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Shutdown, Debt Ceiling Took Toll On October Consumer Confidence

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NEW YORK, N.Y. (10/30/13)--A key measure of consumer confidence fell to record lows in the wake of the government shutdown and debt-ceiling negotiations.

The Conference Board, a New York-based research firm, released data on Tuesday showing its consumer confidence index fell in October to 71.2, down from a revised 80.2 in September.

The index was measured at its lowest level in six months after taking its biggest month-to-month plunge since August 2011 (Bloomberg.com Oct. 29).

The decline was also more severe than analysts expected. A median forecast of economists polled by Bloomberg predicted that the measure would only fall to 75.
 
Consumers' sour mood isn't expected to improve anytime soon, the Confidence Board said, citing the temporary nature of the agreement passed by Congress on Oct. 16 (MarketWatch Oct. 29). Another round of negotiations is set to take place in January and February, when, respectively, the government will run out of money and a debt-ceiling breach is expected.

While a component of the index measuring consumers' views of the present economic situation fell to 70.7 from 73.5 this month, a measurement of their expectations dropped to 71.5 from 84.7--the lowest that expectations have been since March (Moody's Economy.com Oct. 29).

The Conference Board consumer confidence index takes into account both consumers' view of current conditions and their expectations of future well-being.

Home Prices Spike in August, Mortgage Rates Up In September

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WASHINGTON (10/30/13)--August home prices in the U.S. rose at their fastest annual pace since February 2006, according to the Standard & Poor's/Case-Shiller 20-city home price index.

All 20 cities in the index showed annual gains, ranging from 3.6% in New York to 29.2% in Las Vegas (Moody's Economy.com Oct. 29).

But while the measurement showed its greatest annual nationwide increase in more than seven years, rising prices have started to abate in recent months, adding to concerns that housing demand is slowing, amid a weak job market and rising mortgage rates. The month-to-month index increased by just 1.3% in August, down from a 1.8% increase in July, with 16 out of 20 cities in the measurement reporting slower growth in August (The Associated Press Oct. 29). In September, home price increases by city ranged from 2.9% in Las Vegas to 0.5% in Seattle.
 
Houses have appreciated in value across the country in recent years, as the percentage of total sales that can be classified as distress sales has declined since the start of the global financial crisis in 2008. Foreclosure inventories and all stages of the foreclosure process have been steadily waning since then. Fewer households are defaulting on mortgage payments, tightening the supply of homes in a market that has been saturated with desperate sellers over the past half-decade (AP and Moody's Economy.com Oct. 29).

A weak job market and mortgage rates creeping upwards are, however, potentially dampening the prospects of robust future demand for homes.

The Federal Housing Finance Agency reported on Tuesday that contract mortgage interest rates increased by 0.11% from August to September, according to an index of new mortgage contracts. The composite contract rate, according to the FHFA was 4.36%, up from 4.25% in August.
 

Fed Policymakers Expected To Stay the Course Today

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WASHINGTON (10/30/13)--When the Federal Open Market Committee completes its two-day meeting today on Federal Reserve monetary policymaking,  its statement may not include any increases in target federal fund market rates or a tapering of the Fed's quantitative easing (QE3) policy, according to several surveys of economists.
 
The FOMC's statement at the end of the meeting is expected at 2 p.m. ET.  Many had expected an announcement last month about the beginning of the Fed's tapering of its $85 billion a month purchases of government bonds and mortgage securities, but the committee opted for no change after economic recovery began to slow. The committee was split as to when to start tapering off QE3. Originally the Fed had indicated last summer the bond buying program would begin its reduction by the end of 2013.
 
However, the government shutdown and debt ceiling debate's impact on the economy have shifted expectations for withdrawing the stimulus program to next year, according to Associated Press (via The New York Times Oct. 29) and Business Insider (Oct. 27).
 
According to economists surveyed by Business Insider, the Fed is expected to keep the benchmark interest rate at 0% to 0.25% and to hold off on announcing any reduction in the bond asset purchase program.  That publication said that although today's meeting is a "non-event," people will watch for any changes to the Fed's official statement and whether the committee continues to see downside risks to the economic outlook and a diminished labor market.
 
A Bloomberg survey noted that the budget impasse would spur the Fed's policymaking group to wait until March to scale back the bond purchases (Bloomberg.com Oct. 28).
 
Watch today's News Now and News Now LiveWire for updates on the meeting.

NEW: Fed Policymakers Maintain QE3 Pace

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WASHINGTON (10/30/13, UPDATED  2:40 p.m. ET)--As expected, the monetary policymaking group for the Federal Reserve today voted 9-1 to stay the course on its $85 billion a month asset buying program, known as quantitative easing, and keep its target range for the federal funds rate at 0% to 0.25%.
 
In doing so, the Federal Open Market Committee, which had met yesterday and today, noted that "economic activity has continued to expand at a moderate pace." It cited "some further improvement" in labor market conditions but noted "the unemployment rate remains elevated."
 
In a statement after the meeting, the FOMC said that "household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the committee's longer-run objective, but longer-term inflation expectations have remained stable."
 
The FOMC said it "expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate" of fostering maximum employment and price stability.
 
It "sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall" and "recognizes that inflation persistently below its 2% objective could pose risks to economic performance," but the committee said it "anticipates that inflation will move back toward its objective over the medium term."
 
Keeping in mind the "extent of federal fiscal retrenchment over the past year," the FOMC noted it "sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases."
 
It will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month--the program known as QE3, which "should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the committee's dual mandate," said the FOMC's statement.

