Economic Highlights for the Week Ending October 20, 2006

Monday, October 16th
The slowing in the housing market will be watched closely in coming weeks for its broader impact on the economy. The biggest impact could come from the lessening of the wealth effect whereby consumer spending increases along with strong price appreciation and equity extraction. Also, housing related job losses for the most part have yet to show up in labor statistics. Economists expect the housing slowdown to subtract up to 1.0% from GDP in the last half of this year.
Tuesday, October 17th
Producer prices fell 1.3% in September, steeper than an expected 0.7% decline. The drop was predicated on an 8.4% tumble in energy prices during the month. Excluding food and energy from the index core producer prices rose 0.6% based primarily on higher vehicle prices. Over the past year, core producer prices increased at a modest 1.3%, about half of the core rate seen just one year ago.
Industrial production fell 0.6% in September compared to expectations for a 0.1% decline. Weakness was concentrated in utilities output which plunged 4.4% on the month. Manufacturing output fell just 0.3% while mining production gained 0.7%. Capacity utilization fell to 81.9% last month from 82.5% in August which helps to alleviate tight resource usage and possible inflationary pressures.
The NAHB housing market index gained a point to 31 in October in its first increase in a year. Nevertheless, the level of the index remains quite low signaling poor assessments of the housing market by major homebuilders. New home construction is expected to continue slowing until housing affordability improves.
Wednesday, October 18th
The consumer price index fell 0.5% in September based on a 7.2% drop in energy prices. Energy prices have now declined 4.5% over the past year which has dropped the yearly gain in consumer prices to 2.1%. Excluding food and energy, core consumer prices rose 0.2% on the month and are now up 2.9% on the year which is higher than the Fed's comfort zone. Even so, the Fed will hold rates steady when they meet next week. Slower economic conditions will work to ease inflationary pressures going forward.
New residential construction starts rebounded in September. Housing starts jumped 5.9% last month to a seasonally adjusted annual rate of 1.772 million units. Expectations were centered on a mild decline and a rate of 1.64 million. Even with recent gains, housing starts are 21.8% lower than their peak reached in January.
The MBA mortgage applications index fell 2.2% to 585.8% for the week that ended October 13. Rates moved higher last week resulting in a 5.3% drop in refinancing applications. Purchase apps edged 0.4% higher on the week. Mortgage demand appears to be leveling off as mortgage rates stabilize in the mid-6% range.
Thursday, October 19th
Mortgage rates were little changed this week ahead of the FOMC meeting next week where the Fed is largely expected to hold rates steady. The policy statement following the meeting could help to clarify the economic and interest rate outlook. 30-year fixed rate mortgages averaged 6.36% this week compared to 6.37% last week according to Freddie Mac’s mortgage market survey.
Jobless claims fell 10k to 299k for the week that ended October 14. The unexpected and sizable drop in the number applying for unemployment insurance suggests resiliency in labor market conditions. The level of claims suggests payroll gains for October could be stronger than in recent months.
Friday, October 20th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12002.37 11960.51 +41.86 or +0.35%
NASDAQ 2342.30 2357.29 -14.99 or -0.64%
WEEK IN ADVANCE
A rate cut is essentially off the table with the Fed expected to sit on its hands at least through the first quarter of 2007 based on recent economic data that shows underlying economic strength and still elevated levels of core inflation. Data watch continues though with new and existing home sales highlighting on the economic calendar in the coming week. Also, we will get the first print on third quarter economic growth with the advance estimate of GDP data Friday.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 7.75% 6.75%
Fed Discount 6.25% 5.75% 4.75%
Fed Funds 5.25% 4.77% 3.76%
11th District COF 4.277% 3.604% 2.870%
10-Year Note 4.78% 5.02% 4.46%
30-Year Treasury Bond 4.90% 5.10% 4.65%
30-Yr Fixed (FHLMC) 6.36% 6.53% 6.10%
15-Yr Fixed (FHLMC) 6.06% 6.17% 5.65%
1-Yr Adj (FHLMC) 5.57% 5.63% 4.89%
6-Mo Libor (FNMA) 5.3704% 5.1196% 5.2154%
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco