Economic Highlights for the Week Ending December 14, 2007

MONDAY, December 10th
The pending home sale index, a leading indicator of existing home sales that tracks the number of signed contracts in a given month, increased 0.6% in October to 87.2 from a reading of 86.7 in September. It was the second straight monthly gain however the index remains 18.4% below the index level of 106.8 in October last year. The NAR’s chief economist predicts that existing home sales will rise gradually in 2008 over exceptionally low levels in the final months of 2007.
TUESDAY, December 11th
As widely expected, the FOMC cut key, short-term interest rates by 25 basis points at their policy-setting session today. This was the third consecutive cut in the fed funds target which now stands at 4.25%. The Board also approved a 25 basis point decrease to 4.75% in the discount rate. In the policy statement, the Fed cited slower growth related to the housing market correction and increased financial market strains as reasons for easing.
WEDNESDAY, December 12th
Import prices jumped 2.7% in November led by a 9.8% surge in petroleum prices. Over the past year oil prices have soared by 53.0%, pushing overall import prices up 11.4%. Non-petroleum import prices climbed 0.7% on the month and were up 3.0% over the past year. Outside of energy, imported goods inflation remains moderate but is still placing upward pressure on both producer and consumer prices.
The international trade deficit widened to $57.8 billion in October from a downwardly revised deficit of %57.1 billion in September. For the first 10 months of this year, the trade deficit has averaged $58.6 billion compared to a monthly average trade deficit of $64.0 billion in 2006. Robust export growth, related to strong global economies and a weak dollar is responsible for the improvement in the trade picture.
The MBA mortgage applications index rose 2.5% to 811.8% for the week ending December 7. This follows a 22.5% advance in the previous week. The applications index is at its highest level since mid-2005. The purchase index increased 1.7% on the week while the refinance index rose 4.3%. The refinance share of mortgage applications was 59% of the number and 58% of the dollar volume. Falling mortgage interest rates will continue to support application activity going forward.
One day after the Fed eased monetary policy and disappointed financial markets with their policy statement, the Federal Reserve announced a plan to increase liquidity into global money markets. The Fed will lend at $40 billion in two separate auctions this month with the size of two more auction to be determined next month, at rates far lower than discount rate. The discount rate is the rate at which the Fed loans money overnight directly to banks. Other major central banks will hold auctions similar to the Fed’s and be able to make loans in dollars instead of other much stronger currencies. The hope is that it will relieve pressure on interbank lending rates, especially the Libor.
THURSDAY, December 13th
Retail sales jumped 1.2% in November nearly double expectations and helped by colder weather, an early Thanksgiving and sharply higher gasoline prices. Consumers remain quite resilient in the face of the housing correction and higher energy prices. Spending will likely decelerate this quarter from a robust third quarter pace however it will not be excessively weak, much to the relief of financial markets.
The producer price index surged 3.2% in November driven higher almost entirely by energy prices, which rose 14.1%. This is the second highest reading since the index was started in 1973. Excluding food and energy prices from the index, core producer prices gained a 0.4% last month, which was still a bit above trend. Over the past year the PPI was up 7.7%, its highest level in over 25 years, while the core PPI gained just 1.9%, considered by the Fed the safety zone for wholesale inflation.
FRIDAY, December 14th
The consumer price index soared 0.8% in November compared to expectations for a 0.6% increase. Higher energy prices were once again behind the larger than expected gain in headline consumer prices last month. Excluding food and energy prices core consumer inflation rose 0.3% on the month and gained 2.3% on the year. The yearly gain is higher than the Fed would like to see but inflationary pressures should soften in the near term under slower economic growth.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13339.85 13625.58 -285.73 or -2.10%
NASDAQ 2635.74 2706.16 -70.42 or -2.60%
WEEK IN ADVANCE
In the coming week market players will be looking at further developments in the financial services industry; oil prices and other issues that could affect consumer spending and data from the housing sector: homebuilder sentiment and housing starts.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending December 7, 2007

