The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER rebounded, marking a tenth month of growth.

BUSINESS ACTIVITY:
Five of seven Business Activity indexes grew in July, while all seven reached positive territory;
EMPLOYMENT continued June’s growth;
PRODUCTION, NEW ORDERS, ORDER BACKLOGS, and INVENTORIES marked increases;

BUYING POLICY:
Lead times for MRO SUPPLIES reached the highest level in three decades.

Confidence tumbled in July due to heightened concerns about personal financial prospects as well as the overall economic outlook. Income and job prospects were extraordinarily weak and those bleak prospects have made consumers more cautious spenders. Rather than the economy gaining strength, consumers now anticipate a slowing pace of growth, and rather than economic policies acting to improve prospects, the policies of the Obama administration have increased economic uncertainty among consumers. Overall, the data suggest that the current slowdown in spending is likely to persist well into 2011 as it reflects a widespread and general realignment of job and wage expectations. While a double dip is still unlikely, it now has a non-ignorable 25% probability.

Grim Outlook for Personal Finances
Nearly a year after the economic recovery began, the financial situation of consumers has continued to weaken mainly due to the loss of jobs and work hours as well as stagnating incomes. Half of all consumers reported that their finances had worsened this July as well as in last July’s survey. The smallest proportion ever recorded in the sixty year history of the surveys anticipated an increase in their household’s income during the year ahead. Moreover, eight-in-ten consumers expected no improvement in the unemployment rate during the year ahead.

Consumers sensed a slowdown in economic growth. The backslide meant that six-in-ten consumers judged prospects for the economy unfavorably, and just one-in-three consumers anticipated uninterrupted economic growth during the next five years. Confidence in economic policies fell to the lowest level in the July survey since the start of the Obama administration. While the effectiveness of Obama’s policies in creating jobs remained the top concern, the rising level of federal debt and prospects for higher future taxes have gained a foothold as well.

The Sentiment Index was 67.8 in the July 2010 survey, down sharply from the 76.0 in June, erasing the entire gain since 66.0 was recorded last July. The Expectations Index, a component of the Index of Leading Indicators, declined by 10.7% in July, falling to the lowest level since March of 2009. The Current Conditions Index also posted a double digit decline, but it remained above last year’s 70.5.

Scarce jobs and stagnating incomes have been the top concerns of consumers for some time. What changed in July was their recognition that the anticipated slowdown in the economy will keep jobs scarce for some time, while their uncertainties about future prospects were increased by the policies of the Obama administration. Rather than itching to resume old spending habits, consumers have begun to actively embrace a more defensive outlook, making them more likely to further pare their debt and increase saving and reserve funds. This new defensive posture could result in even slower economic growth and fewer jobs in the future.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.4 percent in the second quarter of 2010, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.7 percent.

Compensation costs for civilian workers increased 0.5 percent, seasonally adjusted, for the 3-month period ending June 2010, the U.S. Bureau of Labor Statistics reported today. Wages and salaries (which make up about 70 percent of compensation costs) increased 0.4 percent while benefits (which make up the remaining 30 percent of compensation) increased 0.6 percent.

Tenth District manufacturing activity rebounded moderately in July, and expectations for future production remained positive. However, plans for future hiring and capital spending were essentially flat. Price indexes were mostly unchanged.

The net percentage of firms reporting month-over-month increases in production in July was 14, up from 3 in June and 5 in May. The increase in production occurred among both durable and nondurable goods producing plants, with the exception of aircraft producers, who reported a slight downturn. Other month-over-month indicators generally increased as well. The shipments, new orders, and order backlog indexes continued to climb higher, and the employment index moved back into positive territory. In contrast, the new orders for exports index decreased from 3 to 0, and the supplier delivery time index also fell for the second straight month. The raw materials inventory index inched up from -4 to -1, while the finished goods inventory index edged down.

For the week ending July 17, 2010, the DJ-BTMU U.S. Business Barometer reversed course by dropping -0.6 percent after jumping by +0.9 percent in the prior week. The production side of the barometer has been on a roller coaster ride as typical seasonal patterns in auto production were interrupted when GM and others decided to forgo the annual summer shutdown period that had been scheduled for June 28 through July 9, citing the need to meet strong demand. The summer shutdown period occurs around the same time every year when automakers conduct model changeovers. The move also caused weekly initial jobless claims to be unusually volatile in July.

In the week ending July 24, the advance figure for seasonally adjusted initial claims was 457,000, a decrease of 11,000 from the previous week's revised figure of 468,000. The 4-week moving average was 452,500, a decrease of 4,500 from the previous week's revised average of 457,000.

The advance seasonally adjusted insured unemployment rate was 3.6 percent for the week ending July 17, an increase of 0.1 percentage point from the prior week's unrevised rate of 3.5 percent.

The advance number for seasonally adjusted insured unemployment during the week ending July 17 was 4,565,000, an increase of 81,000 from the preceding week's revised level of 4,484,000. The 4-week moving average was 4,548,250, a decrease of 18,000 from the preceding week's revised average of 4,566,250.

The fiscal year-to-date average of seasonally adjusted weekly insured unemployment, which corresponds to the appropriated AWIU trigger, was 5.037 million.

Economic activity has continued to increase, on balance, since the previous survey, although the Cleveland and Kansas City Districts reported that the level of economic activity generally held steady. Among those Districts reporting improvements in economic activity, a number of them noted that the increases were modest, and two Districts, Atlanta and Chicago, said that the pace of economic activity had slowed recently.

Manufacturing activity continued to expand in most Districts, although several Districts reported that activity had slowed or leveled off during the reporting period. Districts also noted improved conditions in the services sector. The five Districts reporting on transportation noted increased activity. Tourism activity also increased across the Districts, although the Atlanta District noted concerns about decreased leisure travel to the Gulf Coast. Retail sales reports generally indicated a continued rise in spending, and several Districts noted that necessities continued to be strong sellers, while big-ticket items moved more slowly. However, most Districts that reported on auto sales noted declines in recent weeks. Activity in residential real estate markets was sluggish in most Districts after the expiration of the April 30 deadline for the homebuyer tax credit. Commercial real estate markets, especially construction, remained weak. Banking conditions varied across the Districts, with some Districts noting soft or decreased overall loan demand; credit standards remained tight in most reporting Districts. Recent rains had mixed effects on crop conditions, while activity in the natural resources sector increased. Overall labor market conditions improved modestly across the Districts, with several reports of temporary hiring. Consumer prices of goods and services held steady in most reporting Districts. Input prices also held largely steady, with only a few reports of cost increases. Wage pressures continued to be contained on the whole.

New orders for manufactured durable goods in June decreased $2.0 billion or 1.0 percent to $190.5 billion, the U.S. Census Bureau announced today. This was the second consecutive monthly decrease and followed a 0.8 percent May decrease. Excluding transportation, new orders decreased 0.6 percent. Excluding defense, new orders decreased 0.7 percent. Transportation equipment, down four of the last five months, had the largest decrease, $1.1 billion or 2.4 percent to $45.9 billion. This was due to nondefense aircraft and parts, which decreased $1.8 billion.

