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GDP slackens 1%, worst quarter in 3 years

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WASHINGTON (5/30/14)--Real gross domestic product (GDP)--the total output of goods and services produced in the United States--contracted at an annual rate of 1% in the first quarter, according to the Bureau of Economic Analysis (BEA), which updated its initial estimate of a 0.1% expansion.

The revised estimate, released Thursday, is based on "more complete source data" than the agency had last month, according to a BEA press release.

The step back, after real GDP had climbed 2.6% in the fourth quarter of last year, is the GDP's first contraction in three years.

"While not quantified in the release, the effects of the severe (winter) weather clearly reduced growth in the quarter," wrote Scott Hoyt, Moody's analyst (Economy.com May 29). "(Though) some of the activity was shifted to the second quarter, which is looking much stronger."

The contraction was driven by downturns in exports, private inventory investment, non-residential fixed investment, state and local government spending and residential fixed investment, according to the BEA.

Further, according to Moody's analysts, consumer spending slowed in the first three months of the year, while disposable income growth remained weak, corporate profits fell and gross domestic income declined.

Nearly two months into the second quarter, however, the slump seen in the beginning of the year may have already been broken.

With the horrific winter weather now but a memory, and as inventory accumulation growth has leveled, many expect activity to pick up considerably in the second quarter.

"As the impact of these factors fades, the strength of the underlying economy is increasingly evident," Hoyt said. "Real U.S. GDP growth is tracking above 3% in the current quarter."

News of the Competition (05/30/2014)

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  • WASHINGTON (5/30/14)--On the heels of the industry's most lucrative quarter on record in the first quarter of 2013--reaching $40.3 billion in revenue, a 16% leap from 2012 levels--bank profits slimmed last quarter, as higher interest rates nibbled at bank mortgage business numbers, according to a report released by the Federal Deposit Insurance Corp. Wednesday (The New York Times May 28). However, it was only the second quarter in nearly five years that the bank industry suffered a decline in net-income year-over-year. Meanwhile, the pace of lending at banks picked up in the first quarter, as total loan balances swelled by $37.8 billion, or a 0.5% increase from the previous quarter, despite declines in mortgage lending and credit card loans ...

Lower rates, age of inventory potential bright spots in housing market

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WASHINGTON (5/29/14)--Rates for 30-year, fixed-rate mortgages dipped below 4% this week for the first time since October, according to Zillow Inc., while Realtor.com reported that inventories and home prices rose in April.

Despite a steady dose of weak housing numbers of late, this recent data could point to a healthier housing market in the coming months.

Further, with mortgage rates dropping about one-third of a percentage point this year, Robert Shiller, Nobel Prize-winning economist, suggests the low rates could even stimulate the housing market (MarketWatch May 27).

"These declines matter," Shiller said during an interview on CNBC. "People are watching mortgage rates."

The combination of expanded inventories and higher asking prices, meanwhile, could signal that sellers feel more optimistic than a year ago.

Inventories climbed 14.2% in April year-over-year, according to Realtor.com, while the median list home price also rose to $207,500, a 6.5% increase compared with the previous year's numbers.

The age of inventory dropped 15.7% in April from May levels as well, perhaps indicating that properties are being sold at a quicker pace.

While many expect home sales to improve this year, the rate at which houses are being sold falls well short of last year's pace.

Existing home sales, at 4.59 million units in March, fell 7.5% below numbers seen in March 2013, according to the National Association of Realtors.

News of the Competition (05/29/2014)

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  • NEW YORK CITY (5/29/14)--Square, a San Francisco-based company that sells products that allow users to accept credit card payments with their mobile devices, announced Wednesday a new cash-advance program geared specifically towards small businesses--already its cornerstone customer base (Mashable May 28). Rather than accepting applications for the advances, Square plans to approach companies that use its products with cash advance offers. The businesses that accept the advances will then pay back the loans incrementally by forfeiting a set percentage of future sales to Square. For example, if Square takes 2.75% of each credit card transaction completed by a business that uses its mobile payment technology, a company that's taken a cash advance may pay an additional 10% on top of that 2.75% for each transaction until the advance is paid off ...
     
  • WASHINGTON (5/29/14)--The Office of the Comptroller of the Currency announced some big changes involving its examiner staff--changes the regulator said were prompted by an international peer review it sought last year. One change addresses criticisms of the OCC's resident examiner program, which claim parking an examiner with a specific bank can foster an environment where examiners might ignore or fail to see warning signs of impending trouble after becoming too close to a bank's management team. The OCC said Wednesday it will cut the number of resident examiners at large banks and establish a five-year site rotation schedule for supervisors who need to work on-site. The OCC also said it would study some changes to its CAMELS grading system, which ranks banks on a scale of 1 to 5 based on its health. The international peer review suggested, for instance, that the ratings could be more forward-looking or could be more refined so banks have clearer guidance, such as splitting the high-end "2" rating into a "2" and "2-plus". . .

News of the Competition (05/28/14)

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  • SAN FRANCISCO (5/28/14)--After handing over a $25 billion settlement in 2012 to resolve lawsuits over its faulty home-loan customer service practices, Wells Fargo agreed this week to pay out an additional $67 million on mortgage-related issues to settle all remaining litigation that resulted from the so-called "robo-signing" debacle (Los Angeles Times May 23). Wells Fargo executives were accused of betraying shareholders by mishandling loan modifications and falsifying foreclosure records after the housing bubble burst in 2008. The bank will use the latest funds to provide customers with down-payment assistance--to the tune of $36.5 million--and $6 million will be used to offer free counseling to Wells Fargo customers who are having trouble paying their home loans ...

Existing-home price appreciation decelerates

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WASHINGTON (5/28/14)--Home prices continue to climb, but price growth has slowed of late, according to the S&P/Case-Shiller home price index, which tracks data for the 20 largest cities in the U.S.