MONDAY, December 3rd
The ISM manufacturing index came in a 50.8% in November down just slightly from a reading of 50.9% in October. New orders and production maintained well during the month while employment contracted and input prices increased. The level of the index suggests that national factory activity is still growing, albeit at a very slow pace. The weak tone and sluggish growth in the manufacturing sector provide more fodder for a Fed easing when policy makers meet next week.
Motor vehicle sales increased 0.9% in November to an annual rate of 16.2 million units. Auto sales increased 6.7% to 7.47 million while light truck sales declined 4.2% to 8.22 million units. Consumers are probably shopping for more gas efficient cars hence the decline in truck sales.
TUESDAY, December 4th
Extremely low yields in the bond market curtailed demand for Treasuries Tuesday. Treasuries inversely followed stock market action but ended lower on the day before a slew of economic data on Wednesday and the employment report, Friday. In late trading the 10-year note was down 12/32 to 102-28/32 to yield 3.89%.
WEDNESDAY, December 5th
Productivity was revised even higher in Q3 growing at a 6.3% rate up from the first reading of 4.9%. This was its fastest quarterly pace in 4 years. Nevertheless, productivity has been trending lower over the past several years. Unit labor costs were revised sharply lower, to -2.0% from -0.2% originally.
The ISM non-manufacturing index fell 1.7 points to 54.1% in November, less than expectations of a reading of 55.0%. Business activity in the service sectors of the economy expanded at a slow pace last month in part because of the turmoil in housing and mortgage finance industries. Higher energy costs and the housing correction pose downside risks to service sector growth going forward.
The MBA mortgage applications index surged 22.5% to 791.8% for the week that ended November 30. Purchase applications increased 15.2% and refinance applications increased 31.9%. Lower fixed rates are behind the increase in application activity. More rate declines will continue to support mortgage activity in the near term.
THURSDAY, December 6th
Jobless claims fell 15k to 338k for the week that ended December 1. The level of claims remains elevated suggesting some deterioration in labor market conditions. Tomorrow’s employment report should clarify the labor picture and help determine the size of the Fed’s next rate cut.
Stocks climbed another leg higher Thursday as jobless claims decreased and Bush announced his plan to help troubled borrowers. The gist of it is to freeze, for five years, adjustable rates on mortgages due to reset between 2008 and 2010. The mortgage bailout plan was delivered right on the heels of a report detailing a high number of mortgage delinquencies and foreclosures in the third quarter. Homebuilder stocks helped led the gain with the Dow up 174.93 to 13619.89. The NASDAQ gained 42.67 to 2709.03.
Slower consumer spending and income gains for October as well as reports of weaker house price appreciation boosted Treasury prices and lowered yields substantially in the past few weeks and mortgage rates followed with the average 30-year fixed rate falling below the key 6.0% level for the first time since October 2005. 30-year fixed rates averaged 5.96% this week compared to 6.10% last week according to Freddie Mac’s mortgage market survey.
FRIDAY, December 7th
Payroll employment rose by 94k in November, exceeding estimates for a 70k gain. However, job growth continues to trend lower with revisions in the past two months resulting in a net 48k fewer jobs. Jobs were gained in services and retail while job losses occurred in manufacturing, construction and financial services. Average hourly earnings jumped 0.5% last month while the unemployment rate was unchanged at 4.7%. On balance, the mixed report supports a quarter point rate cut by the Fed next week.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13625.58 13371.72 +253.86 or +1.90%
NASDAQ 2706.16 2660.96 +45.20 or +1.70%
WEEK IN ADVANCE
With most signs pointing to year-end weakness, the Fed will likely cut the target fed funds rate by a quarter point to 4.25% when the FOMC meets to decide policy on Tuesday, December 11. Other than that, economists and financial markets will be keen on inflation indicators throughout the remainder of the week
Payroll employment rose by 94k in November, exceeding estimates for a 70k gain. However, job growth continues to trend lower with revisions in the past two months resulting in a net 48k fewer jobs. Jobs were gained in services and retail while job losses occurred in manufacturing, construction and financial services. Average hourly earnings jumped 0.5% last month while the unemployment rate was unchanged at 4.7%. On balance, the mixed report supports a quarter point rate cut by the Fed next week.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending November 30, 2007

MONDAY, November 26th
Financial markets continue to call for additional easing from the Fed and are almost fully pricing in a quarter point rate cut when the FOMC meets December 11. The economic data becomes all important between now and then and if weaker than expected may be enough to tip the scales in favor of lower rates.
TUESDAY, November 27th
The S&P/Case-Shiller Home Price Indexes, the U.S. National, 10-City Composite and 20-City Composite continued to show steep annual price declines. The quarterly U.S. National Home Price Index was down 1.7% from Q207 and off 4.5% from the third quarter of last year. The quarter/quarter decline was the largest in the index's 21-year history. The 10-metro house price index was down 5.5% year over year while the 20-metro index declined 4.9%. The indexes are highly regarded as an accurate measure of house price changes. Shiller, the chief economist behind the indexes, notes that the housing cycle is very important to the business cycle and that home price movements are an important indicator of the overall economy.
WEDNESDAY, November 28th
Existing home sales fell 1.2% in October to an annual rate of 4.97 million, off slightly from an expected pace of 5.00 million units. Total existing home sales remain down 20.7% from a year ago.
The MBA mortgage applications index fell 4.3% to 652.5% for the week that ended November 23. Purchase applications gained 6.1% for the week while refinancings tumbled 15.3%. Total applications remain 8.9% above their year ago level. Other housing indicators show that the market has not yet bottomed out and save for a sharp drop in rates application activity in the next month is expected to remain slow.
The Fed's round-up of economic activity in the twelve Federal Reserve Banking Districts, called the beige book, showed that the expansion continued in most areas during October and early November but at a slower pace than previously. Housing was the main source of weakness though retail spending was softer too. Businesses outside of housing and the real estate industries remain cautiously optimistic because the spillover effects have been relatively minor thus far. The pace of hiring was slower while wage and other inflationary pressures remained subdued. The tone of the report was decidedly more downbeat than before which financial markets took to mean that the Fed will once again cut rates when they meet December 11.
THURSDAY, November 29th
The preliminary estimate for GDP showed the economy grew at a 4.9% rate in the third quarter up significantly from the 3.9% rate in the advance estimate. Stronger inventory investment and exports were at cause for the strong upward revision.
New home sales rose 1.7% in October to an annual rate of 728k after a sharp downward revision to September data. September new home sales were adjusted from 770k to just 716k. New home sales are now 23.5% below their year ago level.
Jobless claims jumped 23k to 352k for the week that ended November 24. It could be Thanksgiving holiday related volatility but if this level is maintained for several weeks or more it indicates much weaker labor market conditions.
Long term mortgage rates fell again this week as Treasury yields in the bond market fell to multi-year lows. Worries over the subprime fallout on credit markets and housing weakness on the overall economy had investors seeking out the relative safety of government securities in the past few weeks. Stronger Treasury prices always result in a corresponding drop in yields, and mortgage rates followed suit. 30-year fixed rate mortgages averaged 6.10% this week compared to 6.20% last week according to Freddie Mac’s mortgage market survey.
FRIDAY, November 30th
Construction spending decreased 0.8% in October compared to expectations for a more modest decline of 0.3%. Residential construction led the weakness falling by 2.0% last month in its 20th straight monthly decline. Over the past year residential construction spending has fallen 16.2% reflecting the plunge in new housing starts.
Treasury prices were mixed today but gained a record amount over the past month on credit market concerns and a flight to safety bid. Treasuries sold off or gained today as traders absorbed Bernanke's remarks from last night and weak economic data. Expectations for another rate cut solidified on the Fed Chief's guidance with outlook unwinding some safe haven flows. In late trading the 10-year note was down 3/32 to 102-15/32 to yield 3.94%.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13371.72 12980.88 +390.34 or +3.01%
NASDAQ 2660.96 2596.60 +64.36 or +2.48%
WEEK IN ADVANCE
Recent Fed speak combined with weak economic readings have opened the door for a rate cut when the FOMC meets December 11. In the week ahead policymakers will be looking for more evidence of economic slowing in which to bolster their case. The economic data scheduled to be released will probably disappoint as manufacturing activity and November payrolls are expected to be on the weak side. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending November 16, 2007

