October Beige Book, Mortgage Apps, August Inventories, JOLTS

Modest Q3 Expansion with Improved Housing, Uncertain Labor Markets

  • The Fed’s Beige Book suggested modest growth across most regions and sectors in early Fall.
  • Mortgage Applications for the week ending October 5 decreased 1.2 percent, as refis dipped.
  • Business Inventories for August were up 0.9 percent from the revised July level.
  • The Job Openings and Labor Turnover Survey for August showed flat hiring and more separations.

Today’s Beige Book was a bit of déjà vu, as the ‘gradual expansion’ noted in the last report was repackaged as modest expansion over the second half of Q3. Most areas cited general economic expansion, with the exception of The New York and Kansas City Districts, which respectively cited flat and slowing activity. Consumer spending was reported as flat to up slightly, although vehicle sales were up favorably. This we know from the recent auto sales numbers for September, up at a 14.9 million unit rate. Consistent with recent housing reports, residential real estate remains a bright spot overall. Most Districts reported stronger home sales, increasing prices and declining inventories. Likewise, residential construction rose in most Districts since the last report. Manufacturing activity was mixed, but somewhat improved since the last report. New York, Chicago and Minneapolis Districts’ manufacturing has weakened somewhat. Petroleum and commodities prices were higher the second half of Q3, while natural gas prices declined. Employment conditions were indicated to be mostly flat, with Cleveland, Atlanta, Minneapolis and Dallas citing uncertainty related to the presidential election, U.S. fiscal issues and the European debt crises as hiring restraints. Wage pressures remained modest in most Districts.

The Mortgage Bankers Association’s Applications Composite Index decreased by 1.2 percent the week ending October 5. Refis drove the decrease, down 2.0 percent, although volumes for refinancings are still near three-year highs. A surge in the MBA Purchase Index through September and into October is a positive indicator for upcoming September home sales numbers. Business inventories for August were up 0.5 percent compared to a month ago. The inventory-to-sales ratio ticked down slightly, to 1.20 percent. The Job Openings and Labor Turnover Survey (JOLTS) for August was roughly consistent with the declining rate of job growth seen in the payrolls numbers in Q3. Hiring was flat, while separations increased and job openings fell.

Market Reaction: Equity prices fell through the day. The yield on 10-year Treasury bonds is down to 1.69 percent. NYMEX crude oil is down to $91.35/barrel. The dollar is down against the yen and the euro.

Click here for the complete Comerica Economic Alert: BeigeBook 101012.

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