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Inside Lending Message from Angela Deaton 2/13/2012

For the week of February 13, 2012 – Vol. 10, Issue 7

>> Market Update
QUOTE OF THE WEEK…”People can alter their lives by altering their attitudes.” — William James

INFO THAT HITS US WHERE WE LIVE… People’s attitudes should surely be altered by new data from the National Association of Home Builders (NAHB). Their survey released on Thursday revealed four record highs hit by home building in 2011. The average size of new homes bumped up to a record 2,522 square feet, a record-high 42% of new homes had at least four bedrooms, 28% had at least three bathrooms and 30% included finished basements, all numbers up substantially over 2010. Countering this, there were a record low 429,000 single-family housing starts for the year.

But there’s hope. The NAHB’s chief economist forecast a 16% increase for new-home sales and single-family starts for 2012. He cited NAHB estimates of a pent-up demand for 2 million homes coming from households that are doubled-up or waiting to buy a home. Another NAHB sponsored survey revealed 78% of Americans likely to vote in the presidential election said owning a home was one of the most important things in their lives. They feel homeownership is about family and remains part of the American dream. Freddie Mac’s chief economist chimed in, “The desire for homeownership long-term is still there.”

BUSINESS TIP OF THE WEEK… What about your business makes you happy… and unhappy? The answers can help you discover how to motivate yourself and persuade others, since happiness is the universal motivator.
>> Review of Last Week
IT’S ALL GREEK TO WALL STREET… As of last Friday, Greek politicians couldn’t come to agreement with creditors on the latest bailout proposals. That was all investors needed to hear to start selling in earnest, sending stocks down for the week, ending five straight weeks of gains. Eurozone officials are threatening to withhold needed funds unless Greece agrees to austerity measures and signs them into law. The big prob? Political gridlock could take Greece closer to default, which might threaten U.S. financial institutions.

Over here, a light dose of economic data came in mixed, as usual. The Federal deficit for January unexpectedly dropped to $27.4 billion from $50 billion in December. But the Trade deficit ballooned to $48.8 billion. Initial weekly jobless claims dipped to 358,000, but continuing claims grew to 3.52 million. Finally, preliminary University of Michigan consumer sentiment for February fell to 72.5 from 75.0 the prior month.

For the week, the Dow ended down 0.5%, at 12801; the S&P 500 closed down 0.2%, at 1343; and the Nasdaq slipped 0.1%, to 2904.

Bonds saw heavy selling pressure early in the week, but those Greek default fears helped prices recover a bit on Friday. The FNMA 3.5% bond we watch ended the week down just .08, at $103.16. Following the prior week’s better than expected jobs report, national average rates inched up for some types of mortgages in Freddie Mac’s weekly survey. But mortgage rates overall remain historically low.

DID YOU KNOW?…This week’s Producer Price Index (PPI) is an inflation indicator for the wholesale prices of a basket of raw materials and semi-finished goods (but not services). It’s a leading indicator of consumer inflation.
>> This Week’s Forecast
HOUSING STARTS, PLUS RETAIL, MANUFACTURING, THE FED, INFLATION… We’re back to a ton of economic data. Thursday’s January Housing Starts will grab our attention, forecast up a smidge, and Building Permits, expected a bit down. January Retail Sales are expected up, both with and without autos. The several manufacturing reads — Empire State, Industrial Production, Capacity Utilization and Philadelphia Fed — should also inch up.

Wednesday’s FOMC Minutes from the Fed’s January 25 meeting might reveal more on why they want to extend exceptionally low interest rates til late 2014. The festivities end with PPI and CPI inflation reads, expected to remain within Fed targets.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of Feb 13 – Feb 17
Date Time (ET) Release For Consensus Prior Impact
Tu
Feb 14 08:30 Retail Sales Jan 0.8% 0.1% HIGH
Tu
Feb 14 08:30 Retail Sales ex-auto Jan 0.5% -0.2% HIGH
Tu
Feb 14 10:00 Business Inventories Dec 0.5% 0.3% Moderate
W
Feb 15 08:30 Empire State Manufacturing Index Feb 14.0 13.5 Moderate
W
Feb 15 09:15 Industrial Production Jan 0.6% 0.4% Moderate
W
Feb 15 09:15 Capacity Utilization Jan 78.6% 78.1% Moderate
W
Feb 15 10:30 Crude Inventories 2/11 NA 0.304M Moderate
W
Feb 15 14:00 FOMC Minutes 1/25 NA NA HIGH
Th
Feb 16 08:30 Initial Unemployment Claims 2/11 365K 358K Moderate
Th
Feb 16 08:30 Continuing Unemployment Claims 2/4 3.505M 3.515M Moderate
Th
Feb 16 08:30 Housing Starts Jan 670K 657K Moderate
Th
Feb 16 08:30 Building Permits Jan 675K 679K Moderate
Th
Feb 16 08:30 Producer Price Index (PPI) Jan 0.3% -0.1% Moderate
Th
Feb 16 08:30 Core PPI Jan 0.1% 0.3% Moderate
Th
Feb 16 10:00 Philadelphia Fed Manufacturing Index Feb 10.0 7.3 HIGH
F
Feb 17 08:30 Consumer Price Index (CPI) Jan 0.3% 0.0% HIGH
F
Feb 17 08:30 Core CPI Jan 0.2% 0.1% HIGH
F
Feb 17 10:00 Leading Economic Indicators (LEI) Jan 0.5% 0.4% Moderate

>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months… On January 25, the Fed pledged to keep the Funds Rate extra low through late 2014. Economists expect no change near term. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Mar 13 0%–0.25%
Apr 25 0%–0.25%
Jun 20 0%–0.25%

Probability of change from current policy:
After FOMC meeting on: Consensus
Mar 13 Apr 25Jun 20

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