Daily Economic Update, December 22, 2010Presentation Transcript
Daily Economic Update
The Bureau of Economic Analysis revised its 3 rd quarter estimate of GDP up to 2.6% from 2.5% on stronger estimates of exports (both goods and services) and inventory investment as well as a moderation in the severity of the decline in fixed investment in non-residential structures. This third revision fell below what most analysts expected led by a decline in the estimate of personal consumption expenditures from the 2 nd revision.
Corporate profits rose 27.2% in the 3 rd quarter compared to the same period in 2009. Cost cutting and low-interest loans have helped corporations to boost profit margins.
Mortgage purchase applications fell a seasonally adjusted 2.5% from last week, the second straight decline. Higher mortgage rates, which averaged 4.83% last week according to Freddie Mac and were 4.17% roughly a month ago, are creating headwinds to new purchases. Refinance applications fell 24.6% to their lowest level since the week of April 30 th , which could drag on personal consumption in the future.
Existing home sales rose 5.6% to a seasonally adjusted figure of 4.68 million in November. The median national home price rose 0.4% from a year earlier to reach $170,600 in November of 2010. Inventories shrank 4.0%, which drew down the months supply of homes on the market from 10.5 months in October to 9.5 months in November.
The Federal Housing Finance Agency’s Housing Price Index rose 0.7% in October relative to September, but was down 3.4% compared to a year earlier.
The economy continues to strengthen, but the pace is slow. Furthermore, consumer demand was revised downward and higher mortgage rates will drag on consumer spending as the refinance volume falls. The housing market is clawing its way back with stronger sales volume in the fall after the sharp summer drop. Prices show modest improvement from the earlier dip, which is important for preventing foreclosures and the health of the greater economy. Falling inventories and the months supply bode well for the stability of prices going forward. Rising mortgage rates will reduce affordability, but monthly payments will remain historically strong in an environment of improved employment.