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Thursday, April 19, 2007

Mortgage Apps And Unemployment Claims

Mortgage apps declined slightly, and the Purchase Index dropped below 400. But the report period may have been skewed by Easter, so it's not unlikely that they will rebound next week. The four week moving average for the Purchase Index is the item to watch, and it is down only slightly:
The Refinance Index decreased 0.3 percent to 2008.4 from 2015 the previous week and the seasonally adjusted Purchase Index decreased 4.2 percent to 396.5 from 413.8 one week earlier. The seasonally adjusted Conventional Index decreased 2.3 percent to 931.3 from 953.5 the previous week, and the seasonally adjusted Government Index decreased 4.1 percent to 129.3 from 134.8 the previous week.

The four week moving average for the seasonally adjusted Market Index is down 1.6 percent to 649.4 from 659.8. The four week moving average is down 0.9 percent to 406.1 from 409.6 for the Purchase Index, while this average is down 2.3 percent to 2079.8 from 2129.9 for the Refinance Index.
Initial claims for unemployment are less likely to have been skewed by the holiday. It is true that Easter last year was on the 16th, while it was on the 8th this year. The jump in layoffs from long school spring breaks is unlikely to have changed much though, because long breaks would generally have crossed the same period last year.

This week's release had SA initial claims at 339,000, while last week's initial claims were revised up slightly to 343,000.

Actual continuing claims continue to decrease, while SA continuing claims continue to increase. Both are now pushing the 100,000 increase mark compared to last year.

However, this is the week I would choose for comparison in 2006 (not the same as the comparison week used in the actual release). If you scroll down to the bottom, you see a long list of states reporting an increase of over 1000 in unemployment claims. If you compare that list to the current release, you see that a number of states this year reported layoffs in the service industry. There usually seems to be one week in April with a long list of state initial claims increases. This week's release had 20 states reporting an increase in layoffs of 1000 or more, whereas the previous year's release to which I am comparing had only 15. The NSA unemployment rate for this week also ticked up to 2.0.

All in all, the picture is certainly not dire, but it generally looks to be a very different trend from last year. Still, we are starting from a much better employment position this year, so even if the trend is somewhat negative, the overall effect on the economy may be roughly equivalent to last year's position.

This is the point at which that huge adjustment upward for base employment at the beginning of 2007 becomes such a quandary. It was made on the basis of UI payments to states which were considerably higher than employment in the household survey. The scope of it was unprecedented. One could speculate and suggest that these jobs are evaporating now (because many of them are thought to be due to construction), so that the real picture is much worse. One could also argue the opposite point of view with at least as much justification. Generally, revision patterns follow each other, so it is possible that when the UI quarterlies come in from the states through the first half of this year we will discover more unreported jobs. It may be that an increase in contract workers is more responsible for the large adjustment needed for 2006 than construction employment!

Because of all these possibilities, I am watching continuing claims with great attention this year. Logically, they should be more indicative of overall employment trends than the initial claims or perhaps even the reported unemployment rate. If a person is out of work they will look for work, and if they find it they will drop out of that statistic. If there are a large number of persons out of work who don't qualify for unemployment, they will still be competing with UI-receiving workers and will tend to drive up the continuing claims number.

And these continuing claim numbers, while relatively increasing this year, show just how good the employment picture was last year. For more perspective (using the weeks I have chosen for cross-year comparison on the basis of the pattern of state reports) ACTUAL continuing claims:
2005: 2,731,177
2006: 2,516,880
2007: 2,597,180
(According to the official stats, the 2007/2006 comparison looks worse.) Based on these numbers, I wouldn't be recommending that anyone yell "fire" and run for the exit. Comparing 2007 seasonally adjusted continuing claims to where we started the year presents a picture of only moderate worsening:
2007 1/06: 2,472,000
2007 4/07: 2,531,000
Building now seems to be actually decreasing at a relatively consistent pace, but whether we will pick up much of it in the unemployment claims is up in the air. As those layoffs continue though, we ought to see the effect on services. Jere are the state comments for the current week explaining increases in initial claims:
VA +1,015 Layoffs in the automobile, transportation, and manufacturing industries.
NV +1,123 No comment.
SC +1,128 Layoffs in the manufacturing industry.
MA +1,199 No comment.
AR +1,439 No comment.
OH +1,628 No comment.
MS +1,681 No comment.
GA +1,698 Layoffs in the finance industry.
NC +1,766 Layoffs in the transportation equipment, electronic equipment, apparel, and furniture industries.
MD +2,005 Layoffs in the apparel and manufacturing industries.
AZ +2,097 No comment.
TX +2,167 Layoffs in the trade, service, and manufacturing industries.
NJ +2,191 Layoffs in the transportation, warehousing, and service industries.
IL +2,243 Layoffs in the trade and manufacturing industries.
WA +2,739 No comment.
WI +3,141 Layoffs in the construction, trade, service, transportation, warehousing, and manufacturing industries.
FL +3,617 Layoffs in the construction, trade, service, and manufacturing industries.
NY +3,842 Layoffs in the transportation, service, and manufacturing industries.
PA +7,834 Layoffs in the construction, trade, and service industries.
CA +8,644 Layoffs in the service industry.
As with almost everything else, the underlying economic shifts present one heck of a challenge in interpreting the data we get. Whatever else is true, we are in a period of significant economic change.

And not a good change either! Hopefully the power shift in congress will help things out ... and hopefully we'll get another power shift in the white house soon. But, until then, mortgage brokers will have to do their best to ride the waves.
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