MONDAY, November 12th
VETERANS DAY, Observed
Bond Market ClosedStock and Futures Markets Open
TUESDAY, November 13th
The NAR's pending home sales index which tracks the number of signed real estate contracts that have not yet closed, rose to 85.7% in September from a reading of 85.5% in August. However, the index remains 20.4% below its year ago level of 107.6%. The current low level of the index and the steep drop off from last year implies that home sales will remain weak in the fourth quarter. Despite this, NAR's chief economist points out existing home sales will be the fifth highest on record in 2007 with median prices declining by less than 2%.
The government ran a $55.6 billion budget deficit in October compared to a $49.3 billion deficit in October 2006. October is the first month of the government's fiscal year. The budget picture improved in FY2007 with total budget deficit of $163 billion, which is 61% lower than FY2004 when the deficit peaked at $412 billion. As a share of GDP the budget deficit in FY2007 was 1.2% compared to 3.6% in FY2004. The federal deficit is set to widen again this fiscal year due to slower economic growth and weaker corporate tax revenues.
WEDNESDAY, November 14th
Retail sales rose 0.2% in October better than expectations for a 0.1% increase. Regardless, sales growth was weak. Sales at gasoline stations led October's gain. Motor vehicle sales also gained 0.2% on the month. Excluding both motor vehicles and gasoline sales spending rose 0.1%. Spending has been trending lower in recent months and faces downside risks as consumers face the headwinds of a weaker housing market, tighter credit, slower job growth and rising energy costs going forward.
The producer price index rose only 0.1% in October compared to an expected 0.3% gain. Food prices shot up 1.0% but energy costs dipped 0.8%. Excluding food and energy from the index, core producer prices were unchanged last month. Over the past year the PPI increased 6.0% while core prices gained 2.5%. Despite elevated yearly gains, wholesale inflation growth has been slower in recent months leaving some maneuverability for the Fed next month.
The MBA mortgage applications index jumped 5.5% to 707.3% for the week ending November 9. The purchase index climbed 4.8% last week as the refinance index increased 6.4%. Mortgage demand has increased in 5 of the last 6 weeks and remains 9.0% above last year's level.
THURSDAY, November 15th
The consumer price index rose 0.3% in October, matching expectations. A 1.4% gain in energy prices led the gain last month. Over the past year consumer inflation has risen 3.5%. Excluding the volatile food and energy components from the index, core consumer prices rose 0.2% on the month and were up 2.1% on the year, very tame and well within the Fed's comfort zone for inflation.
Jobless claims jumped 20k to 339k for the week ending November 10. Initial jobless claims are now at the upper end of the 300k to 340k range that has been in place since the second half of 2006. The elevated level of claims is consistent with weaker job creation over the past few months though the labor market in total is only modestly weaker than it was in 2006.
FRIDAY, November 16th
Industrial production fell 0.5% in October as output declined in all three major industry groups. Manufacturing fell 0.4%, mining dropped 0.6% while utilities plunged 1.6%. Broad based weakness led to lower resource usage. The amount of capacity utilized for output last month fell to 81.7% from 82.2% in September.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13176.79 13042.74 +134.05 or +1.03%
NASDAQ 2637.24 2627.94 +9.30 or +0.35%
WEEK IN ADVANCE
The holiday shortened week yields the latest readings on homebuilders' sentiment and the pace of new construction starts. With inflationary pressures under control at the moment, it will be the severity of economic weakness that will be the deciding factor on the Fed’s next move. Further weakness is expected from housing sector indicators; the question is how deeply it will impact the broader economy. We are already seeing evidence of spillover.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending November 9, 2007