Home prices rose 0.9% in March with 19 out of the 20 cities seeing heftier price tags on homes, except for New York (MarketWatch May 27).

But year-over-year home price appreciation again dropped in March--down to 12.4% from 12.9% in February--signaling a slowdown in price growth.

"The year-over-year changes suggest that prices are rising more slowly," David Blitzer, S&P Dow Jones Indices committee chairman, told MarketWatch.

In the 10 largest cities, price growth deteriorated even further. The biggest metros posted a 12.6% increase year-over-year in March, compared with 13.1% annually in February.

Moody's analysts believe the deceleration is in line with recent weaknesses in other segments of the housing market, including tepid activity in new-home sales.

"(However) demand-side drivers will keep prices headed in the right direction over the next few years," said Eric Tannenbaum, Moody's analyst (Economy.com May 27). "The labor market will continue to lose slack, boosting incomes and in turn pressuring house prices to the upside."

Though, with home inventories continuing to rise and more existing homes coming on the market, analysts expect price appreciation to continue to slow in the short term.

Existing-home price appreciation decelerates

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WASHINGTON (5/28/14)--Home prices continue to climb, but price growth has slowed of late, according to the S&P/Case-Shiller home price index, which tracks data for the 20 largest cities in the U.S.

Home prices rose 0.9% in March with 19 out of the 20 cities seeing heftier price tags on homes, except for New York ( MarketWatch May 27).

But year-over-year home price appreciation again dropped in March--down to 12.4% from 12.9% in February--signaling a slowdown in price growth.

"The year-over-year changes suggest that prices are rising more slowly," David Blitzer, S&P Dow Jones Indices committee chairman, told MarketWatch.

In the 10 largest cities, price growth deteriorated even further. The biggest metros posted a 12.6% increase year-over-year in March, compared with 13.1% annually in February.

Moody's analysts believe the deceleration is in line with recent weaknesses in other segments of the housing market, including tepid activity in new-home sales.

"(However) demand-side drivers will keep prices headed in the right direction over the next few years," said Eric Tannenbaum, Moody's analyst ( Economy.com May 27). "The labor market will continue to lose slack, boosting incomes and in turn pressuring house prices to the upside."

Though, with home inventories continuing to rise and more existing homes coming on the market, analysts expect price appreciation to continue to slow in the short term.

News of the Competition (05/28/2014)

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  • SAN FRANCISCO (5/28/14)--After handing over a $25 billion settlement in 2012 to resolve lawsuits over its faulty home-loan customer service practices, Wells Fargo agreed this week to pay out an additional $67 million on mortgage-related issues to settle all remaining litigation that resulted from the so-called "robo-signing" debacle ( Los Angeles Times May 23). Wells Fargo executives were accused of betraying shareholders by mishandling loan modifications and falsifying foreclosure records after the housing bubble burst in 2008. The bank will use the latest funds to provide customers with down-payment assistance--to the tune of $36.5 million--and $6 million will be used to offer free counseling to Wells Fargo customers who are having trouble paying their home loans ...

Auto-loan delinquencies up across 22 states

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SCHAUMBURG, Ill. (5/27/14)--Despite a slight drop in 60-day auto-loan delinquencies at the national level, 22 states across the country witnessed delinquency levels rise in the first quarter, according to data released last week by Experian.

Delaware experienced the most drastic jump, climbing nearly 10% year-over-year, while the national average dipped by 1.7%.

Montana rose by 8.9%, Nebraska by 7.9%, Iowa 6.6% and New Jersey 5.8%, to round out the top five states of increased levels of loan delinquencies.

"Consumers overall are doing a better job of paying their auto loans on time," said Melinda Zabritski, Experian senior director of automotive credit. "However, it is evident that consumers in some states are struggling to meet their payment obligations. It is important for consumers to keep in mind that paying bills on time is one of the most essential factors when lenders are evaluating who gets the best rates and terms when applying for a future loan."

Despite the 60-day delinquency numbers, 30-day delinquencies nationwide dropped 5%, with only six states showing increased levels.

The report also found that repossessions had jumped 36.5% overall in the first quarter, fueled largely by financiers who provide the majority of their loans to credit-challenged customers.

Total dollar volume for auto loans came in at $811.3 billion, the report found; the highest total since 2006 when Experian began publicly tracking these numbers.

All lender types, meanwhile, saw growth in year-over-year quarterly loan volume, with credit unions up by $23 billion.

Existing-home sales rise as inventory expands

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WASHINGTON (5/23/14)--Climbing to their fastest pace since December, existing-home sales rose 1.3% in April to 4.65 million, according to data released Thursday by the National Association of Realtors.

The increase, which fell just short of expectations, may have largely been driven by a higher volume of homes on the market, pushing up affordability and offering more options to consumers ( Economy.com May 22).

Inventories swelled by nearly 17% in April to 2.29 million existing for-sale homes, the largest gain since 1999, while median sales prices for existing homes only climbed to $201,700 in April, a mere 5.2% increase from levels seen a year ago.

For context, in April 2013 home prices had increased about 13% year-over-year.

With existing-home sales still 6.8% behind last year's pace, economists' reactions to the housing market data have been tepid.

"The increase reverses just a fraction of recent weakening," Jim O'Sullivan, High Frequency Economics chief U.S. economist, told MarketWatch (May 22). "Sales will need to keep rising to establish a renewed uptrend."

Mortgage rates also dropped slightly last week, the Mortgage Bankers Association (MBA) reported, but purchase applications have not responded in kind.

The average contract interest rate for 30-year fixed-rate mortgages fell to 4.33%--the lowest since November--from 4.39%, according to the MBA.

But purchase applications also fell by about 3%, despite a small rebound in refinancing activity. Purchase applications also sit 12% lower than levels from last year at this time.

"Rates on conforming loans hit six-month lows and jumbo rates hit 12-month lows," Mike Fratantoni, MBA chief economist, told CNBC.com (May 21). "Refinance volume picked up somewhat as a result, but it still remains more than 65% below last year's pace."

