reported weaker profits--up by 2%--and the net number of firms who said they planned on hiring within 3 months--down by 1%.
The overall NFIB index ended December at its highest level since September and up by 5.9 points on an annual basis (Economy.com Jan. 14).

Fewer firms are bemoaning weak sales, with 14% citing the issue as their top business problem--the lowest proportion since June 2008. One quarter of companies plan on raising average prices in the next few months, with only 3% planning on decreasing prices.

The NFIB did warn that, on an unadjusted basis, 16% of firms reported higher quarterly profits while 37% of firms reported profit deceleration--an indication, the trade association said, that the economy "remains bifurcated" with "large firms doing fairly well [and] small businesses showing little growth or improvement."

"There are many threats to improvement, including the majority of respondents feeling the current climate is not 'a good time to expand substantially,'" NFIB chief economist Bill Dunkelberg said in a press release. Citing political turmoil over healthcare reform and fiscal issues, Dunkelberg said that "the uncertainty that has contributed to our slow recovery is clearly still present--making any advances shaky at best."
 
According to Moody's, however, overstocked inventories are weighing heavily on small-business sentiment. The research and ratings firm noted that Conference Board, University of Michigan and New York Federal Reserve Bank surveys on consumer confidence indicate that firms' bottom lines should improve throughout 2014. Manufacturing growth and the housing recovery also appear to both be accelerating, the firm remarked.

Fed scrutinizing banks, foreign exchange rates

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WASHINGTON (1/14/14)--The Federal Reserve is joining a multilateral probe into alleged foreign exchange rigging by employees for some of the world's biggest banks.
 
The inquiry, which is said to involve at least 12 banks, could result in the Fed levying fines for improper internal controls (Bloomberg Jan. 13).
 
The U.S. Justice Department, Britain's Financial Conduct Authority and the Swiss Competition Commission have been investigating the matter since June, when Bloomberg reported on the alleged decade-long scheme.
 
The Fed declined Bloomberg's request for a comment, but it is believed the inquest involves Deutsche Bank AG, Citigroup Inc., Barclays Plc and UBS AG. The quartet controls more than half of the $5.3 trillion daily foreign exchange market, according to a May report by Euromoney Institutional Investor.
 
Barclays, Citigroup and the Royal Bank of Scotland Group Plc have already launched internal investigations. Citigroup announced last week that it fired Rohan Ramchandani, former head of European spot trading. Ramchandani allegedly was part of an industry message group known as "The Cartel."
 
JPMorgan Chase & Co., Barclays and Citigroup also told officials at the New York Fed, according to Bloomberg, that it could change its practices as a result of the investigation.
 
The benchmarks at the center of the probe are WM/Reuters rates, which affect assets around the world.
 
The Fed's regulatory scope focuses on banks' risk management practices. If it finds inadequate internal controls, the central bank can issue orders, impose fines, remove executives and bar them from the industry. The Fed recently fined JPMorgan $200 million in case related to multi-billion dollar "London Whale" losses. It has also fined RBS $50 million for failing prevent commerce with countries subject to U.S. sanctions.
 
Law enforcement officials are also said to be looking at alleged manipulation of other key market-moving rates, such as the London interbank offered rate, LIBOR, and a rate that affects interest rate derivatives, called ISDAfix.

Bottom Drops in Dec. Payroll Numbers: Labor Statistics

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WASHINGTON (1/13/14)--Recent evidence of an improving recovery might be more flimsy than previously thought, after a Friday report revealed a surprising deceleration of job growth.
 
Net job growth declined in December to 74,000, according to the Bureau of Labor Statistics--a gain that fell well below economists' expectations. November gains were revised up, but only by 38,000 to 241,000. Moody's said the report's findings were "well below" its expectations, while Forbes expected payrolls to expand by 197,000 (Economy.com, Forbes.com Jan. 10).
 
The unemployment rate, measured in a separate Labor Department survey did fall, to 6.7% from 7%. But the decrease was primarily attributed to 347,000 people dropping out of the labor force. Consequently, the labor force participation rate fell to a three-decade low, to 62.8%, from 63%. The number of unemployed Americans dropped by 490,000 to 10.4 million.
 