The committee, which this past summer--before the federal government shutdown's impact on the economy--was considering tapering off QE3 beginning by year's end, instead said it would maintain the bond buying program "until the outlook for the labor market has improved substantially in a context of price stability."

Noting that "asset purchases are not on a preset course," the committee said that it will at its coming meetings "assess whether incoming information continues to support the committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective." Its decisions about the pace "will remain contingent on the committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases."

The committee also reaffirmed that its "highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens."  It decided to keep the target range for the federal funds rate at 0% to O.25% and "currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored."

In determining how long to maintain that "highly accommodative stance," the FOMC will also consider additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When it 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%, it said.

Voting for the FOMC monetary policy action were: Federal Reserve Chairman Ben S. Bernanke, Vice chairman William C. Dudley, James Bullard, Charles L. Evans, Jerome H. Powell, Eric S. Rosengren, Jeremy C. Stein, Daniel K. Tarullo, and Janet L. Yellen, the nominee to succeed Bernanke at the end of his term in January.

Esther L. George, who voted against the action, was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

For the full FOMC statement, use the link.

September Pending Home Sales Slump To Lowest In Three Years

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WASHINGTON (10/29/13)--A measurement of future home sales dropped to a three-year low in September, plunging far below economists' predictions.

The National Association of Realtors' index of impending home sales was down 5.6% in September--the biggest one month drop since a 28.9% drop in May 2010 occurred after the extension of a federal tax credit expired.

The median forecast of 39 economists surveyed by Bloomberg predicted the measure would be unchanged from the month before, when it decreased by 1.6% (Bloomberg.com Oct. 28). Moody's predicted that the gauge would increase by 0.7% (Moody's Economy.com Oct. 28).
The measure has now decreased for four consecutive months. In August, it fell by 1.6%.
The decline in September also represented an annual decrease of 1.2%, the first month in more than two years that pending sales were lower on a year-to-year basis (Marketwatch Oct. 28).

In terms of regional change, the index of pending home sales dropped by 9.6% in the Northeast, 9% in the West, 8.3% in the Midwest, and 0.4% in the South (Moody's Economy.com).

Despite weak demand, the median housing price of an existing home increased to $199,200 from $178,300, according to data released by NAR last week (Market News Oct. 22).
The group also predicted that existing home sales in 2014 will increase slightly to 5.18 million, from the 5.16 million it has forecasted for 2013.

The government shutdown, and uncertainty over congressional budget negotiations in the new year, will likely keep the pending home sales index down in October. The Mortgage Bankers Association said that purchase applications for government programs were down by more than 7% in early October--its lowest level since December 2007.

The mortgage industry trade association also reported that the government share of purchase applications was at its lowest level in three years, and that the MBA Purchase Index declined by 4.8% for the week ending Oct. 11 (Market News Oct. 17).

GSE Mortgage Ceiling To Remain Unchanged For Now

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WASHINGTON (10/28/13)--Federal Housing Finance Agency acting director Edward DeMarco said Thursday that federal regulators aren't planning on imminently lowering the value of loans that government-sponsored enterprises are permitted to purchase, but said that might change in the future (American Banker, Oct. 24).

Speaking at a housing finance reform event hosted by the Bipartisan Policy Center and real estate presence Zillow, DeMarco made the remarks in a talk laying out what the agency has done and what it plans to do in the wake of the subprime mortgage crisis.

He said that the agency will announce 2014 conforming loan limits in late November, and that future information will be provided then.
DeMarco also said that the agency will give at least six months' notice before lowering the statutory maximum, and said that it won't act until at least next spring.

The FHFA has been the target of a mortgage industry lobbying campaign after rumors emerged that it was planning on lowering loan limits on mortgages purchased by Fannie Mae and Freddie Mac.
He said that any rule change would be "measured" to minimize market shocks.

The current loan limit for GSEs is $417,000 nationwide and $625,500 in areas with a higher cost of living.
DeMarco said Thursday morning that the FHFA decided against lowering the limits early next year because a rash of new regulations, including the Consumer Finance Protection Bureau's qualified mortgage rule, are set to impact the industry, and that additional impact analyses must be done by the agency.

Consumer Sentiment Falls, Faith In Government At Historic Low

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WASHINGTON (10/28/13)--The final October measure of a consumer sentiment index fell to a 10 month-low in the wake of the government shutdown in Washington.
 
The last reading of the University of Michigan/Thomson Reuters consumer-sentiment index this month was 73.5, according to data released Friday--down from a final September reading of 77.5.
 
A report issued by the two research institution on their findings concluded that consumers increasingly view the government as an impediment to economic growth. In response to an open-ended question about recent economic developments, the number of those polled who negatively mentioned the federal government in October was the highest that it has been in the more than five decade history of the survey.

The deconstructed index showed that the measure of consumer expectations fell to 62.5 in October, down from 67.8 in September, while the gauge of current-conditions dropped to 89.9 from 92.6.

Economists polled by MarketWatch expected the final October index to be 74.8 (MarketWatch, Oct. 25).

FHFA Data Shows Home Prices Up 0.3%(1)

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WASHINGTON (10/24/13)--Federal Housing Finance Agency data released on Wednesday shows that home prices in the United States increased by 0.3% in August.

The rise in the agency's seasonally adjusted House Price Index (HPI) marks the nineteenth consecutive month that homes in the U.S. have appreciated in value, according to the measure.
 
In July, the HPI increased by 0.8%--a measure initially recorded at 1% before being revised downward.

