US Data Signals Modest Growth

on Oct 5, 2012

Better than expected employment and service sector figures as well as a surge in applications to refinance mortgages have spurred some optimism regarding the US economy, the Financial Times reported on 3 October 2012.

The US employment data concern the private sector, where the pace of growth surpassed expectations. The FT quotes data by the payroll processor ADP (NASDAQ:ADP) showing that US businesses added 162,000 new jobs in September, whereas analysts expected 140,000. The data come ahead of the more extensive employment report of the US labour department, which is expected to reveal that job growth improved slightly in September. “The gain in private employment in September is strong enough to suggest that the national unemployment rate may have declined,” noted Joel Prakken, chairman of Macroeconomic Advisers LLC, as quoted in the ADP press release.

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The New York Times reported that the Institute for Supply Management’s purchasing managers index for the service sector rose from 53.7 to 55.1, its highest level since March, as new orders accelerated. “It looks more like things are heading in the right direction,” commented William Larkin, a fixed-income portfolio manager at Cabot Money Management in Salem, Massachusetts, as quoted by the NY Times. “It is this new reality. We don’t have robust growth; we just have very moderate growth.”

!m[](/uploads/story/528/thumbs/pic1_inline.png)In addition to the optimistic employment and service sector data, the latest weekly survey of the Mortgage Bankers Association (MBA) showed that applications to refinance mortgages went up by 20 percent over the previous seven days to the highest level since April 2009. The FT quotes MBA’s vice president of research and economics, Mike Fratantoni as saying that the average interest rate on a 30-year fixed-rate mortgage reached a new historic low of 3.53 percent. The survey, which has been conducted on a weekly basis since 1999, covers more than three-fourths of all retail home mortgage applications in the US.

In September, the US Federal Reserve announced its open-ended programme for buying mortgage-backed securities, dubbed QE3, which has triggered record low rates. “Financial markets continue to adjust to QE3, as the ongoing presence of the Federal Reserve as a significant buyer of mortgage-backed securities applies downward pressure on rates,” pointed out Mr Fratantoni, as quoted by the FT.

Although a few weeks are needed before it becomes clear whether the refinancing applications will turn into actual deals, the jump in the number of applications indicates that the Fed’s new round of quantitative easing could soon have a significant impact on US household finances, with banks being forced to loosen lending standards. “That has been the missing ingredient,” notes TD Securities strategist Richard Gilhooly, as quoted by the FT. “The Fed has the wind at its back after 10 months of improving existing home sales and prices moving off the floor.”
The positive data signalling moderate growth are good news for President Barak Obama although the upcoming labour department report will have more impact as regards the White House race, with a weak number potentially benefitting the Republican Party nominee Mitt Romney.


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