News of the Competition (05/22/2014)

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  • NEW YORK (5/22/14)-- Mortgage payment collectors at companies including Ocwen Financial Corp., Bank of America Corp and PNC Financial Services Group are hitting troubled mortgage holders with an extra clause within agreements to ease the terms of borrowers' underwater mortgages ( Reuters May 21). Increasingly, they are demanding that the homeowners promise not to say or print or post anything negative about the company, according to consumer lawyers. The lawyers warn that these clauses can really harm borrowers if they have a subsequent problem with their mortgage collector.  The clause keeps these consumers from suing or even from complainly in public about the problems they are facing ...

FOMC minutes: Taper continues, members eye exit strategy

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WASHINGTON (5/22/14)--With the economy trending upwards, the Federal Open Market Committee (FOMC) at its meeting last month felt it appropriate to discuss potential approaches to its exit strategy once economic conditions have fully normalized, minutes from the meeting--released Wednesday--showed.

Though no decisions were made about how to deal with the growing stockpile of reserves it's built up through the buyback program--reserves it will have to shave down when the buyback program sunsets-- committee members felt comfortable starting the conversation now so that it could properly communicate their plans to the public as the process drives forward. 

"Early communication, in turn, would enhance the clarity and credibility of monetary policy and help promote the achievement of the committee's statutory objectives," the minutes said.

With little change in the economic outlook since its last meeting, meanwhile, the FOMC again chose to taper its asset-purchasing program by $10 billion.

The committee lowered its mortgage-backed security purchases by $5 billion down to $20 billion, and reduced its holdings of longer-term Treasury securities also by $5 billion, down to $25 billion.

"Members again judged that, if the economy continued to develop as anticipated, the committee would likely reduce the pace of asset purchases in further measured steps at future meetings," the minutes said.

Members reiterated their stance that tapering quantitative easing is not on a preset course.

No changes were made to the committee's federal funds rate target or to its forward guidance policies. Last meeting, the FOMC formally altered the way it will develop monetary policy from a quantitative method to qualitative.

The next meeting of the FOMC will be held June 17-18.

Homeowners still tied down with negative, little equity

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SEATTLE (5/21/14)--While negative equity levels continue to decline--as they did for the eighth consecutive quarter in the first quarter, according to Zillow Inc.--millions still find themselves underwater on their mortgages.

The national negative equity rate dropped to 18.8% in the first quarter, down 12.6% from the same quarter in 2012, but still left 9.7 million homeowners who owed more on their mortgage than the value of their house.

"The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come," said Stan Humphries, Zillow's chief economist. "It's hard to overstate just how much of a drag on the housing market negative equity really is."

What's more, the majority of homes that are underwater also happen to be the most affordable on the market, which could trip up first-time homebuyers who often first make purchases from the most affordable tier of homes.

As current owners with negative equity have a difficult time listing and selling their homes--often because they don't possess the cash needed to complete the home sale process--it could leave first-time homebuyers with fewer options when entering the market.

About one in three homeowners from the bottom-third of home values were underwater in the first quarter, according to Zillow's negative equity report. That's three times higher than homeowners in the upper-third of home values.

Zillow projects the negative equity rate to continue to drop to 17% of all homeowners by 2015, according to its negative equity forecast.

Increases in home values can inject equity into homes and pull homeowners out of negative standing, but if values rise slowly, the negative equity rate will drop slowly along with it, according to Zillow.

News of the Competition (05/21/2014)

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  • WASHINGTON (5/21/14)--While J.P. Morgan shareholders voted to approve the compensation plan for the big bank's top executives recently, support severely dipped this year . Compared with 99.2% last year, only 77.9% of shareholders approved the compensation program, which included doubling the pay of CEO James Dimon, who earned $20 million in compensation last year ( Wall Street Journal May 20). In a proxy statement, J.P. Morgan explained that it doubled Dimon's pay because he "played a key role in resolving several outstanding civil and regulatory claims with government agencies and private parties," which "strengthened our business by enabling them to focus their engines principally on serving clients." A proxy adviser recommended to shareholders not to approve the compensation plan . . .

Fewer card holders paying late: TransUnion

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CHICAGO (5/20/14)--The credit card delinquency rate fell both quarterly and annually in the first quarter, according to a TransUnion report released last week.

Year-over-year, the rate sank to 1.37% from 1.51%, and quarterly to 1.37% from 1.48% in the final quarter of 2013.

The rate tracks the ratio of borrowers who are at least 90 days delinquent on their general purpose credit cards. TransUnion experts say the recent quarterly and yearly declines follow historic trends for this time of year.

"We generally see lower credit card delinquency rates and balances in the first quarter of the year, as many consumers pay down credit cards that they charged up during the holiday season," said Ezra Becker, TransUnion vice president of research and consulting.

Only Alaska experienced higher levels of credit card delinquencies in the first quarter compared with the previous one, the report found. The largest declines in delinquencies were in Massachusetts, Wisconsin and Illinois.

The report also revealed that non-prime consumers made up a larger portion of those who took out credit card loans in the final quarter of 2013, coming in at 28.95% compared with 27.28% in the last quarter of 2012. In 2007, 37.58% of credit card originations were non-prime borrowers.

"(It's) encouraging that delinquency levels have dropped on a year-over-year-basis even though the share of non-prime consumers gaining access to card credit has increased," said Toni Guitart, TransUnion director of research and consulting. "Together, these findings point to a healthy credit market."

Meanwhile, the average credit card debt-per-borrower dropped to $5,164 in the first quarter from $5,201 in the final quarter of last year.

Wage growth stifles consumer sentiment

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ANN ARBOR, Mich. (5/19/14)--Worried about stagnant incomes, consumers responded unfavorably when asked about the U.S. economy, according the preliminary May numbers from the University of Michigan Consumer Sentiment Index.
 