The government shutdown could have a significant effect on home prices in October, according to Mortgage Bankers Association data. The real estate finance trade association said that purchase applications for government programs were down by more than 7% for the week ending Oct. 11, with the organization's Purchase Index down 4.8%, and the government's share of purchase applications at its lowest level in three years (Market News Oct 17).
 
The HPI is calculated with home prices from mortgages sold to or guaranteed by Fannie Mae and Freddie Mac.

FHFA Data Shows Home Prices Up 0.3%

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WASHINGTON (10/24/13)--Federal Housing Finance Agency data released on Wednesday shows that home prices in the United States increased by 0.3% in August.

The rise in the agency's seasonally adjusted House Price Index (HPI) marks the nineteenth consecutive month that homes in the U.S. have appreciated in value, according to the measure.

In July, the HPI increased by 0.8%--a measure initially recorded at 1% before being revised downward.

The government shutdown could have a significant effect on home prices in October, according to Mortgage Bankers Association data. The real estate finance trade association said that purchase applications for government programs were down by more than 7% for the week ending Oct. 11, with the organization's Purchase Index down 4.8%, and the government's share of purchase applications at its lowest level in three years (Market News Oct 17).

The HPI is calculated with home prices from mortgages sold to or guaranteed by Fannie Mae and Freddie Mac.

Unemployment Down, As Is Consumer Outlook

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WASHINGTON (10/23/13)--The unemployment rate fell to 7.2% in September, as American businesses added 148,000 employees to their payrolls, according to the U.S. Labor Department.

But even the modest decrease from the August rate of 7.3% could be overstating economic well-being, with the statistic reflecting data collected before the start of the government shutdown and thereby not reflecting any distortions that could have been caused by the budget melee.
 
However, early indicators show that economic growth slowed in October due to effect of the furloughs, uncertainty and pessimism about the U.S. Congress' ability to strike a meaningful budget deal, with predictions about the cost of the shutdown to the U.S. economy ranging from $12 billion to $24 billion (Market News Oct 21).
 
For the week ending on Oct. 12, the Labor Department's four-week moving average of initial jobless benefits claims increased by 11,750 to 336,500 (Market News Oct. 18). The New York-based Economic Cycle Research Institute's annualized growth rate for the week ending Oct. 11 fell to a 13-month low of 2.8% (Market News Oct. 21).
 
The Bloomberg Consumer Comfort Index, a metric of consumer expectations, fell to a 23-month low for the period ending Oct 13., with the percentage of people predicting a worsening economy having increased most dramatically since the collapse of Lehman Bros.--an event that led to the worldwide financial crisis in the fall of 2008 (Market News Oct. 21).


Even before the shutdown, the U.S. economy showed signs of weakness. The labor force participation rate before August was at its lowest since 1978, and job growth in Sept. 2012 was greater than job growth last month by 37,000 (New York Times Oct. 22).

Existing Home Sales Down In September, Prices Up

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WASHINGTON (10/22/13)--U.S. home prices increased in September, and the volume of sales dropped after a four year-high.

Existing home sales fell by 1.9%, down to 5.29 million units from 5.39 million in August, while the national median price for existing homes was up to $199,200, according to the National Association of Realtors.
 
Both existing-home sales and home prices were higher than they were a year earlier. Home prices in Sept. 2013 were 11.7% higher than they were in Sept. 2012, and sales increased by 10.7%, up from 4.78 million.
 
Data from Freddie Mac also showed that the national average commitment rate for a 30-year, conventional, fixed-rate mortgage increased to 4.49% in September, up from 4.46% in August--the highest that the measure has been since July 2011, when it was at 4.55%.
 
The increase in prices bolsters the narrative that housing markets throughout the country are recovering from the global financial crisis of 2008. Distressed homes were sold in 14% of total September transactions, up from 12% in August, but the August figure represents the lowest share of distressed sales since the NAR tracked them as a percentage of total sales in October 2008.
 
Data from realtor.com also shows that some of the strongest increases in home prices occurred in areas hit hardest by the subprime crisis. Prices increased by 44.6% in Detroit, 30% in Las Vegas and 28.9% in Sacramento.
 
Sending mixed messages about the effect of market fundamentals on the simultaneous rise in prices and drop in sales is the fact that supply remained constant in September. Total housing inventory remained stagnant at 2.21 million existing homes for sale.

Existing-home sales were down in the Northeast, Midwest and South, but rose by 1.6% in the West.

Government Shutdown Costs Estimated At $12B-$24B

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WASHINGTON (10/21/13)--Cost estimates of the federal shutdown to the economy--in terms of lost productivity and sales--range from $12 billion to $24 billion (The Federal Times Oct. 18), with some predictions indicating that the most deleterious effects of the dysfunction could be yet to come.

The $24 billion figure came from a report by Standard & Poor's. The analysis also predicts that the shutdown will see fourth quarter growth shrink to 2.4%, down from the 3% prediction that the ratings agency issued before the impasse (CNNMoney Oct. 16).
 
Moody's analytics reported that the shuttering of federal offices that handle mortgages, small business loans and other permits coupled with disruption to the tourism industry will cost the economy about $7 billion in the fourth quarter.
 
Economists expect consumer activity in the coming weeks to be buoyed by back pay for federal workers. But Beth Ann Bovino, lead U.S. economist at Standard & Poor's, said that could be eroded by the impending budget negotiations and debt ceiling negotiations in Congress, which must take place in January and February to avoid a potential shutdown and default, respectively.

Contractors who were furloughed won't receive mandated back pay, either.
 