Shipments of manufactured durable goods in June, down two consecutive months, decreased $0.7 billion or 0.3 percent to $195.0 billion. This followed a 0.7 percent May decrease. Computers and electronic products, down four of the last five months, had the largest decrease, $1.3 billion or 4.1 percent to $31.3 billion.

Unfilled orders for manufactured durable goods in June, down following two consecutive monthly increases, decreased $0.1 billion to $802.9 billion. This followed a 0.3 percent May increase. Transportation equipment, down three of the last four months, had the largest decrease, $2.7 billion or 0.6 percent to $476.8 billion.

Inventories of manufactured durable goods in June, up six consecutive months, increased $2.8 billion or 0.9 percent to $308.2 billion. This followed a 1.1 percent May increase. Transportation equipment, up six consecutive months, had the largest increase, $0.8 billion or 1.1 percent to $80.0 billion.

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending July 23, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 4.4 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 4.2 percent compared with the previous week.

The Refinance Index decreased 5.9 percent from the previous week. The seasonally adjusted Purchase Index increased 2.0 percent from one week earlier and is the highest Purchase Index observed in the survey since the end of June. The unadjusted Purchase Index increased 2.4 percent compared with the previous week and was 34.3 percent lower than the same week one year ago.

The four week moving average for the seasonally adjusted Market Index is up 1.6 percent. The four week moving average is flat for the seasonally adjusted Purchase Index, while this average is up 2.0 percent for the Refinance Index.

The refinance share of mortgage activity decreased to 78.0 percent of total applications from 79.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.7 percent from 5.2 percent of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages increased to 4.69 percent from 4.59 percent, with points decreasing to 0.88 from 1.04 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The effective rate also increased from last week. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.12 percent from 4.05 percent, with points decreasing to 0.83 from 0.88 (including the origination fee) for 80 percent LTV loans. The effective rate also increased from last week. The average contract interest rate for one-year ARMs decreased to 7.15 percent from 7.17 percent, with points decreasing to 0.23 from 0.24 (including the origination fee) for 80 percent LTV loans.

The Chicago Fed Midwest Manufacturing Index (CFMMI) decreased 0.5% in June, to a seasonally adjusted level of 79.4 (2007 = 100). Revised data show the index rose 1.7% in May to 79.7. The Federal Reserve Board’s industrial production index for manufacturing (IPMFG) decreased 0.3% in June. Regional output in June rose 13.2% from a year earlier, and national output increased 8.9%.

Two of the four regional industry sectors increased in June:
• Regional steel sector output grew 0.9%;
• Regional machinery sector production went up 0.6%;
• Regional auto sector production edged down 0.2%; and
• Regional resource sector output declined 1.4%.

The Conference Board Consumer Confidence Index® which had declined sharply in June, retreated further in July. The Index now stands at 50.4 (1985=100), down from 54.3 in June. The Present Situation Index decreased to 26.1 from 26.8. The Expectations Index declined to 66.6 from 72.7 last month.

Consumer confidence faded further in July as consumers continue to grow increasingly more pessimistic about the short-term outlook. Concerns about business conditions and the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves. Given consumers’ heightened level of anxiety, along with their pessimistic income outlook and lackluster job growth, retailers are very likely to face a challenging back-to-school season.

Consumers’ assessment of current conditions was more downbeat in July. Those saying conditions are “bad” increased to 43.6 percent from 41.0 percent, however, those saying business conditions are “good” increased to 9.0 percent from 8.4 percent. Consumers’ appraisal of the job market was also more negative. Those claiming jobs are “hard to get” increased to 45.8 percent from 43.5 percent, while those saying jobs are “plentiful” remained unchanged at 4.3 percent.

Consumers’ short-term outlook also deteriorated further in July. The percentage of consumers expecting an improvement in business conditions over the next six months decreased to 15.9 percent from 17.1 percent, while those anticipating conditions will worsen rose to 15.7 percent from 13.9 percent.

Consumers were also more pessimistic about future job prospects. Those expecting more jobs in the months ahead decreased to 14.3 percent from 16.2 percent, while those anticipating fewer jobs increased to 21.1 percent from 20.1 percent. The proportion of consumers expecting an increase in their incomes declined to 10.0 percent from 10.6 percent

In July, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — declined seven points to 16 from June's reading of 23. Among the index's components, shipments lost nine points to 22, new orders dropped 12 points to finish at 13, while the jobs index moved up six points to 15.

Other indicators also suggested somewhat slower activity. The backlog of orders measure moved down two points to 1, and the index for capacity utilization fell eight points to 13. The delivery times index retreated 13 points to end at 4. Our gauges for inventories were somewhat higher in July. The finished goods inventory index edged up one point to 8, and the raw materials inventory index moved up seven points to finish at 11.

Data through May 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the annual growth rates in 15 of the 20 MSAs and the 10- and 20-City Composites improved in May compared to those reported for April 2010. The 10-City Composite is up 5.4% and the 20-City Composite is up 4.6% from where they were in May 2009. While 19 MSAs and both Composites reported positive monthly changes in May over April, only 12 of the MSAs and the two Composites saw better month-over-month growth rates in May than those reported in April.

The annual returns of the 10-City and 20-City Composite Home Price Indices show increases of 5.4% and 4.6%, respectively, in May 2010 compared to the same month last year. While still positive, Boston, Charlotte, Cleveland, Dallas and Denver reported weaker annual growth rates compared to their reports from last month. Seven of the 20 MSAs are still reporting negative annual growth rates with May’s data.

While May’s report on its own looks somewhat positive, a broader look at home price levels over the past year still do not indicate that the housing market is in any form of sustained recovery. Since reaching its recent trough in April 2009, the housing market has really only stabilized at this lower level. The two Composites have improved between 5 and 6% since then, but this is no better than the improvement they had registered as of October 2009. The last seven months have basically been flat.

The May 2010 data for 15 of the 20 MSAs and the two Composites show an improvement in annual returns compared to April’s report. With the month-over-month data, while 19 of the 20 MSAs and the two Composites were positive, we are in a strong seasonal period for home prices, so that was largely expected. In addition, there may still be some residual impact from the homebuyers’ tax credit, since they affect any purchase that closes through June 30th 2010. We need to watch where the housing markets will go after these temporary stimuli go away. June’s existing and new home sales and housing starts data do not show much real improvement in those statistics either. It still looks possible that the housing market might bounce along the bottom for the foreseeable future, before showing any real improvement that will filter through to the rest of the economy.

As of May 2010, average home prices across the United States are back to the levels where they were in the autumn of 2003. Measured from June/July 2006 through May 2010, the peak-to-date figures for the 10-City Composite and 20-City Composite are -29.6% and -29.1%, respectively.