MONDAY, November 5th
The ISM non-manufacturing index rose to 55.8% in October from a reading of 54.8% in September. The gain shows some resiliency in the expansion taking place in the service industries which includes financial services, home construction and government sectors of the economy. Despite this though, service sector activity has been trending modestly lower over the past several years.
TUESDAY, November 6th
The Federal Reserve’s senior loan officer survey, covering the three month period ending in October, confirmed that tighter credit conditions exist not just for subprime borrowers but for prime borrowers as well. Because of this demand has been curtailed. 45% of banks reported weaker demand for non-traditional mortgages, while 51% reported a drop in demand for prime loans; for subprime loans, 50% of banks reported a weaker demand. Credit is harder to obtain across most loan types including residential and commercial mortgages, commercial and industrial loans and non-credit card consumer loans.
WEDNESDAY, November 7th
The MBA mortgage applications index fell 1.6% to 670.6% for the week ending November 2. The purchase index was unchanged from last week while the refinance index declined 3.2%. Mortgage activity fell slightly this week after 4 weeks of increases. Application volumes were little changed in the past week because mortgage rates did not change appreciably. Mortgage demand would be stimulated by a drop in rates.
Productivity grew at a 4.9% rate in the third quarter after gaining 2.2% in Q2. Stronger economic growth increased output in Q3 while the number of hours worked eased. While productivity surged, unit labor costs retreated, falling 0.2% quarter over quarter. Nevertheless, labor costs remain elevated rising a sharp 4.3% over the past year.
Consumer credit rose by a modest $3.7 billion in September. Revolving credit led the overall gain because the non-revolving credit category remained unchanged. With cash-out refinancing on the decline, consumers are using credit cards to fund consumption.
THURSDAY, November 8th
Treasury prices gained as yield fell Thursday after Chairman Bernanke in testimony to Congress today said that the Fed expects economic growth to slow noticeably in the fourth quarter from a strong pace in the third. He also warned that the housing downturn could intensify amid tighter credit conditions and that further sharp increase in oil prices remain a risk to growth and inflation. Rate cut expectations increased to a near certainty with fed funds futures traders pricing in a 90% probability the Fed will lower the target fed funds rate to 4.25% next month. The 10-year note was up 7/32 to 99-23/32 to yield 4.28%.
Long term mortgage rates were little changed this week while adjustable rates fell following the Fed's decision to cut rates last week. 30-year fixed rate mortgages averaged 6.24% this week compared to 6.26% last week according to Freddie Mac's mortgage market survey. 1-year ARMs averaged 5.50% this week compared to 5.57% last week.
Chain store sales rose just 1.6% in October from October one year ago. Unseasonably warm weather in many parts of the country affected sales results while the state of consumer finances and credit also played a role. Weak chain store sales last month provide little momentum to kick off the all important holiday shopping season.
FRIDAY, November 9th
Import prices jumped 1.8% in October due to sharply higher petroleum prices, which surged 6.9%. Non-petroleum import prices rose 0.5% on the month and are up 3.2% on the year. Total imports gained 9.6% over the past year. Import prices are trending higher, moderately so excluding energy costs, and could place upward pressure on overall inflation.
The international trade deficit narrowed to $56.5 billion from a downwardly revised gap of $56.8 billion in August. Booming exports, related to strength in the global economy and a weakening dollar, are responsible for the improvement in the trade deficit and will boost growth estimates for Q3 GDP.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13042.74 13595.10 -552.36 or -4.06%
NASDAQ 2627.94 2810.48 -182.54 or -6.49%
WEEK IN ADVANCE
The economic calendar is chock full of data in the coming week. Economists and financial markets will get the latest numbers on inflation, consumer spending and output to help shape the outlook.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending November 2, 2007

Monday, October 29th
Fed funds futures traders are fully pricing in a quarter point rate cut at the conclusion of the FOMC's two day meeting this week. With October's rate cut in the bag, markets are turning their attention to the next policy setting session in December. Odds are roughly 50/50 the Fed will cut again to 4.25% by year's end. The Fed's policy statement Wednesday should help to firm the interest rate outlook.
Tuesday, October 30th
Consumer confidence fell to 96.5% in October to its lowest level since October 2005. It seems surging oil prices, weak housing markets, tighter credit and sluggish job growth are weighing on consumer attitudes. Improvement in these issues should help to moderate declines and restore confidence going forward.
The S&P/Case-Shiller 10-metro monthly house price index fell by 5.0% in August, its fastest downward pace in more than 16 years. The 20-metro index dropped by 4.4%, showing that the decline is broad based and that lack of credit is affecting housing demand. Markets such as Tampa, Miami, San Diego, Las Vegas and Phoenix, markets that thrived in the boom days, are now the ones depreciating most rapidly.
Wednesday, October 31st
The MBA mortgage applications index rose 3.8% to 681.7% for the week ending October 26. Purchase applications fell 0.7% while refinance applications rose 9.2%. A drop in rates boosted refi activity while purchasing activity was flat as potential home buyers remain sidelined, waiting for a signal home prices have stabilized.
GDP grew at a 3.9% pace in Q3 lifted by strong consumer spending and net exports. The major weakness in Q3 economic growth was residential investment which took a full point off of growth. Economy-wide inflation eased to a rate of 0.8% from a 2.6% pace in Q2.
Construction spending increased 0.3% in September led by strong non-residential building and public projects. Residential construction spending fell 1.4% on the month reflecting the plunge in housing starts. Economists expect roughly a 10% decline in residential construction this year, then a modest gain in the beleaguered sector in 2008.
The FOMC trimmed the fed funds rate by 25 bps to 4.50% and the discount rate by the same amount to 5.0% following their policy setting meeting the last two days. The largely expected rate cut was tempered with language cautioning financial markets not presume that the FOMC is in the midst of a long, sustained rate-cutting cycle. The Fed indicated that growth and inflation risks are roughly balanced going forward. The statement also asserted that policy action to date should help shield the broader economy from adverse effects of the housing downturn and help with goals of moderate growth and price stability over the longer term.
Thursday, November 1st
The ISM manufacturing index slid to 50.9% in its fourth straight monthly decline. The index level indicates that the factory sector is still expanding, albeit very slowly. If weakness persists it could detract from Q4 GDP.
Personal income rose 0.4% in September as consumer spending gained 0.3%. Both were in line with expectations. A closely watched inflation gauge contained in this data series, the core PCE price deflator rose 0.2% on the month and was up 1.8% on the year, well within the Fed's comfort zone for inflation.
Mortgage rates declined to their lowest level in six months this week on continued concerns of weaker economic growth and further declines in the housing market. 30-year fixed rate mortgages averaged 6.26% this week compared to 6.33% last week according to Freddie Mac's mortgage market survey.
Friday, November 2nd
Payroll employment increased by 166,000 in October, double what economists were expecting. Service sector job creation was especially strong. The unemployment rate was unchanged at 4.7%. The report eases concerns of a housing induced slowdown in the broader economy and makes further rate cuts unlikely in the near term.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13595.10 13806.70 -211.60 or -1.53%
NASDAQ 2810.48 2804.19 +6.30 or +0.22%
WEEK IN ADVANCE
The Fed's policy statement and subsequent data this week went a long way toward establishing solid economic performance and future policy decisions. Based on the economic calendar, oil prices and inflation will likely move to the forefront in the coming week as the Fed and financial markets continue to assess the risks to the economy.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending October 26, 2007

MONDAY, October 22nd
A new week and a new attitude, as markets are now nearly fully pricing in another Fed rate cut in October. The assigned probability of about 96% is up from 33% early last week that the target fed funds rate will drop by 25 basis points to 4.50%. The fed funds contract for December is trading at a price that assumes the Fed will reduce interest rates below 4.50% by year's end.
TUESDAY, October 23rd
Strong earnings today gave traders cause for exuberance. As predicted, Apple shares easily topped estimates to climb 67%, while telephone giant AT&T increased third-quarter profit by 41 percent, borne upward by record wireless revenue and acquisition savings. On the home front, reports that mortgage lending biggie Countrywide Financial Corp. may change terms on $16 billion of adjustable-rate mortgages before the end of 2008 gave hope to borrowers facing possible foreclosure. The Dow rose 109.26 to finish at 13676.23, while the NASDAQ reached 2799.26 for a gain of 45.33.
WEDNESDAY, October 24th
The MBA mortgage applications index was unchanged for week ending October 19. A decrease of 3.1% in purchase applications was offset by a 4.0% gain in refinance applications. All eyes are upon the Fed as it prepares to meet the last of October, fueling expectations that another rate cut could change the subprime picture.
The NAR reported that existing home sales fell 8.0% last month to an annualized pace of 5.04 million units. Home sales are counted when the transaction closes so these data reflect sales initiated in August, amidst the peak of the mortgage market turmoil. September's decline, the largest so far in the current housing correction, drops the sales pace to the lowest in nearly 10 years. While further declines are expected in housing activity this year and next, on the upside, existing home sales are currently the fifth highest on record and mortgage rates remain low and stable. NAR senior economist points out problems in the mortgage market have eased in recent weeks. Conforming loans are abundantly available, pricing has improved on jumbo loans and FHA loans will help to replace subprime mortgages.
THURSDAY, October 25th
New home sales gained 4.8% in September to a seasonally adjusted annual rate of 770,000. August new home sales were revised sharply lower to an annual rate of 735,000 from the original estimate of 795,000. Despite September's rebound, sales remain very weak, down 23.3% from their year ago level.
New orders for durable goods tumbled 1.7% in September, well below an expected gain of 1.5%. A 38.7% plunge in defense orders led the weakness last month though other categories declined as well. Details in the report suggest that business investment in capital goods continues to expand but at a slower pace. Manufacturing momentum has slowed heading into the fourth quarter mainly affected by weakness in transportation orders.
Initial claims for unemployment insurance fell 8k to 331k for the week that ended October 20. Despite the drop, the level of jobless claims remains elevated suggesting a weaker pace of hiring related to widespread layoffs in the home building and mortgage lending industries.
Mortgage rates fell as the weaker than expected economic data this week pointed to slower economic growth ahead. 30 year fixed rate mortgages averaged 6.33% this week compared to 6.40% last week according to Freddie Mac's mortgage market survey.
FRIDAY, October 26th
Consumer sentiment dropped further in its final reading for October, falling to 80.9% from 83.4% in September and 82.0% mid-month. A lower expectations index score related to weaker housing, slower job growth and high oil prices led the overall decline in consumer attitudes.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13806.70 13522.02 +284.68 or +2.11%
NASDAQ 2804.19 2725.16 +79.03 or +2.90%
WEEK IN ADVANCE
The two-day FOMC meeting with the statement due out Wednesday afternoon will dominate market action and thus the direction of interest rates in the coming week. The Fed is widely expected to cut rates by 25 basis points which should help stabilize but not entirely alleviate weakness in current housing market conditions. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending October 19, 2007

MONDAY, October 15th
Rate cut expectations have shifted due to a recent raft of strong indicators. Current implications are that the Fed will remain on hold at the October 30-31 meeting. Fed funds futures traders are pricing in a 70% probability the fed funds target will remain unchanged, up from a 40% chance in early October and 10% odds in early September. However, markets are expecting one more rate cut by the end of 2007.
The Creditforecast.com Quarterly Household Credit Report showed further deterioration in credit quality as borrowing moderated in Q3. Evidence that only a portion of consumers are affected by credit problems is the fact that the Equifax risk score national average fell 0.9 points in Q3 to 698.6, virtually unchanged from last year.
TUESDAY, October 16th
Industrial Production rose 0.1% in September, while the 0.2% increase in August was scaled back to unchanged. The data indicate that manufacturing and business equipment production rose at a healthy pace in the third quarter with moderate momentum heading into Q4.
The NAHB October Housing Index, a measure of homebuilder optimism, was down 2 points to 18, a cumulative drop of 18 points since March and the lowest rating since the index was inaugurated. The index is down in every component and at its regional lowest in the western United States. Builders, faced with tightening credit, a surfeit of inventory and anemic sales, will put off starts in the coming months. Residential investment is expected to subtract from GDP growth through the first half of 2008.
WEDNESDAY, October 17th
The Consumer Price Index rose 0.3% in September, higher than an expected gain of 0.2%. Consumer inflation is up 2.8% over the past year. Excluding the often volatile food and energy categories from the index, core consumer prices gained 0.2% on the month, in line with expectations and 2.1% on the year. With inflation in check, future Fed policy actions will lean more toward how economic growth is impacted by the housing market and credit conditions.
New residential construction put in place in September plummeted 10.2% to an annualized pace of 1.19 million. Lower than expected Housing Starts were led by a 34% decrease in the multifamily sector. Single family starts fell 1.7%.
The MBA Mortgage Applications Index rose 0.7% to 656.3% for the week that ended October 12. Total applications are 12.0% above their year ago level. The purchase index gained 2.1% on the week while refinancing applications dropped 1.1%. Application activity will likely remain range bound until the Fed meets at the end of the month.
The Fed's round up of activity in the twelve Federal Reserve Banking Districts known as the beige book showed the economy continued to expand in September and early October, but that the pace of growth moderated in many areas. The anecdotal evidence in this survey proffered little to clarify future monetary policy. Economists and financial markets remain spilt about the Fed’s next rate move.
THURSDAY, October 18th
Mortgage rates were flat to slightly higher this week as the financial markets tried to decipher the Fed's next move amid a mixed bag of economic indicators. 30-year fixed rate mortgages averaged 6.40% this week the same as last week according to Freddie Mac's mortgage market survey.
Jobless Claims jumped 28k to 337k for the week that ended October 13. The surge in initial claims indicates softer labor market conditions with an increased pace of layoffs. Hiring has also been weak. October payrolls are likely to come in under 100k when reported on the first Friday in November.
FRIDAY, October 19th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13522.02 14081.05 -559.03 or -3.97%
NASDAQ 2725.16 2800.12 -74.96 or -2.67%
WEEK IN ADVANCE
Housing indicators dominate the economic calendar in the coming week with exiting home sales on Wednesday and new home sales due out Thursday. The Fed believes the housing sector and subsequent credit woes remain some of the central risks to the economy. Further weakness in home sales would tip the scales in favor of another rate cut.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending October 12, 2007

