Market Scan
Not Technically A Recession, But...
Carl Gutierrez, 04.30.08, 9:25 AM ET
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The United States is technically not in a recession, but economic activity is still very slow.
On Wednesday, the Commerce Department announced that the gross domestic product rose 0.6% in the first quarter, the same rate reported in the fourth quarter of 2007. According to a poll by Thomson/IFR, analysts on average had expected the government to report growth of only 0.3%. GDP is the value of all goods and services produced within the United States. Wednesday's figure is the first of three estimates of the quarterly GDP figure issued by the department's Bureau of Economic Analysis.
The technical definition of a recession is two consecutive quarters of declining GDP, but at this point the distinction would only be symbolic. Although the first-quarter figure indicates growth, economists at Lehman Brothers and Global Insight said that the increase would be caused by a buildup in inventories. The yield of the 10-year U.S. Treasury note dropped to 3.80%, from 3.85% late Thursday.
The markets are broadly anticipating that the Federal Reserve will lower the fed funds rate, as well as the discount rate, by 25 basis points later this afternoon, and there is little reason to think Wednesday's GDP figure will change that.
Before the government released its figure on the health of the economy, the Mortgage Bankers Association gave its bleak report on mortgage applications.
Mortgage application volume fell 11.1% during the week ending April 25, according to the MBA's weekly application survey. The MBA's application index fell to 567, from 637.6 the previous week. An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volumes. A reading of 567 means mortgage application activity is 5.67 times higher than it was when the MBA began tracking the data.
Refinancing volume fell 16.7%, while purchase application volume decreased 4.8% during the week. Refinance applications accounted for 45.7% of total application volume.
The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about half of all residential retail mortgage originations each week.
The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom. What makes the drop in volume especially unsettling is that it came despite a drop in interest rates. The average interest rate for standard 30-year fixed-rate mortgages fell to 6.01% during the week ending April 25, from 6.04% the previous week. Rates for 15-year fixed-rate mortgages, often a popular option for refinancing a loan, fell to 5.53%, from 5.60%. The average rate for one-year adjustable-rate mortgages declined to 6.86%, from 6.93%.
--The Associated Press contributed to this article |