In May, Las Vegas posted a new index low as measured by the current housing cycle, where it peaked in August 2006. The peak-to-trough figure is -56.4%, with that market generally returning any gains it had posted since 2000. Detroit is the only market that is worse off. Its index is at levels last seen in late 1994, indicating that any appreciation in value during the past 15 years is now gone.

Nineteen of the 20 MSAs and both Composites showed month-over-month increases in May. The 10- and 20-City Composites were up 1.2% and 1.3%, respectively. San Diego continues to improve, with its 13th consecutive positive monthly increase. Miami and New York, the two markets that had declined in April, posted positive monthly changes in May 2010, increasing 0.9% and 0.8%, respectively. Las Vegas on the other hand, showed a drop in index level by 0.5% in May as compared to April 2010.

The ICSC-Goldman Sachs (ICSC-GS) chain store sales index for the week ending July 24 again rose on a week-over-week basis up 0.6%. On a year-over-year seasonally-adjusted basis, the pace of spending moderated to 3.8% in the latest week. Easy comparisons continue to lift sales — though not as much as the prior weekwhile the abnormally hot weather helped drove some customer traffic in regions. But the retail industry is in a transition period between summer clearance and back-to-school, which makes it difficult for retailers to leverage the hot-weather for sales.

Back-to-school will kick in during early August as a wave of states have their state sales tax holidays to help consumers as they head back to school. (Mississippi will be the first state with its sales tax holiday — July 30-31 — on clothing and footwear to usher in the back-to-school state tax holidays. A majority of states have their sales tax holidays beginning on or about August 6.) According to Weather Trends International (WTI) unseasonably hot weather lingered for its ninth consecutive week “with temperatures trending both much hotter than last year and above average for the nation as a whole with the month on pace to be the hottest in 115+ years.” Lingering hot weather may likely delay the launch of the consumers’ back-to-school spending. For the latest week, WTI also reported that the national temperature average was +4.2F warmer than last year and +2.5F above its long-term average. Meanwhile, gasoline prices have begun to edge up again. According to the U.S. Energy Information Administration the average price of a gallon of regular-grade gasoline at the pump rose to $2.749 — up about three cents from the prior week and nearly 10% higher than the same week of the prior year.

Texas factory activity rebounded slightly in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key indicator of state manufacturing conditions, rose from –2 to 5, suggesting output expanded slightly in July after contracting in June.

Several indexes for factory activity continued to fall in July. The new orders and growth rate of orders indexes pushed deeper into negative territory, indicating a further contraction of demand. The index for capacity utilization dipped to –1, its first negative reading in nine months. The shipments index stabilized in July, rising from –9 to –1, with nearly equal shares of respondents noting an increase or decrease.

The general business activity index fell sharply to –21, its lowest level since July 2009. Thirty-one percent of firms reported a worsening of activity, up from 22 percent in June. The company outlook index also fell to a 12-month low, as only 13 percent of manufacturers said their outlook had improved over the previous month, compared with 24 percent who said it had worsened.

The employment index edged up and was positive for the fifth consecutive month, with 20 percent of firms reporting new hires. The wages and benefits index also rose, but overall wage pressures remained minimal, as 90 percent of respondents noted no change in compensation costs. The hours worked index dipped into negative territory, with 23 percent of manufacturers reporting a decrease in the average employee workweek.

The index for raw materials prices fell from 30 in June to 12 in July, suggesting the upward pressure on raw materials prices continued to moderate. Two-thirds of manufacturers reported no change in input costs, the highest share in six months. Downward pressure on finished goods prices intensified again in July, driving the index further into negative territory. The future raw materials prices index remained positive but slid to its lowest level in a year, while the future finished goods prices index fell to zero.

Optimism regarding firms’ six-month outlook continued to wane in July, although the indexes remained positive. The future production, capacity utilization and shipments indexes fell again this month, while the future indexes for new orders and growth rate of orders inched up but remained below the levels seen earlier this year. The future general business activity index decreased but remained in positive territory. The future company outlook index moved down from 22 to 16, with 32 percent of respondents expecting improved conditions six months from now.

Sales of new single-family houses in June 2010 were at a seasonally adjusted annual rate of 330,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 23.6 percent (±15.3%) above the revised May rate of 267,000, but is 16.7 percent (±10.9%) below the June 2009 estimate of 396,000.

The median sales price of new houses sold in June 2010 was $213,400; the average sales price was $242,900. The seasonally adjusted estimate of new houses for sale at the end of June was 210,000. This represents a supply of 7.6 months at the current sales rate.

Led by deterioration in production- and employment-related indicators, the Chicago Fed National Activity Index declined to –0.63 in June, down from +0.31 in May. Three of the four broad categories of indicators that make up the index made negative contributions in June, while the sales, orders, and inventories category made the lone positive contribution.

The index’s three-month moving average, CFNAI-MA3, decreased to –0.05 in June from +0.31 in May. The CFNAI-MA3 suggests that growth in national economic activity returned very close to its historical trend in June after reaching its highest level since March 2006 in May. With regard to inflation, it indicates subdued inflationary pressure from economic activity over the coming year.

Production-related indicators made a contribution of –0.11 to the index in June, down from +0.61 in May. Industrial production edged up 0.1 percent in June after increasing 1.3 percent in May; manufacturing production declined 0.4 percent in June after increasing 1.0 percent in the previous month.

Employers took 1,647 mass layoff actions in June that resulted in the separation of 145,538 workers, seasonally adjusted, as measured by new filings for unemployment insurance benefits during the month, the U.S. Bureau of Labor Statistics reported today. Each action involved at least 50 persons from a single employer. The number of mass layoff events in June increased by 235 from the prior month, and the number of associated initial claims increased by 9,749. In June, 298 mass layoff events were reported in the manufacturing sector, seasonally adjusted, resulting in 29,384 initial claims.

During the 31 months from December 2007 through June 2010, the total number of mass layoff events (seasonally adjusted) was 61,852, and the associated number of initial claims was 6,213,880. (December 2007 was the start of a recession as designated by the National Bureau of Economic Research.)

The national unemployment rate was 9.5 percent in June, seasonally adjusted, down from 9.7 percent the prior month and unchanged from a year earlier. In June, total nonfarm payroll employment decreased by 125,000 over the month and 170,000 from a year earlier.

With the scheduled closing deadline for the home buyer tax credits, existing-home sales slowed in June but remained at relatively elevated levels, according to the National Association of Realtors®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 5.1 percent to a seasonally adjusted annual rate of 5.37 million units in June from 5.66 million in May, but are 9.8 percent higher than the 4.89 million-unit pace in June 2009.

Lawrence Yun, NAR chief economist, said the market shows uncharacteristic yet understandable swings as buyers responded to the tax credits. “June home sales still reflect a tax credit impact with some sales not closed due to delays, which will show up in the next two months,” he said.