MONDAY, October 8th
Better than expected job growth in September and an upside surprise in the revision to August payrolls had the markets aggressively scaling back future rate cut expectations. Fed funds futures traders are pricing in roughly a 50/50% chance the FOMC will remain on hold at the end of this month when they meet. While policy adjustments in October remain a coin toss, traders are pricing in a high probability of a quarter point rate cut at the December session.
TUESDAY, October 9th
The September 18 FOMC meeting minutes showed that the Fed voted unanimously to cut rates by a half point. The aggressive action was based on more evidence of an extremely weak housing sector and the Committee's increasing confidence that inflation no longer poses a significant threat to the economy. Policy makers were also concerned about the economic impact of tighter credit conditions and financial market turmoil. The minutes provided little direction in the way of the timing or size of future rate moves.
WEDNESDAY, October 10th
The MBA mortgage applications index rose 2.4% to 652.0% for the week that ended October 5. The purchase index increased 2.1% on the week while the refinance index rose 2.7%. Refinancing accounted for 46% of total applications. Application volumes in the last few weeks remain in a narrow range as many in the market for home financing and refinancing wait to see if further rate cuts by the Fed will help to lower mortgage rates.
THURSDAY , October 11th
Import prices jumped 1.0% in September, in line with expectations. A 5.4% increase in petroleum prices was responsible for the gain in overall import prices last month. Risk remains that surging petroleum prices could pass through to other goods and services. For now though, import price increases remain moderate.
The international trade deficit on goods and services fell 2.4% in August to $57.6 billion from a downwardly revised shortfall of $59.0 billion in July. The improvement in the trade deficit came from stronger exports while imports fell off slightly. Exports are booming because of stronger global economies and the weakening dollar.
Jobless claims fell 12k to 308k for the week that ended October 6, despite widespread layoffs in the home building and lending industries. This indicates hiring in other sectors but job creation remains below trend and is expected to remain soft in the months ahead.
Mortgage rates edged higher this week as the employment figures released last Friday reduced rate cut expectations at the next FOMC meeting in October. 30-year fixed rate mortgages averaged 6.40% this week compared with 6.37% last week according to Freddie Mac's mortgage market survey.
FRIDAY, October 12th
Retail sales rose 0.6% in September better than an expected 0.2% gain. Gasoline and motor vehicle sales were the strongest contributors to total retail sales last month. Excluding motor vehicles, core retail sales increased a strong 0.4%. Household spending is stronger this quarter over last quarter indicating a positive boost to Q3 GDP.
The producer price index surged 1.1% in September much higher than an expected 0.4% increase. Food prices jumped 1.5% while energy prices soared 4.1%. Over the past year the PPI has gained 4.4%. Excluding food and energy from the index the core PPI rose just 0.1% last month and 2.0% over the last year.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 14081.05 14066.01 +15.04 or +0.11%
NASDAQ 2800.12 2780.32 +19.80 or +0.71%
WEEK IN ADVANCE
Data watch is still on for the Fed's upcoming policy decision at the end of the month. The beige book on Wednesday will help to document the Fed's most recent outlook while other indicators of interest include consumer prices and housing starts. So far the data has lessened odds of a rate cut to just 34%. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending October 5, 2007