The preliminary reading on overall consumer sentiment dropped 2.3 points to 81.8 from April's nine-month high of 84.1.
 
"The main concern behind the small May loss involved dispiriting trends in wages," said survey director Richard Curtin ( MarketWatch May 16).  
 
Year-over-year, average hourly wages increased only 1.9% in April according to Labor Department numbers from last week. Add rising food and gas prices, and consumer budgets are spread thin.
 
It also fell below the 84.5 mark that was expected in a Reuters' survey of economists. Moody's analysts said the reading was "somewhat of a surprise" considering recent encouraging data ( Economy.com May 16).
 
Fifty-eight percent--up from April's 49%--of consumers reported that the economy had improved, but the level of consumers' expectations lowered to 73.2 from 74.7.

Homebuilder sentiment still in basement

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WASHINGTON (5/16/14)--Home-builder confidence is at its lowest point in a year, as the real-estate market struggles to recover from a brutal winter.
 
The National Association of Home Builders/Wells Fargo sentiment gauge fell to 45 from a revised 46. Economists polled by MarketWatch predicted a May reading of 48.
 
The index has been below 50 since February, indicating that builders, generally, are pessimistic about sales trends.
 
Homebuilder sentiment is back where it was 12 months ago, before borrowing costs started to noticeably rise, signaling that the run-up in mortgage rates, along with healthy price appreciation, is dampening housing demand. This is confirmed by the prospective buyers' traffic index, which has measurably declined since the summer and was at 33 for May.
 
Tight credit conditions, limited lot availability, less affordability as home prices increase could be stagnating the real estate market as summer approaches, Marketwatch said (May 15). Hiring gains may contribute to a pickup in housing demand and help offset some of negative trends.

Food feeds cost-of-living increase

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WASHINGTON (5/16/14)--­The volatile costs of food and gas in April spiked the consumer price index to its largest gain since June, according to the Bureau of Labor Statistics.
 
The seasonally adjusted 0.3% increase was the sixth such consecutive move by the index, which measures purchases in eight categories--food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services.
 
A 2.9% hike in the price of beef--the largest cut into consumer budgets since 2003--led the way in food and beverage prices, which saw a 0.4% increase from the month prior. This is the third month that the food index has risen. "The surge in farm prices was a big contributor to producer prices in the last two months," said analysts at Moody's ( Economy.com May 15).
 
In April, energy prices ticked up 0.3%, led by a 2.3% increase in the cost of gasoline.
 
Excluding food and energy, core consumer prices increased 0.2% from March and 1.8% year-over-year.
 
With April payroll levels remaining static, real inflation-adjusted hourly wages decreased 0.3%--the biggest decline in 14 months. The combination of rising prices and stagnant wages is making it harder for consumers to make ends meet ( MarketWatch May 15).

Refis boost weekly mortgage applications

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WASHINGTON, D.C. (5/15/14)--Boosted by refinancing activity, mortgage applications increased 3.6% for the week ending May 9, according to the weekly report from the Mortgage Bankers Association.
 
Refinances accounted for 50% of all applications and 44% of the prospective loan volume, although the refi index hovers near a 5 1/2-year low, Moody's reminded (Economy.com May 14). The refinance index increased 7% from the previous week.
 
Activity in adjustable-rate mortgages (ARMs) decreased to 8% of total applications.
 
Lenders are competing to attract higher-priced residential loans, displayed by the average contract interest rate for a 30-year fixed jumbo mortgage at 4.29% is lower than the 4.39% for 30-year fixed-rate mortgages with a conforming loan balance, "a rare phenomenon," Moody's noted.
 
The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.4%, the lowest since November, from 3.52%.

News of the Competition (05/15/2014)

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  • WASHINGTON (5/15/14)--Comptroller of the Currency Thomas Curry told an audience at a conference hosted by the Conference of State Bank Supervisors Wednesday that neither state nor federal banking regulators should ever use their chartering authority to create a regulatory environment intended to lure a financial institution to one type of charter or another (Politico Pro Whiteboard May 14). The article noted that Curry's remarks were a departure from some past comptrollers' actions meant to convince banks to choose a national charter. Curry made it clear that he welcomed competition, but not competition based on one regulator being less strict, or one charter costing less. Instead, state vs. federal competition should take the form of who is earliest and best at identifying weaknesses and who has the type of expertise that will best support the banking system ...

NAR: Median home-price growth slows

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WASHINGTON (5/14/14)--Although year-over-year home price growth continued in most U.S. metropolitan areas in the first quarter, increases were measurably smaller, according to the latest quarterly report by the National Association of Realtors (NAR).
 
The median existing single-family home price increased in 74% markets measured by NAR, with 125 of 170 metropolitan areas showing gains based on closings in the first quarter compared with the first quarter of 2013. Thirty-seven areas, or 22%, had double-digit increases, and 45 areas recorded lower median prices.
 
The national median existing single-family home price was $191,600 in the first quarter, up 8.6% from $176,400 in the first quarter of 2013. In the fourth quarter the median price rose 10.1% from a year earlier.
 
Lawrence Yun, NAR chief economist, said the price trend is favorable. "The cooling rate of price growth is needed to preserve favorable housing affordability conditions in the future, but we still need more new-home construction to fully alleviate the inventory shortages in much of the country," he said. "Limited inventory is creating unsustainable and unhealthy price growth in some large markets, notably on the West Coast."
 
The top five most expensive markets were San Jose, Calif. ($808,000); San Francisco ($679,800); Honolulu ($672,300); Anaheim-Santa Ana, Calif. ($669,800) and San Diego ($483,000).
 
The least expensive were Youngstown-Warren-Boardman, Ohio ($64,600); Decatur, Ill. ($69,600); Toledo, Ohio ($72,100); Rockford, Ill. ($73,100) and Cumberland, Md. ($81,400).
 
In the fourth quarter of 2013, 73% of metro areas experience price increases from a year earlier, but 89% of markets were showing year-over-year gains in the first quarter of 2013.

