Intraday News Roundup

by CC August 18, 2011 12:21 pm • Commentary

Philly Fed

Responses to the Business Outlook Survey this month suggest that regional manufacturing activity has dipped significantly. The survey’s broad indicators for activity, shipments, and new orders all declined sharply from last month. Firms indicated that employment and average work hours are lower this month. Price indexes continued to show a trend of moderating price pressures. The broadest indicator of future activity also weakened markedly, but firms still expect overall growth in shipments, new orders, and employment over the next six months. The collection period for this month’s survey ran from August 8-16, overlapping a week of unusually high volatility in both domestic and international financial markets.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a slightly positive reading of 3.2 in July to -30.7 in August. The index is now at its lowest level since March 2009 (see Chart). The demand for manufactured goods, as measured by the current new orders index, paralleled the decline in the general activity index, falling 27 points. The current shipments index fell 18 points and recorded its first negative reading since September of last year. Suggesting weakening activity, indexes for inventories, unfilled orders, and delivery times were all in negative territory this month.

Firms’ responses suggest a deterioration in the labor market compared with July. The current employment index fell 14 points, recording its first negative reading in 12 months. About 18 percent of the firms reported an increase in employment, but 23 percent reported a decrease. The percentage of firms reporting a shorter workweek (28 percent) was greater than the percentage reporting a longer one (14 percent). The workweek index fell 9 points.

National Association of Realtors

Existing-home sales declined in July from an upwardly revised June pace but are notably higher than a year ago, according to the National Association of Realtors®. Monthly gains in the Northeast and Midwest were offset by declines in the West and South.

Total existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 3.5 percent to a seasonally adjusted annual rate of 4.67 million in July from 4.84 million in June, but are 21.0 percent above the 3.86 million unit pace in July 2010, which was a cyclical low immediately following the expiration of the home buyer tax credit.

Bureau of Labor Statistics

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in July on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.6 percent before seasonal adjustment. The gasoline index rebounded from previous declines and rose sharply in July, accounting for about half of the seasonally adjusted increase in the all items index. The food at home index accelerated in July and also contributed to the increase, as dairy and fruit indexes posted notable increases and five of the six major grocery store food groups rose. The index for all items less food and energy increased as well, though the 0.2 percent increase was slightly smaller than the two previous months. The shelter index accelerated in July, and the apparel index again increased sharply. In contrast, the index for new vehicles was unchanged after a long string of increases. The index for household furnishings and operations was flat in July as well, and the recreation index declined slightly. The 12 month change in the all items index remained at 3.6 percent for the third month in a row. The change in the index for all items less food and energy continued its upward trend, rising to 1.8 percent in July, with the shelter and apparel indexes contributing notably to the acceleration. The energy index has risen 19.0 percent over the past year.


William Dudley, the president of the Fed’s New York branch, said the central bank was “always scrutinizing banks” and that it treated U.S. and European banks “exactly the same.” Dudley was responding to the story in the Journal.

“This is standard operating procedure, this is something that we do as a matter of course,” Dudley told New Jersey business leaders Thursday.

“It’s really important to stress that we’re not focusing on foreign banks any more than we’re focusing on U.S. banks. We treat foreign banks and U.S. banks exactly the same.”

The $2.5 trillion U.S. money market funds industry — which supplies short-term dollar funding to banks — has retreated from the euro zone in recent months, concerned that the continent’s debt crisis is spiraling out of control.

That and the drying up of interbank lending has led to a trebling of dollar funding costs for euro zone banks in the last month. One bank was forced to borrow dollars at the European Central Bank Wednesday.

In a dramatic shift, the U.S. branches of foreign banks became net borrowers of dollars from their overseas affiliates for the first time in a decade, Federal Reserve data released last week showed.

One person at a European bank said that the crisis had heightened scrutiny on the U.S. operations of Europe’s banks, although this was a typical response by local regulators.

U.S. regulators were concerned about over-reliance on short-term wholesale funding given how quickly that can dry up, the person said, and worried that funds could flow back to the parent group from overseas branches quickly in a crisis.

Wednesday, one euro zone bank borrowed $500 million from the European Central Bank at a rate much above those at which banks can get dollars in the open market. It was the first time since February 23 a bank used the central bank’s facility.