Raising fears of yet unseen damage done by the shutdown, the Bloomberg Consumer Comfort Index, a metric of consumer expectations, was at its lowest since November 2011, and indicated that the share of people predicting a worsening economy increased most dramatically since the collapse of Lehman Bros.--an event that led to the worldwide financial crisis in the fall of 2008 (Bloomberg.com Oct. 17).

Economic Growth Edges Up, Annual Growth Decelerates

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NEW YORK (10/21/13)--An index measuring future economic growth increased slightly last week, but its measure of annualized growth fell to a 13-month low.

The New York-based Economic Cycle Research Institute said its Weekly Leading Index rose to 130.4 for the week ending Oct. 11, up from 130.3 the previous week--a number that was revised down after being initially reported as 130.4.
 
The measure's annualized growth rate fell to 2.8%, to its lowest number since September 2012. The week before, which ended Oct. 4, the index measured annualized growth at 3.6%--a figure revised downward after being originally reported as 3.8%.

In late August, the ECRI annualized growth rate started to climb from just under 4%, peaking at 4.6% just before the federal government's partial shutdown, for the week ending Sept. 27. It has steadily fallen by almost a percentage point per week since.
 

Unemployment Claims Decrease Less Than Expected

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WASHINGTON (10/18/13)--Initial jobless benefits claims for the week ending Oct. 12 fell to 358,000, down from the previous week's total of 373,000, according to the Department of Labor.
 
The shutdown-affected figure is still higher than expected, with the drop primarily resulting from California working through a backlog of unprocessed claims after switching computer systems.
 
Roughly half of the 60,000 spike in claims last week can be attributed to the California processing bottleneck, said the Department of Labor. While it's unclear whether or not the state has caught up to claims it temporarily set aside during technological upgrades (Moody's Economy.com Oct. 17), the median forecast of 46 economists polled by Bloomberg predicted a decrease to 335,000 (Bloomberg Oct 17).
 
The four-week moving average of initial jobless benefits claims also increased, by 11,750 to 336,500.

Furloughed federal employees can apply for unemployment insurance, but they're tallied in a separate survey. Contractor furloughs do count, however, and Maryland and Virginia were among states with the largest spike in jobless benefits claims for the week ending Oct.5.

Fed Beige Book: Growth Pace Slowed Before Shutdown

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WASHINGTON (10/17/13)--National economic activity continued to expand at a "modest to moderate pace" during September through early October, according to the Federal Reserve's "Beige Book" for October, released Wednesday.
 
Eight of the 12 Federal Reserve Districts reported similar growth rates in economic activity similar to the previous reporting period. However growth slowed in four districts--Philadelphia, Richmond, Chicago and Kansas City, said the report, prepared by the Federal Reserve Bank of Chicago.
 
The report is being scrutinized more closely because the partial government shutdown has stopped a number of economic reports on activity in September (USA TODAY Oct. 16).
 
"Contacts across districts remained cautiously optimistic in their outlook for future economic activity, although many also noted an increase in uncertainty due largely to the federal government shutdown and debt ceiling debate," said the report.
 
It noted consumer spending continued to increase, with travel and tourism sector activity expanding in most districts. Business spending and payrolls grew in many districts. Demand for nonfinancial services rose, and manufacturing activity expanded modestly.

Residential construction continued to increase at a moderate pace, said the Fed report.  Nonresidential construction expanded at a slower rate. Job growth remained modest in September but several districts indicated some uncertainty related to the government debt ceiling battles and the partial  implementation of the new healthcare law.

In the banking and finance areas, the book said, "financial conditions were little changed on balance from the prior reporting period. Overall loan growth remained modest in most districts." The report noted that "consumer loan demand weakened slightly" while mortgage lending was "mixed."

"Several districts noted a decrease in mortgage lending, citing higher mortgage rates and reduced refinancing activity. However, mortgage originations continued to rise in Philadelphia, Richmond and Dallas, and rising home prices led to an increase in home equity lending in Philadelphia, Chicago and San Francisco," said the "Beige Book."

Auto lending rose in Chicago, Cleveland and Atlanta while credit card volumes decreased slightly in Philadelphia. 

Several districts noted a pickup in business loan demand, in both commercial and industrial and commercial real estate lending. Philadelphia, Cleveland, Richmond, Chicago and Dallas districts reported "intense competition on pricing and terms for commercial and industrial loans. "Contacts in Philadelphia and Chicago "expressed concern about an easing of credit standards on these loans.  Overall, however, lending standards were largely unchanged and credit quality continued to improve modestly," said the report.

To access the full report, use the link.

Mortgage Applications: Shutdown Affecting New Homeowners

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WASHINGTON, D.C. (10/17/13)--The government shutdown could be having a chilling effect on would-be new homeowners, according to data compiled by the Mortgage Bankers Association.

The MBA's Market Composite Index, a measure of mortgage loan application volume, increased 0.3% for the week ending Oct. 11. But the Purchase Index decreased 4.8% on a week-to-week basis, with purchase applications 3% lower than they were at this time last year.
 
For the week ending Oct. 4, purchases were only down 0.7%. While the purchase index declined 5.6% as the shutdown loomed during the week ending Sept. 27, the index was up 6.6% and 2.5% the two weeks prior to that (Moody's Economy.com Oct 16).

MBA Vice President of Research and Economics Mike Fratantoni said that purchase applications for government programs are down by more than 7%--at their lowest level since December 2007--and that the government share of purchase applications is at its lowest level in three years.

Mortgage refinancing kept the market relatively active and the Market Composite Index up last week. The Refinance Index rose 3% from the previous week, with the refinancing share of total mortgage market activity increasing to 66%, up from 64%.

The MBA survey covers more than three-quarters of U.S. retail residential mortgage applications, and was started in March 1990.