News of the Competition (05/14/2014)

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  • NEW YORK (5/14/14)--An investor group that includes Virgin Group Chairman Richard Branson and Yahoo co-founder Jerry Yang put $30 million of Series A funding into BitPay, a bitcoin-payments processor, as part of a $160 million venture-capital investment. Some of BitPay's merchant-account customers include WordPress and Branson's own Virgin Galatic (Forbes May 13). "Banking as we know it is in the midst of enormous change and innovation," Branson said (Business Insider May 13). "We have jumped in by investing in alternative payment models and also by accepting bitcoin for tickets on Virgin Galactic, the world's first commercial spaceline. BitPay has proven itself to process bitcoin safely and reliably, growing the market and increasing adoption, which continues to build trust, legitimacy and momentum in this exciting currency revolution" ...

Experian: Setback for small business credit

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COSTA MESA, Calif. (5/13/14)--The lingering effects of a harsh winter resulted in rising delinquencies and declining credit balances at small businesses, according to a report by Experian and Moody's Analytics.
 
The Experian/Moody's Analytics Small Business Credit Index found credit balances fell 1.2% in the first quarter.

"The improvement in small-business credit conditions paused early this year. However, this should prove temporary, as the broader economy revives from the severe winter weather," said Mark Zandi, chief economist, Moody's Analytics. "All the preconditions for stronger credit growth and fewer credit problems are in place, including sturdy profits and cash flow, record-low interest rates and low debt service burdens."

The delinquency rate ticked upward to 9.8% from 9.6%, which is its second consecutive quarterly increase. The change was seen across all buckets, though the most noticeable rise was in the 60- to 90-day range, indicating that small businesses have had trouble paying down balances only recently, according to the Experian report.

The drop-off in credit balances could be attributed to a combination of larger creditors limiting business-to-business credit transactions and small businesses being more reluctant to take on debt, said Joel Pruis, senior business consultant, Experian.
 
"As we move further away from the cold, wintry season, we should expect to see the growth rate for credit balances normalize as consumer spending picks up and small businesses feel more comfortable making credit-based purchases," Pruis added.

News of the Competition (05/13/2014)

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  • NEW YORK (5/13/14)--Citibank customers who are enrolled in the ThankYou Rewards program can now use their earned points to pay bills online. The $114 billion-asset bank said customers can earn points with their Citi checking and credit card accounts then use the points to pay virtually any bill online, including phone, cable and electricity. For example, a customer can enter the amount needed for the bill--for instance $50--and the ThankYou Points needed to cover that amount--7,692--will be automatically calculated and deducted from the awards account ...

All-cash home sales stack up

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CHICAGO (5/12/14)--All-cash home purchases continue to consume more of the market, despite investor activity slowing in the first quarter, the National Association of Realtors (NAR) reported last week.

About one-third of existing homes sold in the U.S. in the first quarter were paid for entirely with cash, up from 31% for all of 2013 and 29% in 2012, according to The Wall Street Journal.

Cash-happy investors have preyed on distressed home-sales since prices plummeted following the housing collapse in 2008, but as inventories have thinned and home prices have rebounded in recent months, investors have started vacating the market. 

Now, analysts say, it appears that retirees looking to downsize are leveraging the equity in their homes to make purchases so as to forego the burdens of mortgages and financing.

And they're doing so at a high clip.

"Distressed home sales, most popular with investors who pay cash, have declined notably in the past two years, yet the share of all-cash purchases has risen," said Lawrence Yun, NAR chief economist. "At the same time, investors have declined as a market share, indicating other changes have been under way in the marketplace."

Distressed home sales dropped to 15% of the total existing home sales pie in the first quarter, a 2% drop year-over-year and an 11% drop from the first quarter of 2012.

Meanwhile, the percentage of "trade-down" buyers rose by 29% last year, up from 25% in 2012 and 23% in 2011, according to the 2013 NAR Profile of Home Buyers and Sellers study.

No matter who is purchasing the homes, cash sales in general continue to climb.

All-cash purchases have always dominated housing markets in Florida, Arizona and Nevada, but even in states such as Minnesota and South Carolina, which both experienced a 6% increase in the first quarter, all-cash sales have become more common as well.

"A majority of foreign buyers pay cash as well, and the five-year bull run of the stock market has also provided financial wherewithal among higher wealth households," Yun said.

News of the Competition(4)

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  • WASHINGTON (5/12/14)--Jumbo mortgage loans, or loans on homes worth more than $417,000, have emerged as one of the only prosperous places in the mortgage market recently, Bloomberg reported Friday. Big banks, such as Wells Fargo, JPMorgan Chase and Bank of America have zeroed in on borrowers with deep pockets, while the average borrower has watched lending standards continue to tighten around them, the report said. Analysts say big banks are turning to these jumbo loans to pump up weak lending portfolios, but for Wells Fargo and JPMorgan , it still must not be enough, as each recently laid of thousands of workers, including 14,000 from JPMorgan since the beginning of 2013, from their mortgage units "to keep expenses in line with demand for loans" ...

Mortgage delinquencies continue to drop: TransUnion

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CHICAGO (5/9/14)--Mortgage delinquencies continue to thin, as the delinquency rate dropped to 3.61% at the end of the first quarter this year; the ninth consecutive quarter of decline, according to TransUnion.  

The delinquency rate tracks the number of homeowners who have mortgage payments that are more than 60 days late. Over the last year the delinquency rate has fallen 24%.

"It's encouraging to see mortgage delinquencies drop once again, especially during a period when mortgage originations slowed considerably," said Steven Chaouki, TransUnion head of financial services. "This trend in improved performance is driven in part by lenders working their way through the foreclosure backlog, along with continued conservatism in underwriting new mortgages."

