Monday, September 4th
LABOR DAYAll Markets Closed
Tuesday, September 5th
Motor vehicle sales tumbled 16.5% in August to a 16.1 million unit annual rate. Vehicle sales are down 4.6% over the past year in part related to spent-up demand, higher gas prices and slower job gains. Weak sales are also likely to further reduce production schedules, which could impact economic growth in coming quarters.
The OFHEO house price index rose at an annual rate of 4.8% in Q2, the slowest pace since Q499. The index is based on repeat purchases and includes only conforming loans under a certain dollar amount and refinancing appraisals which can impart an upward bias.
The chances of a Fed rate hike later this month are next to nil and expectations for a bump by the end of the year have fallen to roughly 16%, down from 35% one week ago.
Wednesday, September 6th
The ISM non-manufacturing index jumped to 57.0% in August, better than consensus estimates for a reading of 55.0%. The level of the index indicates continued expansion in service sector activity and is consistent with GDP growth of around 3.5%.
Productivity grew at a 1.6% rate in the second quarter upwardly revised from 1.1% in the preliminary estimate. Productivity growth remains solid although it has slowed over the last two years. As a result of higher hourly compensation, unit labor costs were revised much higher in Q2 to 4.9% from the initial 4.2%. Moreover, unit labor costs were upwardly revised in Q1 to 9.0% from 2.5% originally. Sharply higher unit labor costs could bring a Fed rate hike back into play.
The MBA mortgage applications index rose 1.8% to 566.3% for the week that ended September 1. Slowly retreating mortgage rates in the last few weeks have temporarily boosted application activity. Even so, applications continue to trend lower and remain down 26.6% from their year ago level.
The Fed's survey of economic conditions in their twelve banking districts, known as the beige book, showed continued expansion in most areas in late July and August, however the pace of expansion moderated from the previous report. Consumer spending slowed especially for big ticket items like motor vehicles. Construction activity was mixed; labor markets and hiring were steady but with some spot labor shortages depending on industry and/or occupation. Wages and prices were somewhat elevated. Despite rising inflationary pressures, expectations are for the Fed to hold steady on rates this month.
Thursday, September 7th
NAR economists downwardly revised their forecasts for 2006 as the housing market works its was through inventory and price imbalances. Existing home sales are expected to fall 7.6% this year to an annual rate of 6.54 million. Six months ago, sales were projected to decline 5.7% to 6.67 million. Median prices are expected to increase 2.8% to $225,900 while 30-year fixed rates are likely to rise to 6.7% in Q4.
Mortgage rates crept higher this week on higher wage inflation reported yesterday. 30-year fixed rate mortgages averaged 6.47% this week compared to 6.44% last week according to Freddie Mac's mortgage market survey. Mortgage rates are expected to fluctuate between 6.5% and 7.0% this year as new economic data is released.
Jobless claims fell 9k to 310k for the week that ended September 2. While the level of claims suggests a low number of layoffs it does not necessarily suggest strong hiring. Indeed, job growth has been modest in the last several months averaging around 125k.
Friday, September 8th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 1392.11 11464.15 -72.04 or 0.62%
NASDAQ 2165.79 2193.16 -27.37 or -1.24%
WEEK IN ADVANCE
Inflation remains the major concern with regards to monetary policy. The Fed is hoping that slower economic growth will help to ease inflationary pressures. It seems that a pause in tightening is baked into the cake for this month. Beyond this month the data will dictate if and when the Fed hikes again. Look for import prices and consumer prices late in week for the latest inflation readings.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25 7.50 6.50
Fed Discount 6.25 5.50 4.50
Fed Funds 5.25 4.51 3.51
11th District COF 4.177 3.347 2.757
10-Year Note 4.76 4.74 4.13
30-Year Treasury Bond 4.91 4.72 4.40
30-Yr Fixed (FHLMC) 6.47 6.37 5.71
15-Yr Fixed (FHLMC) 6.16 6.00 5.30
1-Yr Adj (FHLMC) 5.63 5.45 4.45
6-Mo Libor (FNMA) 5.4501 4.9907 4.0817
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Upward pressure on interest rates Downward pressure on interest rates No pressure to change interest rates News worthy
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