The biggest staff contractions recorded in the BLS poll occurred in construction, government and information, in which payrolls contract by 16,000, 13,000 and 12,000 respectively. Education and healthcare employment stagnated, while retail added 55,000. Manufacturers and the hospitality industries both added 9,000. Private payrolls, over all, expanded by 87,000--down from 226,000 and 217,000 in November and October.
 
Moody's and Forbes both said that winter weather can explain some the decline. The former said that severe conditions caused 314,000 people to stay home from work, and reported it being the highest December number in decades. The latter cited a survey showing 273,000 people were unable to work due to inclement weather--a figure reported by Capital Economics chief U.S. economist Paul Ashworth. Forbes added that 166,000 is the December average for weather-related work cancellations in recent years, and that in November only 37,000 workers were kept home due to the elements.
 
Moody's pointed out that weather doesn't explain all declines, such as those in healthcare, and the sharp labor force contraction. It, nonetheless, still expects the economy to add 200,000 jobs per month in 2014.
 
Analysts who spoke with Forbes also noted that the setback should only be temporary, and that December's numbers could be revised upward. The director of macroeconomic analysis at the Conference Board, Kathy Bostjancic, told Forbes that her firm's Leading Economic Indicators survey and a poll of purchasing managers suggests that the labor market will strengthen in 2014.

JPMorgan strengthens social media, part II

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NEW YORK (1/10/14)--After a disastrous foray into social media use in November and at the end of a week that saw the banking giant hit with a $2.6 billion settlement for its alleged role in Bernard Madoff's multibillion dollar Ponzi scheme, JPMorgan Chase & Co. announced a major personnel change to bolster its social-media strategy.
 
Kristin Lemkau, head of communications for the banks' consumer division, was promoted this week to chief marketing officer. The move came on the same day that federal officials announced the deferred prosecution agreement regarding the settlement, which  American Banker called the largest settlement of its kind in U.S. history (American Banker Jan. 8).
 
Lemkau said she plans on improving JPMorgan's social-media strategy, describing the recent #AskJPM campaign as regrettable. In November, the bank's communications team scheduled the event, a Twitter Q&A with vice president Jimmy Lee, only for the executive to be  inundated with criticism and sarcastic questions (News Now Nov. 15, 2013).
 
The hashtag proved to be a magnet for criticism, drawing 6,000 responses in six hours. Acerbic inquiries ranged from what the participants called the bank's questionable take on ethics, its legal troubles, and the wisdom of hosting the #AskJPM event itself. 
 
"Is this the type of brilliant marketing idea that makes JPMorgan Execs so much richer and more highly valued than us commoners?" one user asked.
 
Lemkau described the debacle as a learning experience, saying the bank shouldn't turn its back on an important medium.
 
For an example of how one credit union recently used its social media message to make a positive impact on its community, see the related story in this issue of News Now: Social media pay-it-forward pays off for Royal CU.

Fewer jobless claims, layoffs bolster job climate

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WASHINGTON and CHICAGO (1/10/14)--A pair of reports released Thursday indicate that the job market improved significantly just at the start of 2014.
 
Initial jobless claims for the week ending Jan. 4 fell by 15,000 to 330,000, according to the U.S. Labor Department, while layoffs in December declined to 30,263, a one-month decline of 32%, according to a survey conducted by the Chicago-based outplacement firm Challenger, Gray & Christmas.
 
The Labor Department report, which reveals the lowest number of initial claims since late November, is the latest to report a string of positive developments for the job market. Since the week that ended Dec. 14, initial filings have dropped by 50,000. The four-week moving average fell the week ending Jan 4. by 9,750 to 349,000, showing steady gains throughout the volatile and statistically unreliable holiday season.  

The number of people claiming extended benefits rose by 115 to 292 for the week ending Dec. 21--a figure has fallen by over 700 on an annual basis.  A measure of first-time claims not adjusted on a seasonal basis rose for the week ending Jan. 4 by 34,384, but was down by 12.9% on a year-over-year basis (Economy.com Jan. 9). 
 