“Broadly speaking, sales closed after the home buyer tax credit will be significantly lower compared to the credit-induced spring surge. Only when jobs are created at a sufficient pace will home sales return to sustainable healthy levels.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.74 percent in June from 4.89 percent in May; the rate was 5.42 percent in June 2009.

The national median existing-home price for all housing types was $183,700 in June, which is 1.0 percent higher than a year ago. Distressed homes were at 32 percent of sales last month, compared with 31 percent in May; it was also 31 percent in June 2009.

The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.2 percent in June to 109.8, following a 0.5 percent increase in May, and a 0.1 percent decline in April.

The indicators point to slower growth through the fall. Two trends will have a direct impact on the pace of economic expansion. First, improvement in the industrial core of the economy will moderate as inventory rebuilding slows. Second, improvement in the service sector has been relatively slow, with little indication that it will pick up momentum.

The LEI decreased in two of the last three months, but its level is still about 4.5 percent above its previous peak before the recession began. Moreover, the gains among the LEI components have been widespread, with the exception of housing permits and stock prices, pointing to an expanding economy, but at a slower pace in the second half of the year.

The Conference Board Coincident Economic Index® (CEI) for the U.S. was unchanged in June, following a 0.5 percent increase in May, and a 0.3 percent increase in April. The Conference Board Lagging Economic Index® (LAG) increased 0.1 percent in June to 107.6, following a 0.1 percent decline in May, and a 0.3 percent decline in April.

For the week ending July 10, 2010, the DJ-BTMU U.S. Business Barometer jumped +0.9 percent on strong production activity, and was revised upward in the prior week to an increase of +0.1 percent (originally reported as flat). The majority of the barometer’s strength in the latest reporting week came from motor vehicle production where GM and others decided to forgo the annual summer shutdown period that had been scheduled for June 28 through July 9, citing the need to meet strong demand. The summer shutdown period occurs around the same time every year when automakers conduct model changeovers. The move also caused initial jobless claims to drop sharply over the same week because typically sidelined auto workers would have applied for benefits.

In the week ending July 17, the advance figure for seasonally adjusted initial claims was 464,000, an increase of 37,000 from the previous week's revised figure of 427,000. The 4-week moving average was 456,000, an increase of 1,250 from the previous week's revised average of 454,750.

The advance seasonally adjusted insured unemployment rate was 3.5 percent for the week ending July 10, a decrease of 0.2 percentage point from the prior week's unrevised rate of 3.7 percent.

The advance number for seasonally adjusted insured unemployment during the week ending July 10 was 4,487,000, a decrease of 223,000 from the preceding week's revised level of 4,710,000. The 4-week moving average was 4,567,000, a decrease of 21,500 from the preceding week's revised average of 4,588,500.

The fiscal year-to-date average of seasonally adjusted weekly insured unemployment, which corresponds to the appropriated AWIU trigger, was 5.046 million.

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending July 16, 2010. The Market Composite Index, a measure of mortgage loan application volume, increased 7.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 19.5 percent compared with the previous week, which included the Independence Day holiday.

The Refinance Index increased 8.6 percent from the previous week and was the highest Refinance Index observed in the survey since the week ending May 15, 2009. The increase in total refinance applications was driven by a 10.7 percent increase in conventional refinance applications, while government refinance applications decreased by 4.2 percent.

The seasonally adjusted Purchase Index increased 3.4 percent from one week earlier, driven by an 8.0 percent increase in government purchase applications. Conventional purchase applications were essentially flat, increasing just 0.3 percent from last week. The unadjusted Purchase Index increased 15.3 percent compared with the previous week and was 35.7 percent lower than the same week one year ago.

“As rates on 30- and 15-year fixed-rate mortgages declined to the lowest levels recorded in the survey, refinance activity increased last week. The refinance index is up almost 30 percent over the past 4 weeks, but is still well below the peak seen last spring,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Refinance borrowers, aiming for the lowest possible rate, are getting conventional loans. The strength in purchase applications comes from government loans, likely indicating that prospective buyers are drawn by the lower downpayment requirements.”

The four week moving average for the seasonally adjusted Market Index is up 4.9 percent. The four week moving average is down 1.3 percent for the seasonally adjusted Purchase Index, while this average is up 6.5 percent for the Refinance Index.

The refinance share of mortgage activity increased to 79.4 percent of total applications from 78.7 percent the previous week. This was the highest refinance share observed in the survey since April 2009. The adjustable-rate mortgage (ARM) share of activity decreased to 5.2 percent from 5.5 percent of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.59 percent from 4.69 percent, with points increasing to 1.04 from 0.96 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This was the lowest 30-year contract rate ever recorded in the survey. The effective rate also decreased from last week. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.05 percent from 4.12 percent, with points decreasing to 0.88 from 1.04 (including the origination fee) for 80 percent LTV loans. This was the lowest 15-year contract rate ever recorded in the survey. The effective rate also decreased from last week. The average contract interest rate for one-year ARMs decreased to 7.17 percent from 7.20 percent, with points increasing to 0.24 from 0.22 (including the origination fee) for 80 percent LTV loans.

BUILDING PERMITS
Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 586,000. This is 2.1 percent (±2.1%) above the revised May rate of 574,000, but is 2.3 percent (±2.0%) below the June 2009 estimate of 600,000. Single-family authorizations in June were at a rate of 421,000; this is 3.4 percent (±1.8%) below the revised May figure of 436,000. Authorizations of units in buildings with five units or more were at a rate of 145,000 in June.

HOUSING STARTS
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 549,000. This is 5.0 percent (±13.2%) below the revised May estimate of 578,000 and is 5.8 percent (±10.5%) below the June 2009 rate of 583,000. Single-family housing starts in June were at a rate of 454,000; this is 0.7 percent (±10.7%) below the revised May figure of 457,000. The June rate for units in buildings with five units or more was 88,000.

HOUSING COMPLETIONS
Privately-owned housing completions in June were at a seasonally adjusted annual rate of 886,000. This is 26.2 percent (±15.3%) above the revised May estimate of 702,000 and is 11.0 percent (±15.2%) above the June 2009 rate of 798,000. Single-family housing completions in June were at a rate of 676,000; this is 31.3 percent (±15.7%) above the revised May rate of 515,000. The June rate for units in buildings with five units or more was 202,000.

After last week’s sales decline retailers saw the sales trend reverse itself as a result of easy comparisons and hot weather which drove consumers indoors as a way to avoid the heat. According to the ICSC and Goldman Sachs Weekly Chain Store Sales Snapshot weekly chain store sales increased by 1.4 percent overall for the week ending July 17, 2010. On a year-over-year basis, the sales index also improved and rose by 4.2 percent the strongest since May 8, 2010 (+4.3%).

