Economic Highlights for the Week Ending September 15, 2006

Monday, September 11th
The probability of another Fed rate hike by the end of this year is about 15%. The economic calendar is busy this week with prints on retail sales, import prices, consumer prices and industrial output.
Tuesday, September 12th
The international trade deficit on goods and services widened to $68.0 billion in July from a gap of $64.8 billion in June. The outsized July trade deficit was due to increased imports while exports fell. Both the petroleum and non-petroleum trade balances continued to deteriorate. Falling oil prices in August and September should improve the trade picture somewhat going forward.
The Wall Street Journal reported today that rising inventories of homes available for sale will continue to exert downward pressure on home prices in some parts of the country. Home sales have declined in the past year most notably in areas that have seen the largest price gains in the preceding five years like CA, FL, AZ, MA, and Washington, DC. Analysts and even NAR economists believe we will see price declines for the nation as a whole possibly in the next few months. Price declines, the extent of which remains to be seen, will eventually lead to increased demand and stronger sales.
The Treasury's $8.0 billion, 10-year note auction was met with strong demand today. The notes were awarded a high yield 4.81% lower than an expected yield of 4.82% and received a 2.91 bid-to-cover ratio, much higher than 2.23 in the previous auction. Treasuries rose and prices fell in response to the strong auction results with the 10-year note up 7/32 to 100-25/32 to yield 4.76%.
Wednesday, September 13th
The Treasury budget deficit widened to $64.6 billion in August compared to a deficit of $51.3 billion in August one year ago. For the first 11 months of this fiscal year the cumulative budget deficit totaled $304.3 billion compared to $354.1 billion for the same period last year. The vast improvement in the budget deficit is due to large revenue gains this year although outlays continue to rise sharply.
The MBA mortgage applications index rose 3.2% to 584.2% for the week that ended September 8. Recent easing of mortgage rates has produced a short term gain in application volumes in the last several weeks. However, over the long term application activity has been trending lower and remains 23.2% below its year ago level.
Thursday, September 14th
Retail sales rose 0.2% in August following a 1.4% increase in July. A surprising 0.4% gain in motor vehicle sales contributed to better than expected results last month. Excluding autos, retail sales were up 0.2% in August. Sales increased in most categories except for gasoline and furniture and home furnishings. Consumer spending growth remains healthy and is expected to accelerate in coming months related to recent energy cost declines.
Import prices jumped 0.8% in August, on a 2.3% gain in petroleum prices. Over the past year petroleum prices have increased 24.3% which accounts for 3.9 percentage points of import prices 6.6% annual gain. Export prices climbed 0.4% and are up 5.2% over the past year.
Mortgage rates eased for the seventh time in eight weeks. 30-year fixed rate mortgage averaged 6.43% this week compared to 6.47% last week according to Freddie Mac's mortgage market survey. Mortgage rates are expected to drift in a fairly narrow range as long as inflation remains contained and the Fed holds steady on rates.
Friday, September 15th
The consumer price index rose 0.2% in August, in line with expectations. Energy prices were up 0.3% on the month and have gained 15.0% over the past year. Energy price gains have added 1.1 points to the 3.8% annual increase in the CPI. Excluding food and energy the core CPI gained 0.2% on the month and is up 2.8% on the year. The annual gain is higher than the Fed would like to see however it will not deter them from standing pat on rates next week.