MBA, based in Washington, D.C., represents the real estate finance industry, with a membership of over 2,200 companies.

(See related story: Cheney Hails CU Support For Federal Workers.)

Shutdown Impacts Consumers' Spending, Says Sales Report

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WASHINGTON (10/16/13)--Consumers are cutting back on expenditures due to the government shutdown and lower income Americans are more likely to be exercising caution, according to a study by the International Council of Shopping Centers and Goldman Sachs.

Two out of five consumers reported that they scaled back spending as a result of the dysfunction in Washington. But while only 32% of those making $100,000 or more said they've been budgeting for the shutdown, 47% of consumers who make $35,000 or less reported a reduction in spending (Rapaport Oct 15).

Of respondents who reported a reduction in spending, 70% said that they've only decreased outlays by "a little"--the rest said the reduction was "considerable."

The poll was conducted between Thursday and Sunday.

Another survey conducted by the ICSC and Goldman showed that their Retail Chain Store Sales Index--a measure of seasonally adjusted comparable-store sales from the previous year--fell by 0.7% in the week ending Oct. 12, despite largely favorable weather and stable gas prices throughout the country last week.

The index's year-to-year growth dropped to 1%, down from 2.3% on year-to-date growth (Moody's Economy.com Oct. 15). However, ICSC research predicts that comparable-store sales will increase between 3% and 4% in October.

House Fails To Vote On GOP Debt Limit Proposal

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WASHINGTON (10/16/13)--House Republicans Tuesday canceled a planned Tuesday night vote on their revised budget proposal to reopen the government and temporarily raise the debt ceiling.

Postponing the vote on the plan, which had been unveiled earlier in the day, is an indication that Republicans do not have enough votes to pass the proposal, said MarketWatch and FoxNews.com (Oct. 15).

The canceled vote in the House brought the focus back to the Senate, whose leaders are negotiating a bipartisan plan. Tuesday night spokesmen for Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) said their talks had resumed and they were optimistic that an agreement was within reach.

The Senate adjourned at 10:08 p.m. ET, with Reid and McConnell close to a deal on a Senate bill that, if passed, would then go to the Republican-led House of Representatives. The Senate was slated to reconvene at noon today.

The House Republicans' plan would have opened the government through Dec. 15 and extended the debt limit to Feb. 7. Reid and McConnell had discussed extending the debt limit for the same amount time, but would keep the government open until Jan. 15.

Meanwhile, Fitch Ratings Service put the U.S. credit rating on a negative watch. Treasury's deadline for raising the borrowing limit is Thursday.

Index For Future Economic Growth Drops

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NEW YORK (10/15/13)--An index of future U.S. economic growth fell to a three-month low on Friday.

The Weekly Leading Index, a metric compiled by the New York-based Economic Cycle Research Institute, fell to 130.4 in the week ending on Oct.4--down from 132.1 the previous week (Reuters Oct. 11).

The decline is the largest one week drop since mid-April 2012 (Moody's Economy.com Oct. 11).

The ECRI measure of smooth, annualized growth also decelerated to 3.8%, its slowest pace all year, and well below its 2013 peak of 8.8%.
 

October U.S. Consumer Sentiment Weakest Since January

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WASHINGTON (10/15/13)--American consumers are in a worse mood than expected, according to a Thomson Reuters/University of Michigan measure of consumer sentiment.

The measured index was down to 75.2 in October from 77.5 in September. While the month-to-month decline was expected, economists recently polled by Reuters believed the measure would only drop to 76 (Reuters Oct. 11).

However, survey director Richard Curtin said the drop wasn't large when weighed against the government shutdown. A St. Louis-based research firm called Macroeconomic Advisers shaved 0.2 percentage points off of its 2.1% fourth quarter annualized gross domestic product (GDP) growth prediction in the wake of the shutdown (Marketwatch.com Oct. 11).
 
The deconstructed metric also showed that the measure reflecting consumers' views of current conditions increased to 92.8 in October, up from 92.6 in September, while the gauge of consumers' expectations for the future fell to 63.9 in October, down from 67.8 in September.

Underlying consumers' perception that economic growth is slowing, the poll showed that consumers' expectations of one-year inflation fell to 2.9%, down from 3.3% in September (Moody's Economy.com Oct. 11).

Jobless Claims Surge, Attributed To Shutdown

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WASHINGTON, D.C. (10/11/13)--Jobless claims rose to a new high in the first week of October, as the aftershock of federal furloughs rippled through the economy, and California worked through a bottleneck processing unemployment benefits claims.

The Labor Department measure showed an uptick in 66,000 claims, bringing the total at the end of the week ending Oct. 5 to 374,000. It was the highest the figure has been since the recovery from Superstorm Sandy began last November.

About half of the rise can be attributed to California having completed a change in the computer system it uses to process claims. Layoffs of non-federal employees in the wake of the government shutdown accounts for another 15,000 (Bloomberg.com Oct. 10).

A less volatile measure used by Labor Department, the four-week moving average, also rose 20,000 to a five-week high of 325,000 (Moody's Economy.com Oct. 10)

Claims lodged by furloughed federal workers will be measured by a metric other than the Labor Department's jobless claims total. But claims made by furloughed contractors are counted.

Consumers Optimistic About Personal Finances But Not Economy

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NEW YORK, N.Y. (10/11/13)--A consumer confidence index indicates that Americans are more optimistic about their own finances than the economy as a whole.

The Bloomberg Consumer Confidence Index--a weekly survey of 1,000 people over the age of 18--dropped in the week that ended on Oct. 6 to -29.7, falling from the previous week's measure of -29.4.
 