Mortgage originations could pick back up, meanwhile, as Freddie Mac reported Thursday that 30-year-mortgage rates dropped to 4.21%--the lowest number since November. Though, the 30-year rate still stands higher than the lower rates seen a year ago, at 3.42% ( MarketWatch May 8).

The average rate for the 15-year fixed-rate mortgage sank to 3.32% as well.

For delinquencies, all 50 states and the District of Columbia saw rates drop in the first quarter, year-over-year. Arizona, California and Nevada experienced the largest percentage declines in delinquencies.

TransUnion also reported that there are nearly 10 million fewer total mortgage accounts than there were at the end of quarter one in 2008.

"While still far from levels seen six years ago, non-prime borrowers are taking a larger share of new originations," Chaouki said. "We have not seen this in quite some time.
Even so, mortgage underwriting remains conservative relative to other primary credit products in the marketplace."

News of the Competition (05/09/2014)

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  • CHICAGO (5/9/14)--In a Thursday speech, Federal Reserve Gov. Daniel Tarullo said it would be "worthwhile" to consider changing the level at which a financial institution is declared "systemically important" ( MarketWatch May 8).  "Requirements such as resolution planning and the quite elaborate requirements of our supervisory stress testing process do not seem to me to be necessary for banks between $50 billion and $100 billion in assets," he said. "If the line were redrawn at a higher figure, we might explore simpler methods for promoting macroprudential aims with respect to banks above $10 billion in assets but below the new threshold."  More than one-third of U.S. commercial banking assets are held by 80 banks that have more than $10 billion in assets ... 

News of the Competition (05/08/2014)

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  • WASHINGTON (5/8/14)--Examinations of private-equity firms by the Securities and Exchange Commission have uncovered that more than half of allocated expenses and collected fees by the firms were done so either improperly or illegally, a top SEC official reported Tuesday ( The Wall Street Journal May 7). Shady practices by the firms, such as skimming off of investment returns by inappropriately charging fees or expenses, have cost investors millions of dollars, the commission found. Drew Bowden, SEC Office of Compliance Inspections and Examinations director, said the agency has identified "violations of law or material weaknesses in controls" in more than half of the 112 examinations performed. Earlier this year, the SEC charged the private-equity manager Camelot Acquisitions Secondary Opportunities Management with stealing $9 million from investors by running a "sham due diligence arrangement," where Camelot allegedly paid fake fees to a company controlled by an acquaintance, who then allegedly kicked the funds back to Camelot. . .

Fed: Consumer credit rallies in March

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WASHINGTON (5/8/14)--Consumers were more willing to take on credit in March as outstanding credit balances climbed $17.5 billion nationwide, the steepest increase reported by the Federal Reserve since the end of last year ( Economy.com May 7).

Non-revolving credit fueled the incline, posting a $16.4 billion jump, while revolving credit balances edged up $1.1 billion, which follows two consecutive months of decline.

"Improvement in the job market, house prices and stocks have consumers feeling more confident," wrote Andrew Davis of Moody's on Economy.com. "In turn, consumers are taking advantage of extremely low interest rates and easier access to credit to finance big ticket items such as education and vehicles."

At credit unions, overall outstanding consumer credit totals jumped to $269.9 billion, up from $267.9 billion in February. Mirroring the rest of the market, non-revolving credit drove the gains at the member-owned institutions, jumping $2 billion in March to $227.9 billion from $225.9 billion.

Revolving credit at credit unions inched up to $42.1 billion from $42 billion-even in February.

Student federal loans, within the non-revolving category of debt, remained strong overall, climbing $16.4 billion in March, or an 8.7% increase from February's numbers. Credit card debt within revolving credit totals rose $1.1 billion in March, a 1.6% climb.

News of the Competition (05/07/2014)

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  • WASHINGTON (5/7/14)--There is no such thing as "too big to jail" said U.S. Attorney General Eric Holder in a message posted on his department's website Monday; a prelude, perhaps, to forthcoming cases against several large banks, which some allege have been involved in offshore tax evasion. "I am personally monitoring the status of these ongoing investigations," Holder said (Bloomberg May 5). "I am resolved to seeing them through, and in doing so, I intend to reaffirm the principle that no individual or entity that does harm to our economy is ever above the law." Holder has received flack for comments he's made in the past asserting that the size of some banks can make prosecution difficult, given that charges against them could negatively impact national and international economies ...

Home prices rise 1.4% in March: CoreLogic

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WASHINGTON (5/7/14)--Single-family home prices ticked up 1.4% in March and sit 11.1% higher than prices seen in March of last year, according to the U.S. CoreLogic Home Price Index, released Tuesday (Economy.com May 6).

Excluding sales of distressed homes, however, the index climbed just 0.9% and is up 9.5% year-over-year.

The index falls 11.6% below its peak in early 2006.

"With the end of the snowy winter across the Northeast and Midwest, demand seems to have returned to its previous level, leading a resurgence in upward price pressure," said Andres Carbacho-Burgos, Moody's analyst on Economy.com.

California, Nevada, Georgia, Hawaii and Oregon experienced the largest increases in home prices year-over-year, according to Moody's, while Kentucky, Wisconsin, Oklahoma and New Mexico saw the weakest gains.

Arkansas was the only state where prices decreased.

"Home prices continue to rise across the nation, but affordability, tight credit and supply concerns are becoming an increasing drag on purchase market activity," said Anand Nallathambi, CoreLogic president/CEO, in MarketWatch. "In many markets, especially major metro areas like Los Angeles, Atlanta and New York, home prices are being driven up at double-digit rates fueled by a lack of inventory and record levels of cash purchases."

The Mortgage Bankers Association's mortgage application survey will be released today, which could signal how the market is responding to the higher home prices.

CoreLogic projects a 0.8% increase for the home price index in April, according to Marketwatch.