Signs of trouble do persist, however. Continuing claims rose by 50,000 to 2.865 million for the week ending Dec. 28. The four-week moving average of continuing claims rose to 2.872 million from 2.853 million. Roughly 1.29 million Americans were also on extended federal benefits for the week ending Dec. 21. The program, enacted in 2008, was wound-up on Dec. 31 after Congress failed to appropriate funds for it. Democrats are attempting to restore the payments, but Republicans are insisting that the estimated $26 billion cost must be offset first (MarketWatch Jan 9).
 
Both Moody's and MarketWatch said that the labor market should continue to strengthen this year, with reports indicating that employers are both adding and planning to add more personnel to payrolls.  Moody's said that diminished uncertainty over the federal budget will also boost prospects for job-seekers. It expects the Labor Market to report Friday that 235,000 additional jobs were added to the economy in December, while Marketwatch is predicting a more modest increase of 193,000. Moody's added that the economy is on pace to reach full employment by 2017.

Survey: Mobile Banking Products Can Attract Small Businesses

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ANDOVER, Mass. (1/9/14)--Improved mobile banking could lead to mobile money, a recently published study has found.
 
Nearly two-thirds of small business owners said they would move their money to banks with better mobile products, according to the research firm ath Power (American Banker  Jan. 7).
 
Banks, however, appear to be falling short in tapping this demand. The study found that in 839 branch visits by small business owners in the second half of last year, 37% of bank representatives failed to mention mobile banking services.
 
The research also included a poll of small business owners' satisfaction with 38 banks. Bank of the West, Associated Banc Corp (ASBC) and JPMorgan Chase received the highest ratings at 80, 79 and 79 out of 100 points. Survey participants gave the trio high marks for being attentive to their needs, building relationships and demonstrating why they were better than bank  competitors. The average score was 71, down three points from last year's survey.
 
Another survey in the study showed that bankers aren't following up prospective customers at the rate they were last year. About 70% of bank employees asked customers for their name and contact information, down from 78% last year. Just under two-thirds, 66%, asked for permission to follow up with customers--down from 71% in 2012. 
 
The survey also showed that 90% of small business owners said they would patronize a bank if asked by employees for permission to follow up, while just 62% of those not asked reported a willingness to become customers. 
 
The study did not include any observations about credit unions.

Weekly Mortgage Application Activity Remains Weak

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WASHINGTON (1/9/14)--Mortgage market activity was weak at the end of last year and at the start of the new year, according to a report released on Wednesday. The Mortgage Bankers Association's composite index fell by 4.2% for the week ending Dec. 27 and advanced by 2.6% for the week ending Jan. 3.
 
Both components of the index fluctuated during the two week period, which was adjusted for Christmas and New Year's celebrations. The purchase index was up by 2.4% for the week ending Dec. 27 and down by 0.5% for the week ending Jan. 3. The refinance index was down by 8.9% for the week ending Dec. 27, and up by 4.6% for the week ending Jan. 3.
 
Four-week moving averages of the purchase and refinance indexes have fallen by 9% and 20% over the past month and by 7.4% and 64% over the past year.
 
A 12-week moving average of the composite index is near 345--its lowest reading in 13 years (Economy.com Jan. 8)
 
Refinancing accounted for 64% of all applications and 57% of prospective loan volume for the week ending Jan. 3. The adjustable rate mortgage share of market activity remained steady at 8%.
 
Higher interest rates are acting as a drag on demand, with 15-year and 30-year fixed mortgage rates approaching their highest levels since April 2011, according to Moody's. The rate for 30-year, fixed-rate mortgages rose by eight basis points (bp) to 4.72% over the two weeks covered by the latest survey--11bp higher on a monthly basis and 111 bp higher on a year-over-year basis. The rate for 30-year, fixed-rate jumbo mortgages increased by 3 bp to 4.66%, while the five-year, adjustable rate mortgage was up by 7 bp to 3.33%--69 bp higher on a year-over-year basis.
 
Moody's noted that while the composite index's weak performance can largely be attributed to a drop-off in refinance applications, the purchase index is near its mid-2010 equivalent, when the expiration of the homebuyer tax credit caused the mortgage market to cool down significantly.
 
November data showing an annual decline in real disposable income growth and a nine-month savings rate low could also explain lackluster market activity, the research and ratings firm said.

FOMC Minutes: Job Market Key to Slowing QE Program

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WASHINGTON (1/9/14)--The Federal Reserve's policymaking body, the Federal Open Market Committee, acknowledged an improving economic outlook when it decided to reduce its monthly asset-bond purchases, according to the FOMC minutes released Wednesday.