But it indicated that Americans are increasingly confident in their own balance sheets. Confidence in personal finances rose to 4.7 this week--up 0.2 points from the previous week, and 6.7 points from the week that ended on Sept. 8.

When broken down, the four-week rolling average also showed that views on the buying climate improved last week, creeping upward to -33.5 from -35.

Bringing the overall index down was consumers' confidence in the economy--down to -60.2 from -57.8 (Moody's Economy.com Oct. 10).

The survey also found that those with annual incomes greater than $100,000 are most confident about the economy. The index among that cohort increased to 19, up from the previous week's measure of 16.1. Meanwhile, the index measuring confidence among those making less than $50,000 annually dropped to -51.2 (Bloomberg.com Oct.10).

Wash. Gridlock Could Cause Credit To Ease, CUNA Tells WSJ

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WASHINGTON (10/10/13)--With consumers' credit card balances declining in August for the third consecutive month, some economists say that could be a signal that consumers are downshifting their spending. And a gridlock in Washington could have a further impact, according to Credit Union National Association Chief Economist Bill Hampel in The Wall Street Journal Online.
 
The uncertainty caused by the Washington gridlock on the federal deficit could cause overall credit growth to ease, especially if a prolonged debt ceiling fight makes consumers skittish about financing cars, appliances and other long-lasting goods, Hampel told WSJ Online Monday.
 
"Consumers have the ability and need to replace big-ticket items, but it's also really easy to postpone those purchases for a couple of months if they get nervous," he said.
 
The partial government shutdown, which began Oct. 1 and has affected roughly 800,000 employees, threatens to curtail spending in the public sector for the rest of 2013, said the Journal.
 
Although consumer debt rose overall, consumers' revolving credit--the money they owe on credit cards--declined 1.25%  or $883.4 million during August. Consumer spending accounts for a significant part of the economy, and the data suggest that spending has not helped the economy pick up its recovery pace, the article said.
 
See related News Now article, "Consumer Credit Increases 5.5% In August, CUs See Rise," by using the link.

FOMC Minutes: Fed Still Considering Tapering QE3 By End Of Year

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WASHINGTON (10/10/13)--Most of the Federal Reserve's policymaking body, the Federal Open Market Committee (FOMC),  struggled with the decision at the committee's September meeting to refrain from beginning an expected tapering of the Fed's bond-buying program, according to the FOMC minutes.
 
The minutes for the Sept; 17-18 meeting, released Wednesday afternoon, indicated that most believed the Fed would likely begin by the end of this year to slow down the pace of its $85-billion-a-month program of buying back Treasuries and mortgage-backed securities, a policy known as quantitative easing, or QE3.
 
However, some committee members expressed concern about the economic data reports at the time and about threats to the financial market from the hen-pending Oct. 1 partial shutdown of the federal government and Washington's fiscal policy. They suggested these factors might make the economy more volatile.
 
"Most participants viewed their economic projections as broadly consistent with a slowing in the pace of the committee's purchases of longer-term securities this year and the completion of the program in mid-2014," said the FOMC minutes.
 
At the meeting, the FOMC delayed tapering the bond purchases and noted that budget cuts and increases in the cost of borrowing were drags on economic expansion.  "With the markets apparently viewing a cut in purchases as the most likely outcome, it was noted that the postponement of such an announcement to later in the year or beyond could have significant implications for the effectiveness of committee communications," the minutes said.
 
In particular, concerns were expressed that a delay could potentially undermine the credibility or predictability of monetary policy by, for example, increasing uncertainty about the committee's reaction function and about its commitment to the forward guidance for the federal funds rate, with the result of an increase in volatility in financial markets," the minutes said.
 
The committee noted that not paring back its bond purchases might make it "difficult to explain a cut in coming months, absent clearly stronger data on the economy and a swift resolution of federal fiscal uncertainties."
 
It also discussed how it could clarify or strengthen its forward guidance for the federal funds rate and how to differentiate between signaling its plans for its bond buying program with its commitment to hold down the federal funds rate to near 0% as long as unemployment exceeds 6.5% and the inflation outlook remains below 2.5%.
 
The officials considered not raising the target federal funds rate "if the inflation rate was expected to run below a given level" and also considered providing more information once the unemployment rate threshold of 6.5% was reached.
 
For the full minutes, use the link.

Small Business' Optimism Dips Slightly In September

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NASHVILLE, Tenn. (10/9/13)--A measurement of small business owners' optimism dropped 0.2 points to 93.9 in September (The Business Journals Oct. 8).

The metric--based on a random survey of 773 members of the National Federation of Independent Businesses--reflects answers to a questionnaire circulated before the government shutdown.

Despite the dip, a number of key NFIB economic indicators have improved since the spring (Moody's Economy.com Oct 8). The NFIB optimism index, at 93.9, has increased since March, when it was at 89.5. The net percentage of respondents who planned to increase future employment in September also ticked upward since March--up to 9% from 0%. The net percentage of NFIB members who planned to increase future inventories was up to -2% in September, from -5% in March. And the net percentage of NFIB members who expected the economy to improve was at -10% in September, up from -28% in March.

But NFIB Chief Economist Bill Dunkelberg warned that the current dispute in Washington could see federation members' confidence in the economy plummet.

The NFIB is a conservative lobbying group based in Nashville, Tenn.

Hampel Discusses Furlough, Deficit Impact On Economy With MarketWatch

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WASHINGTON (10/9/13)--The government shutdown and what will happen if the federal deficit deadline isn't met were the topics in an exclusive interview conducted Monday by MarketWatch "Breaking News" with Credit Union National Association Chief Economist Bill Hampel.