“Retailers experienced a decent spurt in sales this past week following last week’s decline,” said Michael Niemira, ICSC director of research and chief economist. “However, over the last two weeks, the seasonally-adjusted sales performance was relatively flat. For the month, ICSC Research expects July sales to be up between 3.0 to 4.0 percent compared with a hefty 5.0 percent decline in July 2009,” Niemira added.

Builder confidence in the market for newly built, single-family homes declined for a second consecutive month in July to its lowest level since April of 2009, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. The HMI fell two points from a downwardly revised number in the previous month to 14 for July.

We continue to see a lull in home buying activity following the expiration of the federal home buyer tax credit program, as many of the sales that would have occurred this summer were likely pulled forward to meet that program's deadline. In addition, builders are reporting continuing consumer hesitancy regarding home purchases due to uncertainty in the overall economy and job markets.

This month's lower HMI reflects a number of underlying market conditions that builders are seeing, including hesitant home buyers, tight consumer credit, and continuing competition from foreclosed and distressed properties that are priced below the cost of construction. The pause in sales following expiration of the home buyer tax credits is turning out to be longer than anticipated due to the sluggish pace of improvement in the rest of the economy. That said, we do believe that favorable factors such as low mortgage rates, affordable prices, and demographic trends will help revive consumer demand for new homes this year, and that new-home sales will improve by 10 percent in 2010 from 2009.

Each of the HMI's component indexes recorded declines in July. The component gauging current sales conditions fell two points to 15, while the component gauging sales expectations in the next six months edged down one point to 21 and the component gauging traffic of prospective buyers fell three points to 10.

Regionally, the HMI results were mixed in July. The Northeast, which has a smaller survey sample and therefore is prone to greater monthly volatility, posted a seven-point increase to 23 this month, while the Midwest posted a one-point improvement to 15. The South and West each posted five-point declines to 14 and 9, respectively.

The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for May 2010. Net foreign purchases of long-term securities were $35.4 billion.

Net foreign purchases of long-term U.S. securities were $33.0 billion. Of this, net purchases by private foreign investors were $23.8 billion, and net purchases by foreign official institutions were $9.2 billion. U.S. residents sold a net $2.4 billion of long-term foreign securities. Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $15.0 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $17.1 billion. Foreign holdings of Treasury bills decreased $9.1 billion.

Banks' own net dollar-denominated liabilities to foreign residents increased $19.6 billion. Monthly net TIC flows were $17.5 billion. Of this, net foreign private flows were $56.2 billion, and net foreign official flows were negative $38.8 billion.

The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1 percent in June on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the index increased 1.1 percent before seasonal adjustment.

Similarly to April and May, a decline in the energy index caused the seasonally adjusted all items decrease in June. The index for energy decreased 2.9 percent in June, the same decline as in May, with a decline in the gasoline index accounting for most of the decrease. This more than offset an increase in the index for all items less food and energy, while the food index was unchanged for the second month in a row.

The index for all items less food and energy rose 0.2 percent in June after increasing 0.1 percent in May. A broad array of indexes posted increases, including shelter, apparel, used cars, medical care, tobacco, and recreation. These increases more than offset declines in the indexes for household furnishings and operations and for airline fares. The 12-month change in the index for all items less food and energy remained at 0.9 percent for the third month in a row.

Real average hourly earnings for all employees rose 0.1 percent from May to June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This increase stems from a 0.1 percent decrease in average hourly earnings combined with a 0.1 percent decrease in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings fell 0.2 percent over the month, as a result of a 0.3 percent decrease in the average work week combined with the increase in real average hourly earnings. Since reaching a recent low in October 2009, real average weekly earnings have risen 1.7 percent.

Real average hourly earnings rose 0.6 percent, seasonally adjusted, from June 2009 to June 2010. A 0.9 percent increase in average weekly hours, combined with the increase in real average hourly earnings resulted in an 1.5 percent increase in real average weekly earnings during this period.

Results from the Business Outlook Survey suggest that regional manufacturing activity continues to expand in July but has slowed over the past two months. Surveyed firms reported a decline in new orders this month compared with June. Employment showed a slight improvement this month. The survey’s broad indicators of future activity continue to suggest that the region’s manufacturing executives expect growth in business over the next six months, but optimism has waned notably in recent months.

Indicators Suggest Slower Growth
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a reading of 8 in June to 5.1 in July. The index, although still positive and suggesting growth, has fallen for two consecutive months (see Chart). Indexes for new orders and shipments also suggest a slowing this month: The new orders index fell 13 points, to its first negative reading in 12 months, and the shipments index decreased 10 points but remained positive. Indicating weakness, indexes for both delivery times and unfilled orders fell and were in negative territory this month.

Firms indicated a slight increase in employment this month. The percentage of firms reporting increases in employment (13 percent) narrowly edged out the percentage of firms reporting decreases (9 percent). Indexes for both employment and average workweek were slightly positive this month after registering negative readings in June.

For the week ending July 3, 2010, the DJ-BTMU U.S. Business Barometer was unchanged with slower growtho f retail sales and declines in mortgage applications. While the barometer accelerated in the second quarter, on both a quarter-to-quarter and a year-over-year basis, the recent behavior of the barometer suggests that the economy stalled in June and early July and is set for slower growth ahead.

Industrial production edged up 0.1 percent in June after having risen 1.3 percent in May. The rate of change for March was revised up, and the rate of change for April was revised down; these revisions resulted primarily from the incorporation of new information on the output of utilities. For the second quarter as a whole, total industrial production increased at an annual rate of 6.6 percent. Manufacturing output moved down 0.4 percent in June after three months of gains at or near 1 percent. The output of mines rose 0.4 percent. The output of utilities increased 2.7 percent, as temperatures moved further above seasonal norms. At 92.5 percent of its 2007 average, total industrial production in June was 8.2 percent above its year-earlier level. The capacity utilization rate for total industry remained unchanged in June at 74.1 percent, a rate 5.9 percentage points above the rate from a year earlier but 6.5 percentage points below its average from 1972 to 2009.

The Producer Price Index for Finished Goods fell 0.5 percent in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This decrease followed declines of 0.3 percent in May and 0.1 percent in April. At the earlier stages of processing, prices received by producers of intermediate goods moved down 0.9 percent in June and the crude goods index dropped 2.4 percent. On an unadjusted basis, prices for finished goods rose 2.8 percent for the 12 months ended June 2010, their third straight month of slowing year-over-year advances following a 6.0-percent increase for the 12 months ended in March.

In June, over eighty percent of the 0.5-percent decrease in the finished goods index can be traced to prices for consumer foods, which fell 2.2 percent. Also contributing to lower finished goods prices, the index for finished energy goods declined 0.5 percent. By contrast, prices for finished goods other than foods and energy inched up 0.1 percent in June.

In the week ending July 10, the advance figure for seasonally adjusted initial claims was 429,000, a decrease of 29,000 from the previous week's revised figure of 458,000. The 4-week moving average was 455,250, a decrease of 11,750 from the previous week's revised average of 467,000.

