Financial and Economic Brief - Mar. 14, 2017by © Liberty Publishing, Inc.
Wholesale Inventories Fall
According to the U.S. Commerce Department, U.S. wholesale inventories fell 0.2% in January, the biggest fall since February 2016. Despite the drop, inventory investment is “likely to contribute” to economic growth in the first quarter of 2017. Inventory investment added one percentage point to the economy's 1.9% annualized growth rate in the fourth quarter of 2016. At January's sales pace it would take wholesalers 1.29 months to clear shelves, unchanged from December. The ratio was 1.37 months in January 2016, which was the highest since March 2009.
New Mortgages are Riskier
Riskier borrowers are making up a larger percentage of new mortgages, pushing up delinquencies and increasing concerns about an “eventual spike” in defaults. The concern is centered around home loans guaranteed by the Federal Housing Administration (FHA) that only require down payments of 3% to 5%. The FHA-backed loans are being offered by non-bank lenders with more relaxed credit standards than banks. The share of FHA mortgage payments that were 30 to 59 days past due averaged 2.19% in the fourth quarter, up from about 2.07% the previous quarter and 2.13% a year earlier, according to research firm CoreLogic and FHA. Despite the uptick, the housing outlook is still bright.
Borrowers Move before Rate Hike
Emerging market borrowers such as Turkish banks and countries such as Nigeria and Egypt have all hurried to raise money on dollar bond markets in 2017, trying to “get ahead” of the U.S. Federal Reserve’s interest rate increases. A rate increase by the Fed is considered a “near certainty” this week, but borrowers fear the pace of tightening will accelerate. Four rate rises look possible in 2017, rather than three. U.S. Treasury yields are at three-month highs, so both companies and governments want to secure funding before borrowing costs go up again.