THE BASIS POINT

Sloooow Growth Drives Rates Lower Still

Rates are sticking with all time lows today after the April 25 Fed meeting minutes reminded us that the Fed remains open to more rate stimulus and U.S. economic data reminded us that growth is slow and spotty. If you don’t want to read the minutes, you can read this summary of Bernanke’s QE3 comments after the April 25 Fed meeting, which include his takes on many other topics.

Here is today’s chart of the Fannie Mae 3.5% coupon lenders use as a key benchmark for rate pricing. It’s staggeringly high as you can see, which is why rates are so low. Chart from MBSLive, used with permission.

And here is a rundown of today’s U.S. Fundamentals

Mortgage Applications (week ended 5/11)
– Purchase Index, Week/Week -2.4%
– Refinance Index, Week/Week 13.0%
– Composite Index, Week/Week 9.2%

– Refinance application move up when rates move down but the purchase index indicates that the real estate market doesn’t quite have the momentum needed for a sustained trend.

Housing Starts (April 2012)
– Starts are a measure of new construction
– April Starts: 717,000 (seasonally adjusted, annualized)
– April was up from 699k in March, which was revised up from 654k
– Some improvement but we need about 1,500,000 starts to accomodate population growth
– Permits: 715,000 (seasonally adjusted, annualized)
– Here’s a good Briefing.com chart that puts things into perspective

Industrial Production
– Production, Month/Month 1.1%
– Previous was revised from flat to down 0.6%
– Capacity Utilization Rate – 79.2%

– Growth may be slow but the manufacturing part of the economy is expanding

by Dick Lepre & Julian Hebron

$XHB