Economy Watch: Not So Fast on That QE3

The FOMC dampened expectations of some kind of QE3 in the not-too-distant future. Mortgage delinquencies dropped 0.4 percent from January to February. And the U.S. Department of Commerce saw a 1.3 percent increase in new-equipment purchases in February.

By Dees Stribling, Contributing Editor

Image courtesy Flickr user Medill DC

The Federal Open Market Committee, which released notes from its March 13 meeting on Tuesday, dampened expectations of some kind of QE3 in the not-too-distant future. Such expectations had been fueled last week by something investors thought that Chairman Ben Bernanke intimated about QE3 being a good idea. Apparently they heard it wrong. The Fed giveth, the Fed taketh away.

The key passage in the notes regarding further stimulus of the U.S. economy by the Fed was the following: “The Committee also stated that it is prepared to adjust the size and composition of its securities holdings as appropriate to promote a stronger economic recovery in a context of price stability,” the FOMC began, which sounds promising enough for QE3 fans. But then there was this: “A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.”

A “couple” of members out of the ten on the FOMC. The statement seems to mean that only 20 percent of the FOMC feels that way and, by implication, that the other eight don’t. That was enough of a hint to send bond investors out the door, spurring the largest selloff in nearly a month. The benchmark 10-year Treasury yield went as high as 2.299 percent right after the minutes were released, up from 2.18 percent almost immediately (though the yield settled down a little afterwards).

Mortgage Delinquencies Edge Down

Lender Processing Services said on Tuesday that 7.57 percent of U.S. residential mortgages were delinquent in February, down from 7.97 percent in January. Compared with February 2011’s delinquency of 8.8 percent, the drop was even steeper.

By LPS’s way of reckoning, mortgages actually in foreclosure don’t count in the aforementioned total. The company puts the faction of residential mortgages in that melancholy state at 4.13 percent in February, down ever so slightly from January, when the reading was 4.15 percent. The year-over-year change for the percentage of foreclosures was exactly the same, since LPS said 4.15 percent of mortgages were in foreclosure in February 2011.

All together, that means 11.7 percent of all residential loans on the books are either troubled or very deeply troubled (non-current, to use the bankers’ lexicon). The states with the highest number of non-current loans are Florida, Mississippi, Nevada and New Jersey. The states with the fewest non-current mortgages are Montana, Arkansas, Wyoming, and the Dakotas.

Factory Orders Up, New York City Busy

Businesses were eager to buy new equipment in February — computers, aircraft, other kinds of machinery — thus spurring an increase in orders to U.S. factories of 1.3 percent month-over-month, according to the U.S. Department of Commerce on Tuesday. Consumer eagerness for cars and car parts also boosted factory orders during the month. The uptick is a return to the pattern of growth interrupted in January, when factory orders dropped 1.1 percent.

Business activity in New York City saw a surge in March, according to the Institute for Supply Management on Tuesday. The organization’s New York’s Current Business Conditions index rose from 63.1 in February to 67.4 in March, which is the highest reading since early 2011. Among other survey questions, the ISM asked New York employers whether they were hiring, and fully 58 percent said yes, while 18 percent were neither hiring nor firing, and 16 percent were firing people (8 percent were in the “don’t know” category).

Wall Street took a small hit on Tuesday after the FOMC minutes, and is now waiting for the employment numbers later this week. The Dow Jones Industrial Average lost 64.94 points, or 0.49 percent, while the S&P 500 and the Nasdaq were down 0.4 percent and 0.2 percent, respectively.