The advance seasonally adjusted insured unemployment rate was 3.7 percent for the week ending July 3, an increase of 0.2 percentage point from the prior week's revised rate of 3.5 percent.

The advance number for seasonally adjusted insured unemployment during the week ending July 3 was 4,681,000, an increase of 247,000 from the preceding week's revised level of 4,434,000. The 4-week moving average was 4,581,250, an increase of 22,000 from the preceding week's revised average of 4,559,250.

The fiscal year-to-date average of seasonally adjusted weekly insured unemployment, which corresponds to the appropriated AWIU trigger, was 5.056 million.

The Empire State Manufacturing Survey indicates that while conditions for New York manufacturers continued to improve in July, the pace of growth in business activity slowed substantially over the month. The general business conditions index remained positive but fell 15 points, to 5.1. The new orders and shipments indexes were also positive but lower than last month’s levels. Employment indexes dipped as well, with the average workweek index falling below zero for the first time this year. The prices paid index was positive and held steady, while the prices received index declined to a level just below zero. The future general business conditions index was little changed, remaining close to its May and June levels but below the highs seen earlier in the year. The index for future number of employees fell markedly, although it remained above zero. The capital spending and technology spending indexes were also positive, but both were well below the peak levels reached in May.

In a series of supplementary questions, manufacturers were asked to estimate the percentage changes in their sales and employment levels from 2009 to 2010—both year to date and for the calendar year. In this year’s survey, the median respondent reported that sales were up 7 percent for the first half of 2010 and were expected to be up 8 percent for the full calendar year—a stark contrast with the results of last July’s survey, when the median respondent reported 15 percent declines for the corresponding time horizons in 2009. In the current survey, the number of employees was reported to be unchanged in the first half of the year and was expected to remain so over the full year. In the 2009 survey, 10 percent declines were seen for both horizons. Respondents were also queried about the contribution of exports to firm revenues and about firm efforts to market abroad. In general, respondents indicated that exports accounted for a growing share of their revenues; their firms were devoting more resources to marketing abroad—particularly in Asia—and were expecting sales to be higher in the next 12 months than in the past 12 months across all parts of the world.

The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers’ shipments for May, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,090.2 billion, down 0.9 percent (±0.2%) from April 2010, but up 11.8 percent (±0.5%) from May 2009.

Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,355.7 billion, up 0.1 percent (±0.1%)* from April 2010, but down 1.5 percent (±0.3%) from May 2009.

The total business inventories/sales ratio based on seasonally adjusted data at the end of May was 1.24. The May 2009 ratio was 1.41.

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $360.2 billion, a decrease of 0.5 percent (±0.5%)* from the previous month, but 4.8 percent (±0.7%) above June 2009. Total sales for the April through June 2010 period were up 6.8 percent (±0.3%) from the same period a year ago. The April to May 2010 percent change was revised from -1.2 percent (±0.5%) to -1.1 percent (±0.2%).

Retail trade sales were down 0.6 percent (±0.5%) from May 2010, but 5.0 percent (±0.7%) above last year. Nonstore retailers sales were up 12.1 percent (±2.1%) from June 2009 and gasoline stations sales were up 8.8 percent (±1.8%) from last year.

U.S. import prices declined for the second consecutive month in June, the U.S. Bureau of Labor Statistics reported today, decreasing 1.3 percent. The drop was driven by declining fuel prices, although a downturn in nonfuel prices also contributed to the overall decrease. Export prices also fell in June, edging down 0.2 percent following three consecutive monthly increases.

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending July 9, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 2.9 percent on a seasonally adjusted basis from one week earlier. This week’s results include an adjustment to account for the Independence Day holiday. On an unadjusted basis, the Index decreased 12.6 percent compared with the previous week.

The Refinance Index decreased 2.9 percent from the previous week and the seasonally adjusted Purchase Index decreased 3.1 percent from one week earlier. This was the lowest Purchase Index observed in the survey since December 1996. The unadjusted Purchase Index decreased 12.7 percent compared with the previous week and was 43.0 percent lower than Independence Day week one year ago.

The four week moving average for the seasonally adjusted Market Index is up 1.5 percent. The four week moving average is down 2.4 percent for the seasonally adjusted Purchase Index, while this average is up 2.6 percent for the Refinance Index.

The refinance share of mortgage activity remained constant at 78.7 percent of total applications from the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.5 percent from 5.4 percent of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages increased to 4.69 percent from 4.68 percent, with points increasing to 0.96 from 0.86 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The effective rate increased from last week. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.12 percent from 4.11 percent, with points increasing to 1.04 from 0.93 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week. The average contract interest rate for one-year ARMs remained unchanged at 7.20 percent, with points decreasing to 0.22 from 0.24 (including the origination fee) for 80 percent LTV loans.

There were 3.2 million job openings on the last business day of May 2010, the U.S. Bureau of Labor Statistics reported today. The job openings rate was little changed over the month at 2.4 percent. The hires rate (3.4 percent) was little changed and the separations rate (3.1 percent) was unchanged. This release includes estimates of the number and rate of job openings, hires, and separations for the total nonfarm sector by industry and geographic region.

The Nation’s international trade deficit in goods and services increased to $42.3 billion in May from $40.3 billion (revised) in April, as imports increased more than exports.

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total May exports of $152.3 billion and imports of $194.5 billion resulted in a goods and services deficit of $42.3 billion, up from $40.3 billion in April, revised. May exports were $3.5 billion more than April exports of $148.7 billion. April imports were $5.5 billion more than April imports of $189.0 billion.

In May, the goods deficit increased $1.9 billion from April to $54.5 billion, and the services surplus was virtually unchanged at $12.2 billion. Exports of goods increased $3.0 billion to $107.2 billion, and imports of goods increased $4.9 billion to $161.7 billion. Exports of services increased $0.6 billion to $45.0 billion, and imports of services increased $0.6 billion to $32.9 billion.

The goods and services deficit increased $17.4 billion from May 2009 to May 2010. Exports were up $26.4 billion, or 21.0 percent, and imports were up $43.8 billion, or 29.1 percent.

The International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index fell 1.5% in the week ended Saturday from the week before on a seasonally adjusted, comparable-store basis. The drop--the biggest in nearly two months--came as retailers saw sales "take a breather" after two consecutive weeks of "strong positive weekly sales gains," ICSC said. Sales had risen 1% and 2.1% in the prior two weeks.

ICSC Chief Economist Michael Niemira added sales showed a "mixed performance" in the past week, though year-over-year sales unadjusted for seasonal factors were boosted because of a calendar shift when Independence Day was celebrated. On a year-on-year basis, the reading rose 3.2% last week.

The Index of Small Business Optimism lost 3.2 points in June after posting modest gains for several months. The persistence of Index readings below 90 is unprecedented in survey history. The performance of the economy is mediocre at best, given the extent of the decline over the past two years. The small business sector is not on a positive trajectory and with this half of the private sector “missing in action”, the poor growth performance is no surprise.

