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News of the Competition (10/01/2014)

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  • WASHINGTON (10/1/14)--After initially balking at the idea, eBay announced plans this week to spin off its PayPal business into a separate publicly traded company next year , according to The Wall Street Journal (Sept. 30). eBay had been fighting the split--a move supported by activist investor Carl Icahn, who believes the separation will benefit both entities. But in the end, eBay agreed with Icahn's recommendation. "For more than a decade, eBay and PayPal have mutually benefited from being part of one company, creating substantial shareholder value," John Donahue, eBay chief executive, said in a statement ( The Wall Street Journal ). "However, a thorough strategic review with our board shows that keeping eBay and PayPal together beyond 2015 clearly becomes less advantageous to each business strategically and competitively." The announcement comes as eBay faces mounting competition in the payments sector from both Amazon, who introduced in August its own digital payments technology, and Apple, which announced a new mobile-payments service this month ...

FHFA: Aug. mortgage interest rates edge down

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WASHINGTON (10/1/14)--National interest rates on conventional purchase-money mortgages inched down in August, according to a number of indices from the Federal Housing Finance Agency that track new mortgage contracts.

Mortgage rates for previously occupied homes fell 1 basis point (bp) to 4.08% for the month, while the interest rate for all mortgage loans remained unchanged at 4.09%.

On conventional, 30-year fixed-rate mortgages of $417,000 or less, the average interest rate dropped 1 bp to 4.33% in August.

The effective interest rate on all mortgage loans, meanwhile, dropped to 4.24% for the month, also down 1 bp. Effective interest rates incorporate initial fees and charges over the life of the mortgage.

Finally, the average loan amount for all loans inched down to $287,100 in August, a drop of $700 from July.

Home-price appreciation softens further in July

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WASHINGTON (10/1/14)--Home-price appreciation continues to slow down on an annual basis, as home prices only rose 6.7% from their year-ago levels in July, compared with an 8.1% jump year-over-year in June, according to the S&P/Case-Shiller Home Price Indexes ( Sept. 30).

Further, on a seasonally adjusted month-to-month basis, both the 10- and 20-city indices retreated 0.5% in July, which is the second straight month of decline and the biggest drop since October 2011 ( MarketWatch Sept. 30).

"Mortgage applications are stuck at a historically low level, and first-time homebuyers have yet to enter the market in full force," said Gregory Bird, Moody's analyst ( ). "In addition, investor demand is waning as fewer local housing markets are undervalued now compared with several years ago.

"On the supply side, the support to house prices from a falling share of distress sales to total home sales has begun to wane," Bird added.

On a positive note, every metro area covered by the index experienced annual price growth, according to Moody's. The increases ranged from 0.9% in Cleveland to 12.8% in Las Vegas.

But Las Vegas, Dallas and Charlotte, N.C., were the only metro regions to see monthly price gains. The largest declines occurred in Chicago, Minneapolis, Detroit and San Francisco.

"The geographic breadth of the pullback in prices is noteworthy," said Stephen Stanley, Pierpont Securities chief economist ( MarketWatch ). "Apologies if you are looking to sell your home, but perhaps a bit of relief on the price side will help to bolster housing demand, which has been disappointing lately."

News of the Competition (09/30/2014)

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  • RICHMOND, Va. (9/30/14)--The Federal Reserve Bank of Richmond recently questioned Bank of America executives about a tax burden-reducing scheme called "dividend arbitrage," according to The Wall Street Journal (Sept. 28). Dividend arbitrage involves transferring the ownership of a stock to a company in a jurisdiction with lower dividend taxes and returning it to its country of origin after the dividend is paid. The money that would have gone to tax payments is, instead, split by banks, their clients--often hedge-funds--and the holders of the stock. Fed officials asked Bank of America about specific trades and clients and discussed reputational damage and litigation risk with the bank. The Wall Street Journal said other banks that operate dividend arbitrage include Citigroup, Deutsche Bank, Goldman Sachs, and Morgan Stanley. Bank of America insiders estimated the practice netted the bank at least $1.2 billion between 2006 and 2012, and that it was expected to add $100 million to the bank's income in 2013...

Personal income, spending climb in Aug.

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WASHINGTON (9/30/14)--Real consumer spending and personal income increased in August by 0.5% and 0.3% respectively, according to a government report released Monday.
The U.S. Commerce Department found that automobile, electronics and furniture sales drove consumer spending, with annualized car and truck sales reaching its highest level since January 2006. (MarketWatch Sept. 29). The growth in expenditures on services was also "the fastest of the year," according to Moody's ( Sept. 29).
Meanwhile, the Commerce Department data also showed that rental and transfer earnings were the top contributors to income growth last month, and that wages expanded by a five-month high of 0.4%
The savings rate dropped by 0.2%, from a revised 5.6% in July. It has remained greater than 5% for five months in a row. Moody's described the trend as "somewhat of a surprise" when weighed against improving economic conditions and more health insurance coverage. Healthcare spending, the ratings and research firm noted, has been "surprisingly weak," with the Bureau of Economic Analysis reporting negligible real growth over the last two months.
MarketWatch said the Commerce Department data imply that the pace of economic growth has remained "moderate" in the third quarter, with consumption comprising more than two-thirds of economic activity in the United States. Lower energy costs and an abatement of food price increases led to a 0.3% fall in nondurable good expenditures. Core inflation only increased by only 0.1% in August, which might lead the Federal Reserve to refrain from ratcheting up short-term interest rates, MarketWatch reported.
Long-term consumption appears to be on the rise, according to Moody's, with year-over-year real spending growth at its highest level of 2014 in August.