Analysts at Moody's said there was broad support for tapering the quantitative easing (QE) program (Economy.com Jan. 8). At its Dec. 18 meeting, the FOMC voted for a reduction to $75 billion per month from $85 billion.

Participants stressed that QE was not on a preset course and would be determined by job market and inflation. Moody's analysts said the Fed will call for a $10 billion-per-month reduction at each meeting.

"Most participants judged the marginal costs of asset purchases as unlikely to be sufficient, relative to their marginal benefits, to justify ending the purchases now or relatively soon," according to the minutes.

Some officials "expressed the view that the criterion of substantial improvement in the outlook for the labor market was likely to be met in the coming year if the economy evolved as expected," the minutes said, noting that other indicators had shown less consistent progress toward full market recovery.

In January, it will purchase $35 billion per month in agency mortgage-backed securities rather than $40 billion. The Fed also decided to buy $40 billion per month in long-term Treasuries rather than $45 billion. The Fed is likely going to continue to reduce both MBS and Treasuries at a similar pace, ending QE by the end of this year, according to Moody's.

Eric Rosengren dissented at the December meeting because he viewed the decision to slow the pace of asset purchases as premature. "In his view, with the unemployment rate still elevated and the inflation rate well below the Committee's longer-run objective of 2 percent, changes in the asset purchase program should be postponed," the minutes said.

The committee's schedule for 2014 is:
  • Jan. 28-29;
  • March 18-19;
  • April 29-30;
  • June 17-18;
  • July 29-30;
  • Sept. 16-17;
  • Oct. 28-29; and
  • Dec. 16-17.

A Jump in Rates Could Trim AmEx, Discover Deposits

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NEW YORK and WASHINGTON (1/8/14)--A report released Monday by Fitch Ratings said rising interest rates put American Express Co. and Discover Financial Services among the financial firms more at risk of losing customer deposits than traditional banks.
 
It was these lenders unencumbered by branch networks that best drew deposits in recent years with rates higher than their competitors, the report said. But, it added, those new customers may not be inspired by any loyalty to stay put when rates climb elsewhere. (Bloomberg Jan. 6).

"Large firms that have attracted deposits with high rates online are the most exposed to outflows when interest rates rise," explains Credit Union National Association Chief Economist Bill Hampel. "Fortunately, credit unions have much deeper relationships with their members."
 
He said credit unions will experience slower savings growth, but nothing like these large firms. Also, he added, credit unions will have to be on the lookout for intense rate competition from some of these large institutions.
 
But even compared to traditional banks, the Fitch report predicted American Express and Discover may see deposits leaving to a greater degree "given that their deposit platforms are relatively new, tend to lack deep, long-term customer relationships and are predominantly centered on gathering deposits online."

Home Prices Up, Putting Them at Highest Since '05

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IRVINE, Calif. (1/8/14)--A prominent research firm's latest monthly report indicates that American homes appreciated in value last year at the fastest annual rate in eight years.
 
The U.S. CoreLogic Home Price Index was up in November by 0.1% on a monthly basis and 11.8% on a year-over-year basis. The research firm's Tuesday report also forecast a 0.1% monthly decline and a 11.5% annual growth rate in December--a development that would make 2013 the best year for home price growth acceleration since 2005.
 
The growth in November, the 21st consecutive monthly year-over-year-increase, leaves the index 17.6% below its April 2006 peak--an indication that homes have recovered half their value since 2011, when the index bottomed out at 32% below the previous fulcrum (Economy.com Jan. 7)
 
The real-estate appreciation appears to be nationwide, with only one state—Arkansas--showing a year-over-year decrease in November at -1.1%. Nevada, California, Michigan and Arizona saw the largest annual increases at 25.3%, 21.3%, 14.4%, and 13.5%. Of the top 100 metropolitan areas measured by CoreLogic, 96 saw annual increases, with Riverside, Calif., Los Angeles, Atlanta, Phoenix and Chicago leading the nation at 23.2%, 20.7%, 15.7%, 14.7% and 12.4%. Home prices are now at new peaks or within 10% of previous peaks in 21 states and Washington, D.C. (USA TODAY Jan. 7).
 