News of the Competition

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  • WASHINGTON (5/6/14)--Recent research has revealed the eye-opening compensation pulled in by CEOs of big banks and delves into why executive management lacks incentive to trim those benefits and instead help out shareholders. "Breaking up into smaller units with potentially better shareholder returns would likely reduce management compensation at the largest banks; (but that's) certainly a disincentive to management pursuing such strategies," wrote Fred Cannon, analyst for KBW (Wall Street Journal May 5). Large U.S. banks, such as J.P. Morgan Chase and Bank of America, reported total median CEO compensation at $57.8 million between 2010 and 2013, including stock awards. At large regional banks, total median CEO compensation came in at $35.4 million between 2009 and 2013. Cannon found an even wider gap between median compensation levels at the largest banks compared with smaller banks ...

Loan officers favor businesses over homes: Fed survey

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WASHINGTON (5/6/14)--In the quarterly Senior Loan Officer Opinion Survey, released Monday for the Fed's second quarter, banks reported looser business lending standards, while standards tightened for mortgage lending (Economy.com April 5).

A net 13.9% of banks said they'd eased commercial and industrial (C&I) lending to large and medium-sized businesses during the second quarter, though 83.3% reported their standards were unchanged.

Banks also reported stronger demand for C&I loans, with 23.6% of banks, on net, citing more demand from large- and medium-size businesses.

But lending standards on mortgages have deteriorated over the past few months, according to Moody's.

While more stringent standards for subprime borrowers swelled to 42.9% from 20% in the second quarter, the percentage of banks that reported tougher standards on prime mortgages remained at 1.4%.

A net -25.7% of banks reported stronger demand for prime residential mortgages and a net -14.3% reported higher demand for subprime mortgages.

"Banks indicated that demand across all residential mortgage lending segments was weaker on net," wrote Andrew Davis, analyst for Moody's on Economy.com. "Additionally, respondents noted tighter lending standards on net for prime, nontraditional and subprime borrowers."

Analysts added, however, that strengthening demand for C&I loans is encouraging, and that "business activity is warming along with the weather, which is accelerating the job market improvement."

Further, banks on net eased standards on consumer credit and auto loans. Tighter lending standards reported by banks for credit cards were down to -9.3% on net, from -7% in the first quarter.

For auto loans, 0% of banks reported more stringent lending standards.

April job adds, slimmer unemployment may not tell whole story

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WASHINGTON (5/5/14)--The U.S. economy landed 288,000 new jobs in April, while unemployment fell to 6.3%, according to the Labor Department, but additional trends in the market cloud the job picture still (Economy.com May 2).

While payroll employment gains shattered analyst expectations for the month, adding 78,000 more jobs than a Moody's consensus, the type of jobs being added may be worth noting.

Moody's analysts said the gains in April were broad-based across industries--the strongest numbers came in construction, professional/business services, education/healthcare and retail--but others have reported that the trends over the last year point to less growth in higher-paying jobs, and stronger growth in the low-wage sector.

"Among 13 industries that make up total U.S. private-sector employment, the five with the lowest nominal average weekly earnings represented about 52% of private-sector employment gains over the past year," said MarketWatch's Ruth Mantell, citing numbers from Friday's jobs report.

Meanwhile, belying the substantial 0.4% drop in unemployment in April down to 6.3%, the government reported Friday that 806,000 people had dropped out of the work force entirely, pulling down the unemployment rate considerably as the rate doesn't account for those who have stopped looking for work.

"The sharp drop in joblessness must therefore be taken with a pinch of salt, as the cast of unemployed did not necessarily (not) find work. They may have simply stopped looking," said Andrew Wilkinson of Interactive Brokers in a Friday MarketWatch roundup of reactions to the job data. "Proving the case is the drop in the participation rate to 62.8% from 63.2%."

The labor force participation rate, which matches a 35-year low, is the lowest since the start of the recovery, Moody's reported.

News of the Competition (05/05/2014)

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  • LAS VEGAS, Nev. (5/5/14)--Robocoin, a Bitcoin ATM provider, has launched an online banking platform it calls Robocoin Bank and, sticking to that theme, is touting its ATMs as bank branches (American Banker May 1). Robocoin Bank lets users monitor their transactions as they use the platform to send and receive bitcoins. Robocoin is now using the terms "depositing" and "withdrawing," rather than buying and selling. Robocoin ATMs also allow users to withdraw cash--while Bitcoin ATMs only allow them to deposit cash. The article notes that bitcoin companies also are moving in the direction of adopting security features that traditional payments providers often use--like multi-signature transaction authentication. Robocoin ATMs support three-factor authentication using a phone number and a personal PIN code, plus a scan of a user's palm vein for biometric authentication. Robocoin has machines in 13 different countries and accepts 12 different national currencies ...

Despite April missteps, job market steady, analysts say

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WASHINGTON (5/2/14)--Both jobless claims and planned layoffs rose in April, according to reports released Thursday, but analysts still have faith that the labor market is headed in a positive direction.

For the last week of April, jobless claims climbed by 14,000 to 344,000, mildly surprising analysts and pushing up the four-week moving average to 320,000, the highest number in about a month ( Economy.com May 1).

Continuing claims, or those to file for unemployment for at least a second consecutive week, also spiked to 2.77 million from 2.67 million for the week ending April 19.

Economists don't appear to be alarmed.

"Expect a big drop next week," Ian Shepherdson, Pantheon Macroeconomics chief economist, told MarketWatch Thursday.

About 40,000 layoffs were announced in April, an increase of about 6,000 from March, according to Challenger, Gray and Christmas, an outplacement consultancy, with the most cuts planned for the retail and financial industries.

But the numbers are favorable compared to this time last year. Through the first four months of 2014, employers have announced 162,000 job cuts, a 12% reduction from levels in 2013.

"The pace of downsizing remains relatively low," John Challenger, chief executive at Challenger, Gray and Christmas, said in a press release in MarketWatch . "However, while the economy still has a lot of room for growth, it is unlikely that monthly layoffs will experience a precipitous decline."