As furloughs began a second week, Hampel noted that the shutdown has had a significant but localized effect--a "micro" rather than "macro" effect.  "There's a sharp effect for each one in a small subset of the population," he said.

For instance, the shutdown affects 800,000 workers, but that is a few--less than one half of 1%--out of a 150 million-worker labor force. The Internal Revenue Service isn't answering its phones, but not many people call the IRS in October. Those planning a trip to a national park will find it closed, but in a population of 330 million, how many would be taking a trip to a park, he asked.

"The shutdown is significant but for a few or a small number," Hampel said.  If it were to last the whole month, the economic growth--which is currently 2%--might drop to 1.9%--which would not be game-changing, he said.

However, while the stock market has been flat since the shutdowns began and financial markets are not expecting serious effects, the real problem may become consumer confidence. "There's been a significant deterioration in the confidence that the public has in government, particularly Congress, and its ability to solve problems," Hampel said. A drain of confidence could put the kibosh on economic growth, but he noted that many people are just going on with their lives rather than paying attention to the news.

Not meeting the Oct. 17 deadline for the federal deficit, however, is a "completely different matter, much more significant," Hampel said. On the day after the deadline, the government will have two choices, he said:
  • Immediately balance the budget and cut spending to the current revenue levels.  "The trouble is, there is mandatory spending, such as unemployment compensation, Medicare, and the salaries of the military and civilians." If the government has to balance the budget then, the economic hit "will be eight times worse than it was during the last sequester and it will cause The Recession of 2013, 2014 and 2015," Hampel said.
  • Start defaulting on a few loans. "If the government doesn't pay its regular payments on time, then the second half of October will mean the immediate reversal in Treasury bonds and securities," he said.  Treasuries are considered "absolutely safe," with people all over the world putting funds into them when they are concerned about the economy in their own countries. But not paying the bills would mean people in other countries would start pulling their money out of treasuries. The result: "Interest rates would soar, probably worse than the Great Recession."
Currently, the stock market is going sideways. "People understand how catastrophic piercing the debt ceiling would be," Hampel said. "It would be game over."
 
In 2011, the last time the debt ceiling was at issue, the stock market declined 10% and forced Congress to act. "You would think that this would have been educational for Congress, that it would be a nuclear option and destroy the economy."
 
The probability of that happening is low, Hampel said. "Congress probably will resolve the matter at the last minute to avoid any catastrophic consequences," he added.
 
Use the link to hear the conversation.

Consumer Credit Increases 5.5% In August, CUs See Rise

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WASHINGTON (10/8/13)--U.S. consumer credit increased a seasonally adjusted 5.5% or $13.6 billion in August, for a total of $3.036 trillion borrowed during the month, according to the Federal Reserve's Consumer Credit report. Money borrowed from credit unions totaled $259.9 billion.
 
The Fed report was released Monday afternoon.
 
At credit unions, borrowing climbed by $3.4 billion to $259.9 billion from the $256.5 billion in July.
 
Overall U.S. revolving credit, which includes credit card spending, declined at an annual rate of 1.25%--or $0.9 billion--in August to $848.9 billion from $849.8 billion in July.
 
Credit unions' revolving credit rose slightly, to $41.1 billion from $40.6 billion in July.
 
Nonrevolving credit--such as loans for cars, mobile homes and college tuition--rose at annual rate of 8%--or $14.5 billion--to about $2.188 trillion in July from roughly $2.173 trillion in July.
 
Credit unions issued $218.8 billion in nonrevolving loans in August, up from $215.9 billion in July.

Fannie, Freddie Foreclosure Prevention Tops 2.9 Million

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WASHINGTON (10/8/13)--The more than 2.9 million foreclosure prevention actions taken since 2008 have helped 2.4 million borrowers stay in their homes, with 1.4 million of those borrowers receiving permanent loan modifications, the Federal Housing Finance Agency reported on Monday.

Foreclosure prevention actions addressed in the report include repayment plans, forbearance plans, charge-offs-in-lieu and loan modifications.

These and other details are contained in the agency's Foreclosure Prevention Report for the second quarter of 2013.

According to the report:
  • Fannie Mae and Freddie Mac completed more than 247,000 foreclosure prevention actions in the first half of 2013, with 117,000 of these coming in the second quarter;
  • The number of delinquent loans dropped nationally, driven by a decline in seriously delinquent loans;
  • Sixty-plus-day delinquent borrowers declined by 7% percent during the second quarter;
  • More than 29,000 short sales and deeds-in-lieu were completed in the second quarter;
  • Foreclosure starts declined by 11% in the second quarter; and
  • Completed third-party sales and foreclosure sales declined by 10% in the second quarter.
For the full report, use the resource link.

Inflation Gauge Dropped 0.8 Points In September

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NEW YORK (10/7/13)--A key measure of future inflation dropped 0.8 points in September--a decline consistent with predictions about modest economic growth.

The New York City-based Economic Cycle Research Institute (ECRI) Future Inflation Gauge fell to 100 in September, down 4.9 points from the 104.9 average between January and May (Moody's Economy.com Oct. 4).

The metric has a reliable history of predicting inflation three to four quarters in advance.

The ECRI measure of future economic growth in the U.S., the Weekly Leading Index, also declined this week to a four-week low, falling from 132.9 to 132.1 (Reuters Oct. 4).

Card Cos. Propose Digital Tokens For Online, Mobile Purchases

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WASHINGTON (10/4/13)--Visa Inc., MasterCard Inc. and American Express Co. have proposed using "digital payment tokens" instead of account numbers to make processing purchases online and through mobile devices safer, the companies announced Tuesday.
 
