Economist's Commentary: July 16, 2008

Quick Take on the Economy: July 16, 2008

By Danielle Hale

The Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey shows that mortgage loan application volume increased for the second week in a row. The increase of 1.7 percent on a seasonally adjusted basis from July 4 to July 11 was driven by an increase in refinance applications. The index for purchase applications fell by a small amount.
Conventional applications increased for both purchases and refinances. Government applications for refinances increased while government purchase applications declined 8.2 percent.
Mortgage rates in the survey retreated by 20 basis points for both 30- and 15-year fixed rate mortgages.

Industrial Production increased 0.5 percent in June, but the increase was not strong enough to offset declines in prior months. On a quarterly basis, production declined from the first quarter to the second quarter.
Industrial Production for Consumer Goods increased 0.7 percent from May to June, but even with this recent increase, it has declined 0.8 percent from June 2007.

Driven largely by energy prices, the CPI increased 1.1% in June.
Bernanke indicated in his testimony yesterday that upside risks to the inflation outlook had "intensified." Today's data are in line with that expectation.

The uptick in industrial production of consumer goods may mean businesses are more optimistic about consumer spending in the next few months.
Continued increases in inflation may cause interest rates to rise, but the Fed's attention to this risk may keep expectations in check and help keep rates stable.
Consumers are taking advantage of relatively low, stable rates by looking into refinancing.

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