FOCUS ISSUE FOR THE WEEK
It looked at first this week there would be no news since both Congress and the President were away on vacation. But then we had an earthquake, a major hurricane, rebels took control of Libya, and there was a large increase in Perry’s popularity making him the top Republican candidate. The economic news was mostly negative for the third week in a row. GDP for second quarter was revised down to 1.0% and many economists see that low rate continuing for the rest of the year. Initial claims of unemployment rose, new home sales fell, the Richmond survey of manufacturing fell, and the European economy and Japan continued to slump. The only good news was Buffett’s $5 billion purchase of Bank of America stock, rising durable goods orders and a slight increase in bank lending. Bernanke did not signal a QE3 as expected. This means more slow growth with the possibility of a double dip if Europe continues to fumble the management of its debt.
MORTGAGE MARKET SUMMARY
Mortgage applications decreased 2.4% from one week earlier, according to data from the Mortgage Bankers Association for the week ending August 19, 2011. The Refinance Index decreased 1.7% from the previous week. The seasonally adjusted Purchase Index decreased 5.7% from one week earlier and is at the lowest level in the survey since December 1996. Refi volume continues to be strong due to the historically low rates. The DJIA rose 4.3% from 10,818 last week to 11,284. For the week there were 7 positive trends offset by 23 negative trends.
Durable goods orders rose 7% in July which was more than expected. It has heavily transportation related—aircraft and autos. In June, durable goods fell 1.3%. The July increase was the largest in the past four months.
On August 25, Warren Buffett bought $5 billion of stock in Bank of America causing its stock price to rise 20%. The stock prices of other banks also rose on the news after many major banks had fallen below book value.
The FDIC reported that U.S. bank lending increased for the first time in three years during 2Q11. There was a 1% increase from the prior quarter. But banks’ total revenue dropped in 2Q11 due to the struggle banks face in finding credit-worth customer who want to borrow. Bank revenues have fallen in only three quarters in the past 30 years.
The consumer sentiment survey for August by the University of Michigan rose to 55.7, up from its earlier estimate of 54.9. But it is still down from 63.7 in July and is at the lowest level since November 2008 when Lehman collapsed.
The National Activity Index published by the Chicago Fed improved in July but is still at very weak levels. The NAI tries to track all kinds of economic activity, not just manufacturing, across the entire country, not just a region. The NAI rose a bit, to -0.06 in July from -0.38 in June. That negative means the economy was growing below its trend, or historical average, growth rate.
Federal Reserve Chairman Ben Bernanke Friday said the central bank stands ready to provide further support to a persistently weak economy, but didn’t indicate any move was imminent despite fresh signs of feeble growth.
Gold fell to $1,831 on August 26 after touching a record $1,899.40 on August 22.