Moody's analysts said that home prices will decelerate for a number of reasons. Existing single family home sales have fallen since August, and construction has picked up in recent months. Meanwhile, investor purchases have slowed, while mortgage interest rates have steadily increased--a trend that looks set to continue with the Federal Reserve having this month launched its $10 billion tapering of the formerly $85 billion monthly quantitative easing program.
 
The ratings and research firm said that the housing recovery should continue on the whole in 2014, with residential construction relatively modest compared to last decade's bubble and mortgage lenders able to loosen self-imposed tight credit requirements.
 
New federal mortgage market regulations could, however, act as a damper on home value growth, according to USA TODAY.

Some Big Banks Allegedly Ignore Nov. Payday Loan Guidance

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WASHINGTON (1/7/14)--Two major banks are offering products with terms that appear to go against guidance issued by federal regulators six weeks ago. 
 
Wells Fargo and U.S. Bank are offering deposit advances that are apparently in violation of rules issued in November by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. The regulatory guidance issued by the two institutions bans most payday loans and products that resemble them (American Banker Jan. 3).
 
The guidance specifically states that banks must allow one statement cycle--usually a month--between the repayment of short-term loans and offers to expand credit.
 
Wells Fargo's website states that its deposit advances are available for six consecutive statement periods, while U.S. Bank rules, American Banker alleges, permit borrowers to renew credit for nine consecutive cycle statements.
 
A Wells Fargo spokesperson told American Banker that the bank is reviewing the rule, while a U.S. Bank representative said that it is coordinating plans with regulators. Neither institution commented on whether they have altered their deposit advance programs after the new rules were issued in November.
 
Two smaller banks--BOK Financial, based in Tulsa, Okla., and Guaranty Bank, based in Milwaukee, Wis.--also currently offer deposit advances that appear to violate the guidance, according to the article. A spokesperson for the former said that the company is evaluating the guidance, while a representative for the latter did not respond to an American Banker request for comment, the article said.
 
Consumer advocates routinely criticize deposit advances, which, they say, mire borrowers in debt. When the OCC announced its final rules in November, Comptroller Thomas Curry said that the products "share a number of characteristics with traditional payday loans," adding that they "can trap customers in a cycle of high-cost debt that they are unable to repay."
 
The new guidelines also mandate an evaluation of borrowers' ability to pay without extending the loan--a rule, American Banker said, that would prevent current borrowers from receiving advance deposits.
 
Some credit unions offer members alternatives to payday loans--short-term lines of credit with annualized interest rates generally capped at the usury ceiling, which has been currently determined by federal rules to be at 18%. National Credit Union Administration regulations can allow credit unions to charge an annualized interest rate 10 points above the ceiling--at 28%. Most credit unions that offer payday loan alternatives also limit fees, offer counseling and encourage members to open savings accounts. (See another lending story in this issue of News Now:  Matz in HuffPost: CU Short-Term Loans Can Be a Lifeline.)

Treasury Yields Hit 30-Month High before Bernanke Speech

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NEW YORK (1/6/13)--Yields on 10-year U.S. Treasury bonds hit their highest level since 2011 on Thursday--the day before a public speech by Federal Reserve Chair Ben Bernanke.
 
The benchmark on 10-year notes hit a 30-month high of 3.05% before finishing the trading day at 2.99%. The return fluctuated little last week, however, after steadily increasing during the previous six weeks.
 
The increased yield indicates that investors are expecting higher inflation and interest rates as economic growth picks up steam, according to Credit Suisse interest-rate strategist Ira Jersey (Bloomberg.com Jan. 3).
 
Bernanke, who gave a speech Friday at the American Economic Association gathering in Philadelphia, is retiring as Fed chair Jan. 31 (CNBC.com Jan. 3).
 
In December, he announced that the Federal Reserve would start cutting back its $85 billion monthly asset-purchasing program by $10 billion, citing an improved job market and stronger economic growth.
 
Analysts have predicted, however, that a report published this week will show that hiring in December "slipped," according to Bloomberg.

Weekly Jobless Claims Decline More Than Expected

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WASHINGTON (1/3/14)--First-time unemployment claims dropped during the week that ended Dec. 28, surprising prominent analysts who called for an increase in filings.
 
