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Loan and Financing Terminology
Mortgage loan, economic, and Financing terminology can be
confusing, but I'm here to help you understand the language of loans.
- Mortgage Loan, Economic, and Financing Terminology
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Business Inventories and Sales:
- These
figures measure the inventories and sales of manufacturing, wholesalers, and
retail establishments. These figures are released monthly by the Bureau of
Census. In most cases, an increase in these numbers indicates an expanding
economy which could be inflationary.
Mortgage rates worsen.
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Capacity Utilization:
- The
capacity utilization rate measures the percent of industrial output currently
in use. A change in the rate indicates a change in the direction of economic
activity. As the percentage rate moves closer to 90% the industrial output is
practically at full capacity and is inflationary. A number closer to 70% is
recessionary. A higher percent- age indicates a stronger manufacturing sector
and an expanding economy which can be inflationary.
Mortgage rates worsen.
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Consumer Price Index (CPI):
- The
consumer price index is an indicator of the general level of prices.
Components include energy, food and beverages, housing, apparel,
transportation, medical care, and entertainment. When the consumer price index
goes up, it is a sign of an inflationary environment. Consumers have to pay
more for the same amount of goods and services.
Mortgage rates worsen.
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Durable Goods Orders:
- This
gives a reading on the country's future manufacturing activity. Durable goods
include those manufactured items with a normal life expectancy of three years
or longer. An increase in the amount of durable goods orders may indicate an
expansion in the economy and, if inflationary, the Federal Reserve could
choose to tighten money by raising interest rates.
Mortgage rates worsen.
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Effect Of Economic Indicators On Fixed Income Investments:
- Market
participants look to U.S. Government economic releases as an indication of the
economy's strength and general direction. Overall, economic indicators reflect
the rate of economic growth and inflation which, in turn, affects interest
rates. There is an inverse relationship between interest rates and bond
prices. If the economic indicators indicate that the rate if inflation is on
the rise, it will most likely result in higher interest rates and lower bond
prices. Conversely, if these indicators indicate the rate of inflation is
falling this will result in lower interest rates and higher bond prices. The
following glossary defines what these indicators are and how they might affect
the bond market.
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Factory Orders:
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Manufacturer's shipments, inventories, and orders. Factory orders include
shipments, inventories, and new and unfilled orders. An increase in the
factory order total may indicate an expansion in the economy and could be an
inflationary factor.
Mortgage rates worsen.
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FED Is Easing:
- Exactly
the opposite of Fed tightening. The Federal Reserve feels that the economy is
not growing at the desired level and eases credit conditions by lowering
interest rates to help stimulate the economy.
Mortgage rates get better.
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FED Is Tightening:
- This
term refers to efforts by the Federal Reserve to curb excessive growth in the
money supply. This can be accomplished by their raising the discount rate
and/or increasing the federal funds rate.
Mortgage rates worsen.
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Gross National Product (GNP):
- The
Gross National Product is the broadest measure of the nation's production. It
measures the market value of all newly produced goods and services in the
United States. When GNP is down, it shows a slowing down in the economy. To
counteract this, the Federal Reserve may loosen money by lowering interest
rates. Mortgage rates get better.
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Industrial Production Index:
- The
industrial production index measures the monthly level of the physical output
of the manufacturing, mining, and gas and electric utility industries. When
industrial production is down, it indicates a slowing of economic growth and,
therefore, the Federal Reserve is inclined to allow interest rates to drop to
stimulate the economy.
Mortgage rates get better.
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Leading Economic Indicators:
- This
index is a composite of 11 statistics designed to foretell economic activity 6
to 9 months hence, (i.e. building permits, new orders for consumer goods and
materials, the average workweek, index of consumer expectations).
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Merchandise Trade Balance:
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Released monthly, this figure measures the difference between imports and
exports. When exports are higher than imports, there is a surplus in the
balance of trade. When imports are higher than exports, there is a deficit.
The import-export differential is referred to as the trade gap.
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Money Supply:
- The
amount of money in circulation. M1 = cash + regular demand deposits + other
check-type deposits. M2 = M1 + savings and small denomination time-deposits.
When the money supply figure is up, it is an inflationary factor and,
therefore, generates concern that the Federal Reserve will tighten money
growth by allowing short-term interest rates to rise.
Mortgage rates worsen.
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Non-Farm Payroll:
- The
non-farm payroll figure is a component of total civilian employment and
measures the number of people employed in all activities except agriculture.
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Producer Price Index (PPI):
- The
monthly producer price index measures the level of prices for all goods
produced and imported for sale in the primary marketplace. Increase in the PPI
tend to lead other measures of inflation.
Mortgage rates worsen.
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Retail Sales:
- Key
components of retail sales include automobiles, building materials, furniture,
department store sales, food stores, gasoline, clothing, restaurants and
drugstores. High retail sales are an indication of economic growth and an
expanding economy.
Mortgage rates worsen.
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Unemployment Rate:
- This is
the percent of the civilian labor force currently unemployed. If unemployment
figures are up, it indicates a lack of expansion within the economy and is,
therefore, good for the bond market. Conversely, a big gain in employment
would be an obvious cue for the Federal Reserve to tighten (raise) either the
federal funds rate or the discount rate.
Mortgage rates get better.
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