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Economy in Brief

FOMC Raised Interest Rates; 1st Time Since May 2000
by Tom Moeller June 30, 2004

As expected, the Federal Reserve raised the target rate for federal funds by 25 basis points to 1.25%. The discount rate also was raised to 2.25%.

The decision was unanimous.

The press release which accompanied the Fed's action indicated that "The evidence accumulated over the intermeeting period indicates that output is continuing to expand at a solid pace and labor market conditions have improved. Although incoming inflation data are somewhat elevated, a portion of the increase in recent months appears to have been due to transitory factors."

The Fed statement continued to indicate that "policy accommodation can be removed at a pace that is likely to be measured."

Here is the complete text of the Fed's latest press release.

"The Rates They Are A-changin' " from the Federal Reserve Bank of Cleveland is available here.

"Interest Rates and Monetary Policy: Conference Summary" from the Federal Reserve Bank of San Francisco can be found here.

Mortgage Applications Slide
by Tom Moeller June 30, 2004

The index of mortgage applications compiled by the Mortgage Bankers Association slid 4.4% (-64.8% y/y) last week. With a few days remaining to tally, applications in June are running 11.6% below the May average which fell 18.9% from April.

Purchase applications fell 4.2% (-0.7% y/y). For the month purchase applications are down 4.7% from May, the second m/m decline this year.

During the last ten years there has been a 63% correlation between the y/y change in purchase applications and the change in new plus existing home sales.

Applications to refinance mortgages fell 4.7% last week (-83.9% y/y) .

The effective interest rate on a conventional 30-Year mortgage was about unchanged at 6.47%. The effective rate on a 15-year mortgage also was roughly stable at 5.96%.

The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site here.

MBA Mortgage Applications (3/16/90=100) 06/25/04 06/18/04 2003 2002 2001
Total Market Index 575.0 601.2 1,067.9 799.7 625.6
  Purchase 435.4 454.5 395.1 354.7 304.9
  Refinancing 1,386.9 1,454.6 4,981.8 3,388.0 2,491.0
Chicago Purchasing Agents' Index Backpedaled
by Tom Moeller June 30, 2004

The Chicago Purchasing Managers Business Barometer for June gave back its gains in May & April with an 11.6 point decline to 56.4. Consensus expectations had been for a more moderate decline to 64.0.

During the last ten years there has been a 73% correlation between the level of the Chicago Business Barometer and three month growth in factory sector industrial output.

The new orders index declined sharply 56.8, its lowest level since September. Production also fell sharply to 53.9, its lowest since April of last year.

The employment index fell just moderately to 53.6. During the last twenty years there has been an 81% correlation between the level of this employment index and the three month change in factory sector employment.

The index of prices paid rose even further to 84.5 and slightly surpassed the 1995 high.

Chicago Purchasing Managers Index, SA June May June  '03 2003 2002 2001
Business Barometer 56.4 68.0 52.4 54.7 52.7 41.4
  New Orders 56.8 74.4 55.6 58.0 56.2 42.3
Prices Paid 84.5 80.0 49.6 55.8 56.9 50.4
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