The U.S. Census Bureau announced today that May 2010 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $350.6 billion, down 0.3 percent (+/-0.5%) from the revised April level, but were up 15.1 percent (+/-1.6%) from the May 2009 level. The April preliminary estimate was revised upward $0.6 billion or 0.2 percent. May sales of durable goods were up 0.5 percent (+/-0.7%) from last month and were up 18.2 percent (+/-1.9%) from a year ago. Sales of metals and minerals, except petroleum were up 5.9 percent from last month and sales of computer and computer peripheral equipment and software were up 1.8 percent. Sales of nondurable goods were down 1.0 percent (+/-0.5%) from last month, but were up 12.6 percent (+/-2.1%) from last year. Sales of farm product raw materials were down 6.9 percent from last month.

Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $398.8 billion at the end of May, up 0.5 percent (+/-0.4%) from the revised April level, but were down 2.1 percent (+/-1.1%) from a year ago. The April preliminary estimate was revised downward $0.9 billion or 0.2 percent. End-of-month inventories of durable goods were up 0.7 percent (+/-0.4%) from last month, but were down 4.4 percent (+/-1.2%) from last May. Inventories of machinery, equipment, and supplies were up 1.7 percent from last month and inventories of computer and computer peripheral equipment and software were up 1.6 percent. End-of-month inventories of nondurable goods were up 0.1 percent (+/-0.5%) from April and were up 1.6 percent (+/-2.1%) compared to last May. Inventories of beer, wine, and distilled alcoholic beverages were up 3.7 percent from last month, while inventories of petroleum and petroleum products were down 6.0 percent.

The May inventories/sales ratio for merchant wholesalers, except manufacturers’ sales branches and offices, based on seasonally adjusted data, was 1.14. The May 2009 ratio was 1.34.

Consumer credit decreased at an annual rate of 4-1/2 percent in May 2010. Revolving credit decreased at an annual rate of 10-1/2 percent, and nonrevolving credit decreased at an annual rate of 1-1/2 percent.

For the week ending June 26, 2010, the DJ-BTMU U.S. Business Barometer gained +0.3 percent on a fit of strong consumer spending, but its sideways trend in June remained intact. While the barometer accelerated in the second quarter, on both a quarter-to-quarter and a year-over-year basis, the recent behavior of the barometer suggests that the economy stalled in June and is set for slower growth ahead. Last week former Fed Chairman Alan Greenspan noted that signs of a slowdown are not unusual at this stage in an economic recovery, calling it a “typical pause”.

In the week ending July 3, the advance figure for seasonally adjusted initial claims was 454,000, a decrease of 21,000 from the previous week's revised figure of 475,000. The 4-week moving average was 466,000, a decrease of 1,250 from the previous week's revised average of 467,250.

The advance seasonally adjusted insured unemployment rate was 3.4 percent for the week ending June 26, a decrease of 0.2 percentage point from the prior week's unrevised rate of 3.6 percent.

The advance number for seasonally adjusted insured unemployment during the week ending June 26 was 4,413,000, a decrease of 224,000 from the preceding week's revised level of 4,637,000. The 4-week moving average was 4,554,000, a decrease of 18,750 from the preceding week's revised average of 4,572,750.

The fiscal year-to-date average of seasonally adjusted weekly insured unemployment, which corresponds to the appropriated AWIU trigger, was 5.064 million.

The International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index jumped 1% in the week ended Saturday from the week before on a seasonally adjusted, comparable-store basis. The increase--the second consecutive weekly increase--came as consumers ventured out into the heat to make purchases before the July 4 holiday, ICSC said.

"Lingering hot weather, as well as a calendar shift, certainly helped to drive seasonal demands on Saturday ahead of the Independence Day holiday," ICSC chief economist Michael Niemira said. On a year-on-year basis, the reading rose 3.9% last week, its biggest such climb in two months.

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending July 2, 2010. The Market Composite Index, a measure of mortgage loan application volume, increased 6.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 6.5 percent compared with the previous week.

The Refinance Index increased 9.2 percent from the previous week and is the highest Refinance Index observed in the survey since the week ending May 15, 2009. The seasonally adjusted Purchase Index decreased 2.0 percent from one week earlier. The Purchase Index has decreased eight of the last nine weeks. The unadjusted Purchase Index decreased 2.3 percent compared with the previous week and was 34.7 percent lower than the same week one year ago.

“Mortgage rates remained near record lows last week, as incoming data on the job and housing markets were weaker than anticipated. As more homeowners locked in to these low rates, the level of refinance applications increased to a new 13-month high,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “For the month of June, purchase applications declined almost 15 percent relative to the prior month, and were down more than 30 percent compared to April, the last month in which buyers were eligible for the tax credit.”

The four week moving average for the seasonally adjusted Market Index is up 6.4 percent. The four week moving average is up 0.1 percent for the seasonally adjusted Purchase Index, while this average is up 8.3 percent for the Refinance Index.

The refinance share of mortgage activity increased to 78.7 percent of total applications from 76.8 percent the previous week, which is the highest refinance share observed in the survey since April 2009. The adjustable-rate mortgage (ARM) share of activity increased to 5.4 percent from 4.7 percent of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages increased to 4.68 percent from 4.67 percent, with points decreasing to 0.86 from 0.96 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The effective rate slightly decreased from last week. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.11 percent from 4.06 percent, with points decreasing to 0.93 from 0.97 (including the origination fee) for 80 percent LTV loans. The effective rate also increased from last week. The average contract interest rate for one-year ARMs increased to 7.20 percent from 7.05 percent, with points decreasing to 0.24 from 0.27 (including the origination fee) for 80 percent LTV loans.

The Conference Board Employment Trends Index™ (ETI) increased again in June for the eleventh consecutive month. The index now stands at 96.7, up from May’s revised figure of 96.1. The index is up 9.8 percent from a year ago.

The weak growth in private sector employment in the last two months has been disappointing given the robust recovery in production in recent quarters. The moderate increase in the Employment Trends Index in the last two months suggests that many employers are now concerned that the recovery is losing momentum.

This month’s increase in the Employment Trends Index was driven by positive contributions from six out of the eight components. The improving indicators were: Percentage of Firms With Positions Not Able to Fill Right Now, Number of Temporary Employees, Part-Time Workers for Economic Reasons, Job Openings, Industrial Production and Real Manufacturing and Trade Sales.

Economic activity in the non-manufacturing sector grew in June for the sixth consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The NMI (Non-Manufacturing Index) registered 53.8 percent in June, 1.6 percentage points lower than the 55.4 percent registered in May, indicating continued growth in the non-manufacturing sector, but at a slightly slower rate. The Non-Manufacturing Business Activity Index decreased 3 percentage points to 58.1 percent, reflecting growth for the seventh consecutive month. The New Orders Index decreased 2.7 percentage points to 54.4 percent, and the Employment Index decreased 0.7 percentage point to 49.7 percent, reflecting contraction after one month of growth. The Prices Index decreased 6.8 percentage points to 53.8 percent in June, indicating that prices are still increasing but at a slower rate than in May. According to the NMI, 15 non-manufacturing industries reported growth in June. Respondents' comments are mostly positive about business conditions; however, there is concern about the effect of employment on the economic recovery.