They propose a framework for a new global standard that would enhance the security of digital payments and simplify the purchasing experience when a consumer shops on a mobile phone, tablet, personal computer or other smart device, the companies' press release said.
 
Once a standard is agreed to and implemented, issuers, merchants or digital wallets providers would be able to request a token so that when an accountholder initiates an online or mobile transaction, the token--and not the traditional card account number--would be used to process, authorize, clear and settle the transaction in the same way traditional payments are processed today, said the companies.
 
The tokens can be restricted in how they are used with a specific merchant, device, transaction or category of transactions. Key principles driving the development of a token standard for digital payments include:
  • Ensuring broad-based acceptance of a token as replacement for the traditional card account;
  • Enabling all participants in the existing ecosystem to route and pass through the payment token;
  • Enabling digital wallet operators, mobile application developers and others to easily and securely develop innovative payment products; and
  • Improving cardholder security with tokens that are limited for use in specific environments.
About 6% of all retail sales today are conducted digitally, up nearly 200% since First Quarter 2004, according to an August report from the U.S. Census Bureau cited by the companies. As the number of digital transactions increased, so has consumer demand for increased protection of their payment information.
 
With a token, consumers will no longer be required to enter an actual account number when shopping online or on a smart device. Tokens provide an additional layer of security and eliminate the need for merchants, digital wallet operators or others to store account numbers.
 
To ensure consistency across the globe, the proposed standard for generating tokens would be based on existing industry standards and be available to all payment networks and other payment participants. Key elements of the proposed standard include:
  • New data fields to provide richer information about the transaction, which can help improve fraud detection and expedite the approval process;
  • Consistent methods to identify and verify a consumer before replacing the traditional card account number with a token; and
  • A common standard designed to simplify the process for merchants for contactless, online or other transactions.
"For more than five decades, the payments industry has relied on standards to safely and consistently process payments," said Jim McCarthy, global head of innovation and strategic partnerships at Visa Inc. "As more consumers make purchases with mobile phones, tablets and PCs, we are committed to showing industry leadership in the development of new standards that offer the same interoperability, reliability and security as traditional card payments."
 
The proposed framework has incorporated the input of many stakeholders, particularly card issuers and merchants. Over the coming weeks, the framework will also be presented to other partners and independent industry bodies, such as The Clearing House, PCI Security Standards Council and EMVCo, to align and further advance the standard.

Modest Improvement In Hiring During September

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WASHINGTON (10/3/13)--U.S. businesses added 166,000 jobs in September--less than forecast and an indication of just modest improvement in hiring, according to payroll company ADP (The New York Times and Bloomberg.com Oct. 2).   
 
Last month's gain follows a 159,000-jobs increase in August and a 161,000 advance in July--both of which are a bit lower than previous estimates, the Times said. 
 
Quicker wage growth and progress in hiring is necessary to maintain advances in consumer  spending--the largest part of the U.S. economy, Bloomberg said.
 
Although the labor market should not be construed as weak, it is not as robust as analysts would prefer it to be, Scott Brown, chief economist for Raymond James & Associates in St. Petersburg, Fla., told Bloomberg.
 
A lack of traction indicates there has been a slight slowing of the economy, he added.

Mortgage Applications Decrease 0.4%

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WASHINGTON (10/3/13)--U.S. mortgage applications decreased 0.4% from one week earlier, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending Sept. 27.

The Market Composite Index, a measure of mortgage loan application volume, decreased 0.4% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index declined.

The seasonally adjusted Purchase Index dropped 6%. The unadjusted Purchase Index fell 6% from the previous week and was 3% lower than the same week one year ago.

The Refinance Index rose 3% from the previous week. The refinance share of mortgage activity increased to 63% of total applications, the highest level since August 2013. It was 61% during the previous week. The adjustable-rate mortgage share of activity decreased to 6% of total applications.

To read the MBA release, use the link.

September U.S. Manufacturing Activity Better Than Expected

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WASHINGTON (10/2/13)--U.S. manufacturing activity increased more than expected in September, according to the Institute For Supply Management's Manufacturing Index  (The Wall Street Journal and Moody's Economy.com Oct. 1).
 
The index rose to 56.2--its highest reading this year--from 55.7 in August. A reading above 50 indicates expanding economic activity.
 
For the second consecutive month, the new-orders component was above 60. The production index crept up to 62.6 from 62.4.
 
The employment index also increased between August and September--a good omen for the labor market, Moody's said.
 
For the third quarter, the ISM index averaged 55.8--noticeably better than the second quarter's 50.2 average, Moody's added.  
 
The ISM report's outlook generally is positive for improving business conditions and increased demand, according to the Journal.

U.S. Business Activity Hits Four-month High In September

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CHICAGO (10/1/13)--U.S. business activity in September grew more than expected--hitting a four-month high--and furthering indications of a bounceback in manufacturing that would help bolster the largest economy in the world (Bloomberg.com and Moody's Economy.com Sept. 30).
 
The Institute for Supply Management (ISM) Chicago index of business activity increased to 55.7 last month--its highest level since May. It was 53 in August. Numbers greater than 50 indicate economic expansion.
 
Manufacturing constitutes roughly 12% of the U.S. economy, and the sector is growing because demand for appliances, automobiles and construction materials is ramping up the production on assembly lines, Bloomberg said.  
 
An improvement in economic markets abroad and an acceleration in business investment could perpetuate advances and bolster economic growth heading into next year, Bloomberg added.