Meanwhile, economists expect Friday's jobs report from the Bureau of Labor Statistics to reveal the addition of 215,000 jobs in April, an improvement over gains in March.

News of the Competition (05/02/2014)

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  • WESTLAKE VILLAGE, Calif. (5/2/14)--According to the J.D. Power 2014 U.S. Retail Banking Satisfaction Study released Thursday, while customer satisfaction with banks is improving, midsize banks are coming up short with some key customer segments , such as Millennials--those born between 1977 and 1995--and minorities, and with affluent customers remaining the least-satisfied customer segment ( American Banker May 1). Midsize banks are vulnerable to the risk of losing market share to competitors and becoming irrelevant if they don't adjust to demographic shifts, said Jim Miller, director of banking services at J.D. Power. Among the study's key findings, J.D. Power found that among customers who switched banks during the previous year, the most common reasons were poor customer service (28%); inconvenient branch locations (21%); and interest rates that were competitive (19%). Only 155 of those customers cited high fees as a top reason for switching ...

News of the Competition (05/01/2014)

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  • WASHINGTON (5/1/14)-- Wells Fargo & Co. is opening two "smaller" branches in the Washington, D.C., area, and both are meant to have a "techie" feel ( American Banker April 30).  The innovation occurs as banks everywhere experiment with new branch models as customers gravitate toward digital banking options. One of  two newest will be set up within a Safeway store with about 350 square feet of space compared to Wells Fargo's typical branches that run about 3,000 to 4,000 square feet. The second mini branch will be about 2,000 square feet. Wells Fargo will equip staff at both new mini branches with tablets so they can serve customers wherever the customers happen to be within the location. The branches also will feature ATMs with an advanced capacity--the ability to dispense $1 and $5 bills. American Banker noted that the new branch concepts come just about one year after the bank launched another branch prototype here--one that jettisoned teller windows ...

CU asset yields look up as FOMC stays course

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WASHINGTON (5/1/14)--As expected, the Federal Open Market Committee (FOMC) announced Wednesday it would continue tapering quantitative easing (QE) by $10 billion this month, while leaving the near-zero federal funds interest rate unchanged.
 
While the announcement comes as no surprise, economists at the Credit Union National Association see this continuing trend having far-reaching, and positive, effects on credit unions.
 
"The 10-year Treasury Bond interest rate fell a couple basis points after the FOMC announced that the taper of its QE program would continue at the $10-billion pace," Steve Rick, CUNA senior economist, told News Now . "This indicated that the bond markets had priced in the Fed move and that they will exit their QE program by this fall. 
 
"Nevertheless, we expect the 10-year Treasury interest rate to rise over 3.25% this year as faster economic growth reduces the demand for government debt. Higher long-term interest rates, and faster loan growth will boost credit union asset yields this year, bringing to an end the four-year slide in credit union net-interest margins."
 
Rick added that he believes credit union asset yields will rise to 3.5% in 2014, up from the record low of 3.4% set in 2013, and reach 3.7% in 2015.
 
The Fed in its statement fell short of pinpointing the exact time when federal fund interest rates would begin to climb. Previously, Fed Chairman Janet Yellen has said that that shoe won't drop for at least six months after the completion of the asset-purchase program, expected to finish this fall.
 
Rick expects the Fed to raise rates starting in the summer of 2015.
 
"Interest rates will rise at a pace of one percentage point per year, for three years," Rick said. "This is much slower than what happened in 1994 when the Fed raised interest rates three percentage points in one year, and in 2004 when interest rates increased two percentage points per year for two years."
 
Rick also projects that interest rates will normalize in 2018, but at levels below previous plateaus "due to lower real interest rates and lower expected inflation for the foreseeable future." 
 
Meanwhile, without a change in direction to short-term interest in 2014, Rick expects credit union cost of funds to bottom out at 0.58% of average assets, which would be the lowest in credit union history, and then rise only 11 basis points in 2015.

Market roundup: Experian reports climbing consumer debt

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COSTA MESA, Calif. (5/1/14)--Several numbers released Wednesday provide a broad picture of the state of the U.S. economy.

The average debt held by consumers in the U.S. has risen 5% over the last four years, according to a recent credit trends study conducted by Experian.

Meanwhile, the average credit score as reported by VantageScore stood pat nationally at 665, the study found.

Experian's overarching study looked at debt trends within the 20 largest U.S. cities, finding that Detroit residents carried the lowest average debt at $23,604, while Dallas posted the highest at $28,240.

From four years ago, the average debt in Detroit has fallen by 7.1%, while Dallas has increased by 7.8%.

"There is a lot more behind the numbers that meets the eye," said Michele Raneri, Experian vice president of analytics. "Nineteen of the cities had increases in their debt amounts, which could actually be signaling a recovery pattern as credit lending is opening up and consumers are becoming more confident."

The news that consumers are more willing to take on debt could be well received by mortgage lenders, who have seen homeownership decline recently to levels not seen since the mid-1990s ( MarketWatch April 29).

In the housing market, according to a U.S. Census release, despite improvements over the past two years, fewer homeowners remain than before the economic downturn.

The trend possibly could be fueled by lingering effects of the events of six years ago. In 2008, millions lost their homes to foreclosure, prompting the recession, which then led to massive job loss, bringing on a second round of foreclosures and, with it, less homeownership, MarketWatch reported.

Younger generations moving out of their parents homes and opting to rent instead of buy could also be contributing. The boom in apartment construction gives evidence of this.

Meanwhile, the economy overall has failed to gain traction this year, as gross domestic product, measuring goods and services produced across the U.S. economy, only rose at an adjusted rate of 0.1% in the first quarter.

The reading is the second weakest since the start of the recovery. 

Declining exports, at 7.6%, in large part due to problems abroad with international economies, primarily drove the weak numbers, the Wall Street Journal reported.

"Not a great start to the year," Sterne Agee Chief Economist Lindsey Piegza told the Wall Street Journal.