Labor Department data released Thursday shows initial unemployment insurance claims fell by 2,000 to 339,000. A median forecast of 26 economists polled by Bloomberg predicted claims would rise to 344,000 (Bloomberg.com Jan. 2). Moody's also expected "a rise in new filings" (Economy.com Jan.2).
 
The number of filings recorded for the week ending Dec. 21 were revised up to 341,000 from 338,000.
 
Analysts for both Bloomberg and Moody's warned that the data should be viewed skeptically. Initial holiday-season data is notoriously inaccurate, they said, and observers won't be able to confidently assess the labor market until the middle of January at the earliest.
 
The four-week moving average increased to 357,250 from 348,750, but both research firms said that recent data indicates a downward trend in layoffs.
 
Continuing claims dropped by 98,000 to 2.83 million for the week that ended Dec. 21. The decline in first-time claims over the past two weeks is at 41,000 thus far, and, before announcing its $10 billion quantitative easing tapering, the Federal Reserve revised its 2014 minimum unemployment forecast to 6.3% from 6.4%. On a non-seasonally adjusted basis, initial claims rose by 25,875, but are down 9.5% on an annual basis. Employers added 188,500 per month in 2013 through November, up from 182,750 in 2012, and initial unemployment claims averaged 342,686 in 2013--down from 374,462 in 2012 and 408,538 in 2011.
 
Initial claims in the fourth quarter, however, were up to 343,667 from 323,250 in the third quarter.
 
The economy could also see slower job and wage growth if Congress doesn't restore emergency unemployment benefits to the estimated 1.2 million people who lost them on Dec. 28. Thursday's data showed that there were 1.39 million people receiving such benefits for the week that ended Dec. 14--a 58,000 increase on a monthly basis, but a 675,000 year-over-year decrease.

A Congressional Research Service report requested by U.S. Rep. Sander Levin (D-Mich.), the ranking Democrat on the House Ways and Means Committee, estimates that the withdrawal of emergency jobless benefits will leave only about 25% of Americans receiving taxpayer-funded financial support--down from 38%, and the first time that the percentage of jobless workers receiving public aid has dropped below 30% since the data was first collected in 1946. Moody's has estimated that this withdrawal of assistance--accounting for the half-million people set to lose state-level benefits in the first quarter--will shave 0.15% off of 2014 Gross Domestic Product growth.
 
Senate Majority Leader Harry Reid (D-Nev.) said he would try to pass a temporary extension of the program when Congress reconvenes Jan. 6 (Businessweek Jan. 2). Bloomberg has reported that Sens. Jack Reed (D-R.I.) and Dean Heller (R-Nev.) are attempting to cobble together a bipartisan agreement to a three-month extension while Congress considers long-term fixes.
 
Twenty-eight states and territories out of 53 reported an increase in claims in Thursday's report for the week ending Dec. 21. Five states recorded drops in filings greater than 1,000 that week, with California and Illinois reporting the biggest declines. Michigan and New York played host to the largest rise in initial claims.

Consumers' Sentiment at Highest Since Recession Started

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NEW YORK (1/3/14)--Consumers' outlook was at a post-recession high throughout 2013, according to a prominent measurement.

The Bloomberg Consumer Comfort Index averaged -31.4 for last year--the highest it has been since 2007, when it was at -10.5. The research and analysis firm attributed the rosier views to an improved job market, and higher home prices and stock values (Bloomberg.com Jan. 2).

The report, published Thursday, noted that the index declined for the week ending Dec. 29, falling to -28.7 from 27.4. All three components of the index fell--measures of personal finances, current economic conditions and the buying climate dropped to 4.1, -57.1 and -33.2 from 6.4, -56.8 and -31.8 respectively.

While Bloomberg analysts noted that average measures of the buying climate and personal finance were higher in 2013 than 2012--by 4.7 points and 1.2 points--they also said that the latest weekly measure of current economic conditions is 25.7 points below its long-term average.

The overall index was up almost 7 points in 2013. Its year-end drop was the first since early November (Economy.com Jan. 2).  Bloomberg attributed the decline to increase pessimism among homeowners, college graduates, Democrats and full-time workers. The dip applied to all income cohorts, except respondents making between $40,000 and $50,000.

