MBA Weekly Applications Survey

It's time for this week's look at mortgage applications. If you recall, last week's survey results (for the week ending 3/4) were pretty good. The Market Composite Index was up 15.5%, the Purchase Index was up 12.5%, and the Refinance Index was up 17.2%.

So, what's happening this week? According to the MBA's press release, not much. The Market Composite Index decreased 0.7%, the Purchase Index decreased by 4.0%, and the Refinance Index increased by 0.9%. All of this is fairly minor movement, although the change is the Purchase Index is noticeable.

Refinancing composed 66.4% of total mortgage applications (up 0.9% from last week), and adjustable-rate mortgages made up 5.6% of the applications. The average interest rate for a 30-year fixed-rate mortgage fell to 5.6%.

Mortgages and Sales

We begin the morning off with the MBA Weekly Applications Survey. Last week was pretty bad, with the composite index falling 9.5%, the purchase index falling 5.9%, and the refinance index falling 11.4%. The only bright spot, and this was only a bright spot if you aren't a mortgage broker, is that the average rate for the 30-year fixed-rate mortgage also dropped to 5.12%.

This week? Things have picked up this week, according to the press release. The composite index is up 13.2% for the week ending February 18, with the purchase index up 5.1% and the refinance index up 17.8%. Apparently, people were jumping on the low interest rate bandwagon which headed lower thanks to concerns about Libya. The average rate for the 30-year fixed-rate mortgage dropped to 5.00%[1].

Now, let's move on to department store sales. Last week's ICSC-Goldman Store Sales saw a drop of 1.4% for the week. This week, the data for the week ending 2/19 shows a rebound as major retail chains reported an average of a 2.6% increase in sales. Comparing that to the Redbook, we had a 2.2% increase in year-over-year sales last week, while this week we're looking at a year-over-year increase of 2.7%.

In other words, the handful of minor market indicators we have are looking optimistic. That is all overshadowed, though, by the looming specter of the 10 AM EST release of Existing Home Sales figures for January 2011. The Econoday-surveyed analysts are looking for an annual rate of 5.25 million existing home sales, slightly down from December's 5.28 million annual rate, but we'll find out for sure at 10 AM.

[1] So, if you were refinancing or buying a home last week, and you got a good rate, thank the people of Libya.

Morning Economic Data With 100% Less Showtunes

Let's start off with the Mortgage Bankers' Association Weekly Application Survey which, if you remember, wasn't all that great last week. The composite index fell 5.5%, the purchase index fell 1.4%, and the refinance index fell 7.7%. Now, this index isn't an eagerly awaited one - at best, it is a leading indicator for new home sales and existing home sales - so we have no particular analyst expectations for it. So I won't even attempt to keep you in suspense. The figures for the week ending February 11 were even worse. The composite index fell a seasonally adjusted 9.5%, the purchase index fell a seasonally adjusted 5.9%, and the refinance index fell a seasonally adjusted 11.4%. On the other hand, the average interest rate for 30-year fixed-rate mortgages fell. Granted, it fell a whopping 1 basis point to 5.12%, but you take your wins where you can.

Nevertheless, based on the results of this survey, we look to be on track for a decrease in new and existing home sales for February. And nobody likes that.

On the subject of home sales, let's turn to the US Census Bureau and the US Department of Housing and Urban Development, for New Residential Construction figures. December had a revised 520,000 housing starts (down from the original estimate of 529,000 starts), and the analysts are looking for 540,000 new homes to begin construction in January. And the survey says? Well, the survey says that January had a seasonally adjusted 596,000 new homes begin construction. Of that, 413,000 were single-family homes and 171,000 were buildings with five or more units. Additionally, 562,000 residential building permits were issued and 512,000 residential buildings were completed.

Next on the agenda? The Producer Price Index.December saw it increase 1.1% (or only 0.2% if you restrain yourself to the core PPI). For January, analysts are expecting a 0.7% increase (with the core holding firm at a 0.2% increase). Turning to the Bureau of Labor Statistics, we learn the following from the latest report:

1. December PPI was adjusted downward to 0.9%
2. January PPI for finished goods rose 0.8%, missing expectations but not by an enormous amount.
3. January core PPI for finished goods rose 0.3%, also missing expectation.
4. January PPI for intermediate goods rose 1.7%.
5. January PPI for crude goods rose 8.8%.

And what does this tell us? This tells us that the finished goods PPI will most likely be increasing substantially over the next few months. You can't have the cost to produce crude goods increase heavily without those costs getting passed along the production chain. Also, it implies that CPI will be increasing in the next few months. So while the Street may not be too concerned about the figures today, they will be looking towards future figures with concern.

Unless I'm missing something important, which is possible.

Morning News

We start off the day with the Mortgage Bankers Association's Weekly Application Survey. Not because it's of vast important, mind you (except possibly to people who follow the financial sector), but because it is a bellwether of things to come. And, for the week ending 2/4, things aren't particularly coming. The market composite index declined a seasonally-adjusted 5.5% from the prior week, with the Refinance Index down 7.7% and the Purchase Index down 1.4%. The refinance share of mortgage activity fell to 66.6%, and the average interest rate for a 30-year fixed-rate mortgage rose 32 bps to 5.13%.

