Mortgage Applications Lowest Since February

During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.

Applications to refinance also fell but by a moderate 1.4% after the prior week’s 4.9% advance.

The effective interest rate on a conventional 30-year mortgage fell slightly to 6.90% from 6.93% the prior week. Rates averaged 6.84% last month, up from 6.28% in December. The peak for 30 year financing was 7.08% late in June. Rates for 15-year financing similarly fell to 6.60% last week. Interest rates on 15 and 30 year mortgages are closely correlated (>90%) with the rate on 10 year Treasury securities.

During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.

The Mortgage Bankers Association surveys between 20 and 35 top lenders in the U.S. housing industry. Then it derives its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site here.

The Narrowing of the Male-Female Wage Gap from the Federal Reserve Bank of San Francisco can be found here.

The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago improved in June to 0.11 from negative values which had been sustained during four of the prior five months.

The categories of production, income, sales and orders made positive contributions while the employment, consumption and housing categories were negative.

The three-month moving average of the CFNAI also improved but only slightly to a still negative value of -0.15, up from its worst level of -0.47 last November.

A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.

All of the CFNAI components contributed to the January decline includingproduction, employment, consumption and housing.

The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories & orders.

The complete CFNAI report is available here.

Comparing the prime and subprime mortgage markets from the Federal Reserve Bank of Chicago is available here.

The INSEE Biz index for French industry is still in its impressive uptrend. Yet it is only in the 74th percentile of its range and it is about 10% above its mean value. The index is off peak and while the trend is technically still in place it is appropriate to wonder if the uptrend is abating.

Orders and demand trends are still firm but so is the series ‘likely price trend’. The MFG portion of the survey shows a bit more of a loss in momentum. The Production trend reading fell off in July to 17 from 24 but still ranking in the mid-70s in terms of the percentile of its range of values - a firm result. The recent trend for production assessment ticked up in July; the likely trend assessment also rose to 15 from 14. MFG prices expected are only at a reading of 6 and reside in their 62nd percentile of their range, a more modest showing than for French industry overall.

On balance, the readings from France are still solid and encouraging. Some of the inflation responses are, however, on the high side, and for overall industry, with a bit of momentum.

South Korea's GDP grew 1.7% in Q2, following 0.9% in the previous two quarters. This was the strongest quarterly increase since Q4 2003, 4-1/2 years ago. The year-to-year growth was 4.9%, up from 4.0% in Q1 and also in Q4.

The quarterly growth was led by the manufacturing sector, which rebounded sharply to a 3.6% quarterly increase from a 0.9% fall in Q1. This pushed the year-on-year rate to 5.9% from 3.9%. Data on industrial production suggest that Q2 started off stronger for electrical machinery, electronic components and motor vehicles. Service industries collectively slowed a bit in Q2, gaining 1.1% after 1.2% in Q1 and Q4. Construction activity declined outright, falling 1.8% after a 1.4% increase in Q1 and 0.6% in Q4.

The expenditure accounts show that the greater part of the pickup in GDP came from foreign demand. Exports surged 4.6% in Q2, their strongest quarterly advance in a year. Imports rose 4.7%, but this was less than Q1's 5.4%, and net exports widened to a surplus of KRW20.23 trillion from KRW19.48 trillion in Q1. Domestic demand, in contrast, slowed to 1.4% growth in Q2 from 1.8% in Q1. So net foreign demand added 0.3% to total GDP growth after cutting it by 0.9% in Q1.

These figures hardly mean, however, that domestic demand was "weak". Private consumption was up 0.8% in the quarter and 4.1% from a year ago. Fixed investment also grew 0.8%, putting it a substantial 6.8% higher than the year-ago period. Within this latter category, what the Koreans call "facilities investment" led the way in Q2, with a gain of 3.5% following 4.4% the quarter before; encompassing machinery and transport equipment, this item was up 12.1% from a year ago, the strongest since radically higher growth during the tech boom of 1999/2000.

As these data might suggest, the Korean economy is showing steady, moderate growth, which it has sustained now since about 2002. In the 2000/2001 fall-out from the tech bust, it managed to avoid recession and has had just one negative quarter since then, in early 2003. According to Bloomberg news, Moody's rating service has been sufficiently impressed announce today a hike in the country's credit rating to A2 from A3, where it has been since early 2002. "A2" is Moody's sixth highest rating and in the middle of the "investment grade" spectrum.