Analysts for the firm said that "consumer fundamentals are healthy," buoyed by low debt burdens, high asset values and job and wage growth, despite the latter remaining modest. They added that confidence is still weak, perhaps due to relatively timid income and job gains throughout the recovery in addition to current global tumult.

Q2 GDP growth bumped up to 4.6% from 4.2%

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WASHINGTON (9/29/14)--The nation's second-quarter gross domestic product was revised for a second time on Friday by the Commerce Department to a real annualized rate of 4.6%, up from 4.2%. 
The third estimate was driven by business investment. Growth in outlays on structures was revised up to 12.6% from 9.4%, while spending growth on equipment was bumped up to 11.2% from 10.7% (MarketWatch Sept. 26). 
Export totals were revised upward to 11.1% from 10.1%, significantly narrowing the trade deficit in the second quarter. Import spending was also revised up, but only by 0.2% to 11.3%.
There were no changes to overall consumer spending growth, which remained at 2.5%, despite the fact that the increase in real disposable income was revised up by 0.2% to 4.2% ( Sept. 26). Upward revisions to healthcare spending data were washed out by downward revisions to spending growth on other services. 
Corporate profit growth was also revised up to 8.4% from 8%, with the gain concentrated in nonfinancial industries and coming wholly from domestic commerce, according to Moody's.
Second-quarter inflation was also constant, remaining at an annualized rate of 2.3%.
Moody's analysts said that business capital outlays are being encouraged by low borrowing costs, loosening credit standards. Consumers are being buoyed by low debt-service costs, a bullish stock market, expansionary fiscal policy on the state and local levels and the housing recovery, they said.  
The ratings and research firm's analysts added, however, that both households and firms appear to be somewhat reluctant to spend. Economists are calling for higher wages to move U.S. GDP growth closer to its historical rate of 3.3%, up from the post-2008 average of about 2%, MarketWatch pointed out.
MarketWatch also warned against optimism concerning the upward revisions and the second-quarter growth. Sluggish growth around the world could hinder U.S. exports, and that a buildup of inventory could encourage companies to decelerate production, the wire service said.
It also pointed out that the U.S. economy grew by 4.5% in the third quarter of 2013 and 4.6% in the fourth quarter of 2011, but that the quarters were followed by slowdowns. Economists polled by MarketWatch are, nonetheless, predicting a third-quarter GDP expansion of 3.2%.
The Commerce Department's initial estimate for second-quarter real annualized GDP growth was 4%.

Consumer confidence slipping: Bloomberg

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NEW YORK and WASHINGTON (9/26/14)--A measure of consumer confidence dropped to a four-month low amid declining manufacturing activity and an increase in first-time jobless claims.
The Bloomberg Consumer Comfort Index dipped to 35.5 for the period ending Sept. 21--the lowest the measure has been since falling to 37.2 in the first week of June ( Sept. 25). Driving the downturn was movement in the personal finances component, which fell by three points to 51.3--the biggest decline since mid-May. The input measuring Americans' feelings on the present state of the economy fell by 1.1 to 22.9--the lowest reading since May 25.
Meanwhile, new unemployment insurance claims rose by 12,000 to 293,000 for the week ending Sept. 20, according to the Department of Labor, and new orders for manufactured goods dropped by 18.2% in August, said the Department of Commerce. Both agencies issued those reports on Thursday.
Bloomberg pointed out that the drop in its comfort index is caused by individuals who are particularly vulnerable to fluctuations in the labor market. The gauge measuring the confidence of Americans making less than $50,000 per year fell to a four-month low, while the same component measuring the confidence of Americans who make more than $50,000 rose by 2.4 points to 49.7. The gap between the two income brackets, Bloomberg said, is at its widest since the beginning of June.
Moody's analysts said that the decline in durable manufactured goods announced by the Labor Department was not a "cause for concern," and pointed out a spike in civilian aircraft production in July ( Sept. 25). The department's measure of transportation goods produced also fell by 42% in August, while its measurements of durable goods--excluding transportation and core capital goods orders--rose by 0.7%. and 0.6%.
Moody's also warned against reading too much into the rise in unemployment claims, with initial readings being historically inaccurate around Labor Day weekend ( Sept. 25). 
The less-volatile four-week moving average, the ratings and research firm pointed out, was below 300,000 for the second week running--a threshold that has only been reached 14% of the time since 1967. For the week ending Sept. 20, the measurement fell to 298,500 from 299,750.
Moody's also insisted that business confidence is strong and that workers are increasingly confident in the availability of other work when laid off. Its analysts said they remain "comfortable" with predicting that nonfarm payrolls will increase in September by 210,000, but that the prediction has yet to be finalized.