New orders for manufactured goods in May, down following eight consecutive monthly increases, decreased $5.8 billion or 1.4 percent to $413.2 billion, the U.S. Census Bureau reported today. This followed a 1.0 percent April increase. Excluding transportation, new orders decreased 0.6 percent.

Shipments, down following two consecutive monthly increases, decreased $5.3 billion or 1.3 percent to $416.8 billion. This followed a 0.6 percent April increase.

Unfilled orders, up four of the last five months, increased $1.9 billion or 0.2 percent to $802.8 billion. This followed a 0.4 percent April increase. The unfilled orders-to-shipments ratio was unchanged at 5.59.

Inventories, down following four consecutive monthly increases, decreased $2.0 billion or 0.4 percent to $520.4 billion. This followed a 0.6 percent April increase. The inventories-to-shipments ratio was 1.25, up from 1.24 in April.

Total nonfarm payroll employment declined by 125,000 in June, and the unemployment rate edged down to 9.5 percent, the U.S. Bureau of Labor Statistics reported today. The decline in payroll employment reflected a decrease (-225,000) in the number of temporary employees working on Census 2010. Private-sector payroll employment edged up by 83,000.

Both the number of unemployed persons, at 14.6 million, and the unemployment rate, at 9.5 percent, edged down in June.

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during May 2010 was estimated at a seasonally adjusted annual rate of $841.9 billion, 0.2 percent (±1.6%) below the revised April estimate of $843.3 billion. The May figure is 8.0 percent (±1.4%) below the May 2009 estimate of $915.4 billion.

During the first 5 months of this year, construction spending amounted to $314.2 billion, 12.0 percent (±1.1%) below the $356.9 billion for the same period in 2009.

For the week ending June 19, 2010, the DJ-BTMU U.S. Business Barometer remained flat compared to the prior week. With only one reporting week left we can see that the barometer accelerated in the second quarter, both on a quarterly and annual basis. Drilling down to monthly performance, however, shows that the U.S. economy stalled in the final month of the second quarter as housing stimulus faded and nerves became a bit rattled from the ongoing European debt crisis. What does this mean for the U.S. economic outlook? It means that although second quarter growth will look strong when reported on July 30th, momentum going into the second half of the year has dropped back substantially and suggests well-below par growth from here forward.

Economic activity in the manufacturing sector expanded in June for the 11th consecutive month, and the overall economy grew for the 14th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The manufacturing sector continued to grow during June; however, the rate of growth as indicated by the PMI slowed when compared to May. The lower reading for the PMI came from a slowing in the New Orders and Production Indexes. We are now 11 months into the manufacturing recovery, and given the robust nature of recent growth, it is not surprising that we would see a slower rate of growth at this time. The sector appears to be solidly entrenched in the recovery. Comments from the respondents remain generally positive, but expectations have been that the second half of the year will not be as strong in terms of the rate of growth, and June appears to validate that forecast.

Following a surge driven by the home buyer tax credit, pending home sales fell with the expiration of the deadline for qualified buyers to sign a purchase contract, according to the National Association of Realtors®.

The Pending Home Sales Index,* a forward-looking indicator, dropped 30.0 percent to 77.6 based on contracts signed in May from a reading of 110.9 in April, and is 15.9 percent below May 2009 when it was 92.3. The falloff comes on the heels of three strong monthly gains as home buyers rushed to take advantage of the tax credit.

The data reflects contracts and not closings, which normally occur with a lag time of one or two months. However, many closings have been delayed recently from a rush of buyers into the system and slow processing of short sales, in addition to the heavy volume and a more thorough loan underwriting process. As many as 180,000 buyers who signed contracts by April 30 may have missed the June 30 closing deadline for the tax credit. However, Congress passed legislation yesterday to extend the deadline for delayed contracts and President Obama is expected to sign.

NAR chief economist Lawrence Yun said, “Consumers are rational and they rushed to meet the tax credit eligibility deadline in April. The sharp decline in contract signings in May is a natural result with similar low levels of sales activity anticipated in June,” he said. “Surprisingly, though, some local markets such as Portland, Maine, and Jacksonville, Fla., actually experienced an increase in contract signings from a year ago without the tax credit. Existing-home sales that close in June will remain elevated, but we’ll then see a notable decline for July and August.”

Congress also reauthorized the National Flood Insurance Program. Many lenders were hesitant to approve mortgages on homes needing flood insurance without congressional action and numerous sales have been on hold. The action is retroactive to a temporary authorization that expired May 31, and also is expected to be signed by the president.

Yun noted the tax credit has broadly stabilized home prices. “Without the tax credit, there will be more aggressive price negotiations between buyers and sellers. The key test on whether the housing market can stand on its own without stimulus medicine will depend critically on private sector job creation in the second half of the year. We’ll also keep a close eye on market conditions on the Gulf Coast.”

“If jobs come back as expected, the pace of home sales should pick up later this year and reach a sustainable level of activity given very favorable affordability conditions. In most areas of the country there will be no sharp snap back in home prices in the upcoming years, although some local markets have experienced double-digit gains this year. NAR forecasts the national median home price to rise only 4 percent cumulatively over the next two years. One factor that could lead to price acceleration in upcoming years for some markets is if the very low levels of new home construction were to persist for another year or two,” he added.

The PHSI in the Northeast fell 31.6 percent to 67.0 in May and is 14.8 percent lower than May 2009. In the Midwest the index dropped 32.1 percent to 70.8 and is 20.2 percent below a year ago. Pending home sales in the South fell 33.3 percent to an index of 82.5, and are 14.4 percent lower than May 2009. In the West the index declined 20.9 percent to 85.3 and is 15.1 percent below a year ago.

In the week ending June 26, the advance figure for seasonally adjusted initial claims was 472,000, an increase of 13,000 from the previous week's revised figure of 459,000. The 4-week moving average was 466,500, an increase of 3,250 from the previous week's revised average of 463,250.

The advance seasonally adjusted insured unemployment rate was 3.6 percent for the week ending June 19, unchanged from the prior week's revised rate of 3.6 percent.

The advance number for seasonally adjusted insured unemployment during the week ending June 19 was 4,616,000, an increase of 43,000 from the preceding week's revised level of 4,573,000. The 4-week moving average was 4,567,500, a decrease of 25,250 from the preceding week's revised average of 4,592,750.

The fiscal year-to-date average of seasonally adjusted weekly insured unemployment, which corresponds to the appropriated AWIU trigger, was 5.077 million.