Broken down by census division, consumers' outlook worsened most dramatically in the Northeast--by 8.9 points. The index declined in the West, South, and Midwest by 0.1 points, 0.3 points, and 1.7 points.

Moody's said that the weekly decline could be attributed to the end of the holiday season and household budgetary anxieties.

The research and ratings firm also predicted that confidence will grow in 2014, boosted by an improving labor market and increasing consumer spending. Moody's analysts are predicting that unemployment in December will fall below 7%, but said that a one-week drop isn't significant, with the measurement calculated on a 4-week moving average.

Gift Cards, Last-minute Deals Boost Chain Store Sales

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WASHINGTON (1/2/14)--A measure of consumer spending ended the year on the up for the third consecutive week, according to a report released New Year's Eve.
 
The International Council of Shopping Centers' Weekly Chain Stores sales index increased by 1% for the week ending Dec. 28. The measure was also 3% higher on a year-over-year basis, and its four-week moving average was at 2.3%.
 
Boosting year-end sales were Christmas Eve discounts and record gift-card purchases. The proportion of retailers offering Dec. 24 promotions was higher in 2013--21% compared to 17% in 2012. Gift-card purchases also accounted for 23.7% of total holiday spending, which, Moody's analysts said, should prolong the holiday shopping season to the end of January (Economy.com Dec. 31).
 
The research firm's analysts pointed out that department stores had the largest gains, while electronics retailers' numbers were weak.
 
Weather, they said, wasn't much of a factor last week, with snow and ice only in parts of New England and the Midwest.
 
In 2013, retail discounts overall averaged 30%--an increase from 25% in 2012, according to Moody's, which expects 3% to 4% sales growth in December.

Monthly Increase in Home Prices Highest Since '06

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WASHINGTON and NEW YORK (1/2/14)--Home values in the U.S. increased in October at their fastest pace since the expansion of the housing bubble, but observers warned that the gains might be fleeting.
 
S&P/Case-Shiller Home Price Indexes for 10 and 20 cities were both up on a year-over-year basis by 13.6%, with each 0.3% higher than annual gains made in September, according to a report released Tuesday. Every metropolitan area that makes up the indexes showed home price appreciation on a year-over-year basis, with annual growth accelerating in 13 out of 20 regions. The national annual rise in home prices recorded by the measure was at its greatest since February 2006 (Bloomberg.com Dec. 31), with the 10 and 20 city composites up on a monthly basis, by 1% and 1.1% respectively.
 
But Forbes analysts pointed out that price increases in 18 cities monitored by S&P/Case-Shiller either slowed down or reversed on a monthly basis in October (Forbes Dec. 31). Appreciation was only measured in 10 metropolitan areas, with Las Vegas topping the growth table at 1.2%. Nine cities--Atlanta, Boston, Chicago, Cleveland, Dallas, Denver, San Francisco, Seattle and Washington--saw monthly declines. Only Charlotte, N.C., and Miami recorded gains at a faster rate in October. The analysts also noted that September growth rates were slower on a monthly basis in all markets except one.
 
Declining and decelerating home values appear to be caused by deflationary pressure on the demand side of the market. Foreclosure inventories hit a multiyear low in November, signaling tight supply, with institutional investors having largely bought up distressed properties that flooded the market after the crash of 2008 (Economy.com Dec. 31). On the demand side, however, interest rates have increased over the past year causing the sales of previously owned homes to decline from September to November, according to the National Association of Realtors (Market News Dec. 20).
 
The average rate for a 30-year fixed interest mortgage was up by 38 basis points from the end of October to Dec. 26, and by 113 basis points on a year-over-year basis at the end of 2013, according to Bloomberg. The research and analysis firm said that this trend is expected to continue into 2014 with the Federal Reserve starting its $10 billion quantitative easing tapering this month.

The lull in demand, however, is itself showing signs of fading. The NAR reported that a leading predictor of future home purchases was up by 0.2% in November (Market News Dec. 31). Both Moody's and Bloomberg analysts predict that declining unemployment, and expanding income and consumer confidence will lift home values in 2014, although Moody's warned that rising interest rates remain a threat to demand, and that the acceleration of home prices will abate.