In other market driving news, Federal Reserve Chairman Ben Bernanke is going to be testifying before the House Budget committee today, starting at 10 AM. The Street will be watching his remarks closely, hoping for hints about future Fed policy.

In the "how did I miss that category", the Dodd-Frank financial reform law requires government agencies to go through their regulations and remove all references to credit ratings, working on the theory that part of the financial crisis was caused by over-reliance on those ratings. In response to this, the SEC has proposed to strip rating references from the Form S-3[1], replacing the former ratings requirement with alternative requirements. This particular plan is largely considered noncontroversial (although the large rating firms don't like it). What is more likely to be controversial is what impact this requirement to eliminate credit ratings from regulations will have on money market mutual funds. Currently, those funds are required to invest in high-grade securities, and removal of the credit ratings references has been opposed by the industry in the past. Now that Federal law requires it, nobody is quite sure what the SEC will do[2].

Looking to the Middle East, Credit Agricole bank is estimating that the current Egyptian crisis is costing the nation $310 million per day. The Egyptian government has not confirmed that specific number, but has acknowledged that it is causing their economy to suffer.

Anyone remember North Korea Crazy[3]? That little nutjob of a nation that got everyone's attention back in November by shelling Yeongpeong Island? Yeah, they're back in the news. Two days of talks ended in failure today when the North and South failed to set an agenda for the talks. Yes, that's right, it took them two days to work out that they couldn't even work out what they were going to talk about. The final collapse happened when the North Korean delegates all stood up and walked out of the conference.

Also, North Korea is accusing Japan of gearing up to reinvade Korea. This is probably just celebrating the fact that Kim Jong-un is now wearing his big-boy Furry Hat of Dictatorial Authority[4].

[1] "The Form what now?" The Form S-3 is a SEC form that (quoting from the SEC's website) "allows a company with less than $75 million in public float to register primary offerings of its securities". The company has to meet certain specific eligibility requirements, but if it qualifies it can go through a simplified registration process for an IPO.

[2] There is also some legitimate concern that this action will harm investor confidence in money market funds. Most investors like knowing that there is an objective standard for "high quality".

[3] "People See Me Shellin', They Hatin'" was a disappointment on the charts, easily pushed out of the top ten by Tunisia's "Takin' Bank", Yemen's "Steppin' Down (2013 Brutal Dictatorship Remix)" and Mubarak's "Don't Cry For Me, Egypt (You Know I'll Never Leave You)".

[4] Not a joke. Really. Follow the link.

Jobs And Mortgages

That's what's going to be driving the futures around this morning, at least as far as economic data is concerned. Jobs and mortgages.

So let's start off with the mortgages. The Mortgage Bankers Association has released it's Weekly Mortgage Applications Survey, which has a name that is reasonably self-explanatory. The current release is for the week ending 1/28, and has the Market Composite Index up 11.3% on a seasonally adjusted basis. The Refinance Index (again, self-explanatory) was up 11.7%, while the Purchase Index (which looks at brand new mortgage applications) was up 9.5%. Refinancing represented 69.3% of the total applications filed for the week, and the average 30-year fixed-rate mortgage was 4.81%.

And now, jobs. First, we have the Challenger Job-Cut Report, issued by Challenger, Gray & Christmas[1], which tracks layoffs by region and industry. the February report indicates that employers announced plans to cut 38,519 jobs in January. This is an increase from December's 32,004 layoffs, but it is also the lowest January total on record - the average layoffs in January are 104,560. Drilling in, we see that:

• The government and non-profit sector led the charge, with 6450 planned reductions in staff (up substantially from December's 3276 job cuts). Furthermore, there are no indications that there will be a turnaround in the trend in 2011.
• The retail sector was second with an announcement to cut 5755 jobs. this is also up from December's 4937, but significantly down from January 2010 (16,737 layoffs). Challenger, Gray & Christmas see this as a sign of a rebound in the retail sector.
• California had the most layoffs (4848), followed by Illinois (4078), North Carolina (3465), Michigan (2604) and Iowa 92216).

Moving on to a report that gets a little more attention, ADP has also released its January 2011 National Employment Report. First off, they revised the December employment figures downward from an increase of 297,000 to an increase of only 247,000. January saw an employment increase of only 217,000. That looks weak, but it substantially beats the average employment gain over the last six months (which was only 52,000 per month). Drilling in to the report:

• Employment in the service sector rose by 166,000 (the twelfth consecutive month of gains for the sector), while the employment in the goods-producing sector rose 21,000 (the third month of consecutive gains) and employment in the manufacturing sector rose 19,000 (also the third consecutive month of gains).
• Construction employment fell 1000. Financial services employment gained 3000.
• Large business employment increased by 11,000. Medium-size business employment increased 79,000. Small-size business employment increased 97,000.

None of these are going to shove the market around too much on their own, but the aggregate effect of both the mortgage gains and the improvement in the employment situation should help boost the futures. Also, it seems to point towards good results for tomorrow's First Time Jobless Claims, and Friday's Employment Situation Report.

[1] Who, now? According to their website, Challenger, Gray & Christmas are "the nation's first, oldest, and premier outplacement organization". And what is an outplacement organization? A company that assists "downsizing" companies[2] in helping former employees through the transition to new jobs. So it could be argued that they have their finger on the pulse of the layoff rate in the US.

[2] That is, companies laying people off.