MONDAY, October 1st
Rate cut expectations remained unchanged since last week however they are leaning toward two more rate cuts this year, at the October and December meetings. Fed funds futures traders are pricing in a 74% chance of a quarter point rate cut at the end of this month and 54% odds of another one December 11.
The ISM manufacturing index fell to 52.0% in September compared to expectations for a slightly smaller decline to 52.5%. This is the third straight monthly decline in the index leaving it at a level that is consistent with only modest growth in the manufacturing sector.
TUESDAY, October 2nd
September motor vehicle sales dropped slightly from August to an annual rate of 16.2 million units. Car sales improved while light truck sales dipped slightly. However indications point to sales for the year falling to their lowest pace since 1998. There is downward pressure on vehicle sales due to eroding credit quality and a paucity of available home equity that could be used for new vehicle purchases.
The NAR’s pending home sales index fell to 85.5 in August, a decline of 6.5% from July and down 21.5% from a year ago. The index tracks the number of signed contracts that have not yet closed and is considered a leading indicator of existing home sales. Housing demand is expected to remain weak under deteriorating credit conditions and tighter lending standards.
WEDNESDAY, October 3rd
The ISM non-manufacturing index fell a point to 54.8% in September, matching expectations. Service industry employment gained last month, surprising given that construction, mortgage and financial services are included in the sector, while prices accelerated. The index level is consistent with moderate expansion in the service sector, though on a trend basis, growth is mildly slower.
The MBA mortgage applications index fell 2.7% to 636.7%. The purchase index slipped 1.8% on the week as the refinance index dropped 3.8%. On the whole, mortgage application volumes remain little changed from their year ago level. Those seeking home financing / refinancing may be waiting for lower rates to kick in before submitting an application. As rates move lower expect the mortgage applications to increase.
THURSDAY, October 4th
After rising for three straight weeks, long term mortgage rates eased slightly this week as credit woes and the housing market correction weakened the economic outlook. 30-year fixed rate mortgages averaged 6.37% this week compared to 6.42% last week according to Freddie Mac's mortgage market survey.
Jobless claims rose 16k to 317k for the week ending September 29. Initial claims have averaged 318k a week so far in 2007 compared to 313k a week in 2006. Below trend job growth is expected to continue in the months ahead.
FRIDAY, October 5th
Payroll employment jumped 110k in September, a bit better than expected. Moreover, the 4k decline in August was upwardly revised to show a gain of 89k jobs. Even with the measurable improvement in the last two months, job creation continues to trend lower. Payrolls are being added at roughly half of last year's pace, related to but not entirely due to the housing market correction and financial market turmoil. The unemployment rate edged higher last month to 4.7% of the workforce, also a reflection of a slower pace of job creation.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 14066.01 13895.63 +170.38 or +1.23%
NASDAQ 2780.32 2701.50 +78.82 or +2.92%
WEEK IN ADVANCE
September payrolls and revisions to August job tallies bring some intrigue to the next FOMC rate adjustment. A rate cut at the end of this month is not a done deal. Economic data between now and the end of the month will continue to shape the interest rate outlook. The economic calendar is back loaded in the coming week with retail sales and producer prices on Friday the main market movers.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending September 28, 2007

MONDAY, September 24th
The FOMC policy statement last week indicated an easing bias going forward as the Fed works to avoid a sharp downturn in the economy. Fed funds futures traders are pricing in a 72% chance of a quarter point rate cut at the next meeting at the end of October and 55% odds of another rate cut in December. Housing and inflation reports due out this week could affect the interest rate outlook. If the numbers are particularly dismal and are related to recent credit market woes, then it could increase rate cut expectations from here.
TUESDAY, September 25th
Existing home sales decreased by 4.3% in August from the previous month, resulting in a year-over-year decline of 13%. Sales are at their slowest pace since 2002, with condo sales plummeting at a faster rate than single-family homes. The slump increased the supply of homes available to 10 months, an inventory level that rivals the housing downturn in the early 90s. The median existing house price is on par with year ago levels but data may be slightly misleading because of a change in the mix of homes sold.
According to the S&P/Case-Shiller Monthly home price index, the 10-metro house price index decreased 4.5% year-to-year in July while the 20-metro index dropped 3.9%. The highly regarded report tracks repeat sales of the same houses over time. It also captures non-conforming loans, those over $417,000, and includes high-priced homes and expensive coastal areas. The number of optimistic survey responses is the lowest for any period of time in the 22 years of the survey.
WEDNESDAY, September 26th
The MBA mortgage applications index fell 2.8% to 654.2 for the week that ended September 21. The purchase index fell 7.3% on the week while refinance applications increased 3.3%. The slight uptick in mortgage rates last week dampened purchase activity with many buyers possibly holding off until the Fed rate cuts pass through to longer term rates. Refinancing is holding up because of the high number of mortgagors encountering resets.
THURSDAY, September 27th
New home sales declined 8.3% in August to an annual rate of 795k, much lower than an expected rate of 830k. This was the lowest level of new home sales since June 2000. Over the past year sales have tumbled 21.2% and are now 42.8% below their July 2005 peak.
Jobless claims fell 15k to 298k in the week that ended September 22. Claims, which have moved into a new lower range over the past several weeks, suggest improved labor market conditions. Payroll employment figures due out next Friday should reflect a moderate pace of hiring in September as opposed to the net contraction in August jobs.
Long term mortgage rates turned higher in the past week as long term yields in the bond market moved higher. The Fed rate cut thus far has lowered shorter dated instruments. 30-year fixed rate mortgages averaged 6.42% this week compared to 6.34% last week according to Freddie Mac's mortgage market survey. One year ARMs decreased to 5.60% from 5.65% in the previous week.
FRIDAY, September 28th
Personal income rose 0.3% in August slightly below expectations of a 0.4% increase. Consumer spending gained 0.6% on the month, up from 0.4% in the prior month and above expectations. Over the past year incomes have grown 6.8% while spending gained 5.7%. A closely watched inflation gauge in this data series, the core PCE deflator, rose a mild 0.1% for the month and 1.8% for the year, well within the Fed's comfort zone for inflation.
Construction spending rose 0.2% in August better than expectations for a decline of 0.2%. A huge 2.3% rise in non-residential construction spending carried the overall gain during August. Spending was quite robust for commercial, office, health care and other types of buildings. Residential construction expenditures remained weak, falling 1.5% during the month.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13895.63 13378.87 +516.78 or +3.86%
NASDAQ 2701.50 2576.69 +124.81 or +4.84%

WEEK IN ADVANCE
The tumultuous third quarter has wrapped up for financial markets but end of quarter economic data will come in over the next month. In the coming week data flows are light but significant with the ISM manufacturing survey, Monday and the employment report due out Friday.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Week In Advance

Home sales data dominates the calendar in the coming week. Weak results are expected for a month or two, until the Fed's rate cuts kick in to help turn housing market conditions around.

