U.S. Retail Sales Eased After Firmed December

The total number of mortgage applications increased 1.5% last week after a slight 0.2% decline to start the month, according to the Mortgage Bankers Association.

The gain was wholly due to a 4.5% rise in applications to refinance after the 0.2% uptick during the prior week.

Purchase applications fell 1.0% after a 0.8% decline during the prior week.

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.

The effective interest rate on a conventional 30-year mortgage ticked up two basis points to 6.46%. Rates averaged 6.40% last month and 6.28% in December. The peak for 30 year financing was 7.08% late in June. Rates for 15-year financing dipped slightly to 6.22%. 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 to 35 of the top lenders in the U.S. housing industry to derive 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.

Monetary Policy Inertia and Recent Fed Actions from the Federal Reserve Bank of San Francisco is available here.

Employment in the UK rose 7,000 in the November period, a third successive monthly increase in this 3-month moving average. Over the last three months (the style of comparison that the UK's Office for National Statistics [ONS] generally emphasizes) employment went up by 50,000. The advances were more than accounted for among part-time workers, who increased 80,000 over three months ago, in contrast to a 30,000 decline in full-time workers.

The unemployment rate has held flat at 5.5% since September, and is 0.1% below its August reading. This resulted from an outright decrease in the number unemployed of 24,000 since August, helped by the increase in employment and also by a smaller gain in the number of people "in economic activity" (what the US calls the "labor force"), 26,000, than in the total population over age 16, 92,000. This cut the ratio of the labor force to the population from 63.7% in the August period to 63.6% in November.

The UK's alternative unemployment measure, the "claimant count", shows more unambiguous improvement, albeit modestly so; the number of claimants (similar to the US measure of the number of people receiving unemployment insurance) fell 9,300 in December and 13,500 in January. The resulting "claimant rate" was 2.9% in January, down from 3.0% for the previous 10 consecutive months. "Inflows" to this group have had a choppy, but trendless pattern in recent months, while the number of "outflows" has increased consistently over almost the past year, suggesting increased hiring of benefit recipients.

An increase in job vacancies in January hints that the recent hesitant but favorable labor market trend might continue. For January alone, vacancies were 637,700, up almost 35,000 from December. This put them at their highest level since the spring of 2005. The 3-month moving average rose slightly to 607,900, about even with last August and still well below the early-2005 amounts. So signs of improvement remain tentative, but the marginal adjustments in the labor market, new hires and vacancies, show a potential for further advance.