Economic Highlights for the Week Ending September 21, 2007

Monday, September 17th
Stocks closed lower in choppy trading Monday, ahead of the FOMC meeting slated for Tuesday. The size of the expected rate cut in the fed funds target and subsequent lowering of the discount rate are still quite divergent. Stocks bounced around throughout the session on a weak regional manufacturing survey, higher oil prices and dismissal of Microsoft's appeal in a European antitrust case. The Dow dropped 39.10 to 13403.42. The NASDAQ was down 20.52 to 2581.66.
Tuesday, September 18th
The producer price index, a measure of wholesale inflation, tumbled 1.4% in August as energy prices tanked 6.6% during the month. Gasoline, natural gas, heating oil and diesel fuel costs all fell, but have subsequently shot upward. Core prices, excluding fuel and food costs, rose 0.2% last month and are up 2.2% over the past year.
The NAHB housing market index fell 2 points to a level of 20 in September. This was the lowest index reading since the beginning of 1991. Homebuilders continue to be pessimistic, with weakness centered on futures sales forecasts. Present single family home sales were rated modestly lower while foot traffic through model homes was unchanged from August. Weakness is likely to persist in housing conditions in the near term due to huge inventories. However, the Association said that they expect homes sales to return to an upward path in Q2 of next year.
The FOMC at its policy meeting today acted decisively to lower the target for the fed funds rate to 4.75%, a cut of 50 basis points. They also cut the discount rate by 50 basis points to 5.25%. The financial markets were expecting a quarter point easing but were very pleased with the deeper, half point cut. This was the first policy adjustment by the Fed after nine straight meetings without a change. The Committee cited slower economic growth and potential downside risk to the economy going forward due to financial and credit market turmoil. Policymakers will continue to monitor the situation carefully and act as needed to sustain economic growth and price stability.
Wednesday, September 19th
The consumer price index fell 0.1% in August led by a 3.2% drop in energy prices. The CPI gained 1.9% over the past twelve months. Excluding food and energy, core consumer prices increased 0.2% on the month and 2.1% on the year. The headline CPI could spike in the next month or two as higher oil prices are integrated into the index. Core consumer prices have been slowly retreating over the last 11 months as the pace of economic growth has slowed.
Housing starts fell 2.6% in August to an annual rate of 1.33 million, slightly lower than an expected rate of 1.36 million. Starts in August hit their lowest level since June 1995. Housing starts have tumbled 19.1% over the past year and are now off 41.9% from their peak level achieved in January 2006. Weakness in overall starts was once again led by a 7.1% plunge in single family construction starts last month.
The MBA mortgage applications index rose 2.4% to 673.2% for the week ending September 14. Both purchase and refinance applications increased last week. Application volumes have remained in a narrow range most of this year and are little changed now, after the onset of credit market disruptions. Lower rates will help to support mortgage activity going forward.
Thursday, September 20th
The index of leading economic indicators fell 0.6% in August from an upwardly revised gain of 0.7% in July. Most of the index components fell except for money supply, which received a boost from the Fed who increased liquidity in the banking system in August to counter problems in credit markets. Though volatile, the index is trending only slightly lower, a harbinger of continued sluggish economic growth.
Jobless claims fell 9k to 311k for the week that ended September 15 despite widespread layoffs in the home building and mortgage lending industries. Even with the weekly drop in claims, softer hiring conditions are expected to continue going forward.
Long term mortgage rates edged slightly higher this week but remain at lower levels not seen since May. 30-year fixed rate mortgages averaged 6.34% this week compared to 6.31% last week according to Freddie Mac’s mortgage market survey.
Friday, September 21st
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13820.19 13442.52 +377.67 or +2.81%
NASDAQ 2671.22 2602.18 +69.04 or +2.65%

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

The Federal Open Market Committee

WASHINGTON (MarketWatch) - The Federal Open Market Committee cut its benchmark federal funds rate by a half percentage point to 4.75%. In an effort to ease the credit crunch, the Federal Reserve also reduced its discount rate in lockstep to 5.25%. This is the first cut in the federal funds rate since June 2003. In a statement, the FOMC said the action "was necessary to forestall some of the adverse effects on the broad economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time." The Fed said that some inflation risks remain. It said the credit crunch could hurt the economy.

Copyright © 2007 MarketWatch, Inc. All rights reserved.

Week In Advance

The FOMC meeting takes center stage next week. While a rate cut is most certainly in the offing, there has been ongoing conjecture about how much the Fed will ease – a quarter or a half point. Regardless of the size of the policy adjustment, there will likely be more rate cuts to follow this one, later this year.

Economic Highlights for the Week Ending September 14, 2007

Monday, September 10th
The downside surprise in the number of August payrolls boosted expectations of an aggressive Fed rate cut later this month when the FOMC meets. Fed funds futures traders are pricing in an 80% probability the FOMC will lower the target fed funds rate by 50 basis points with a quarter point cut a virtual certainty, according to the markets.
Consumer credit increased by $7.4 billion in July less than an expected $9.0 billion gain. Over the past year, consumer credit has grown at a 4.8% rate, although it has been accelerating in recent months. Stronger growth in the revolving credit category led the gain. Non-revolving debt balances rose modestly. The latest consumer credit data does not yet reflect the tightening of credit standards caused by credit market turmoil. Credit is still rising broadly in line with disposable income.
Tuesday, September 11th
Exports rose the most in three years, accounting for an unanticipated narrowing of the U.S. trade deficit in July to $59.2 billion from a revised $59.4 billion in June. American manufacturers shipped more machines, airplanes and automobiles overseas. The improvement reflects relatively stronger growth in exports though imports also rose.
Wednesday, September 12th
The MBA mortgage applications index gained 5.5% to 657.4% for the week that ended September 7. The recent drop in mortgage rates has provided an opportunity for buying and refinancing. Both types of applications increased in the last week. Total applications remain 12.5% above year ago levels. Continued downward pressure on rates going forward could be a boon to the beleaguered mortgage market.
Thursday, September 13th
Mortgage rates plunged in the last week as rate cut expectations increased after the dismal report on August payrolls. 30-year fixed rate mortgages averaged 6.31% this week compared to 6.46% last week according to Freddie Mac's mortgage market survey. Economists at Freddie Mac note that sharply lower rates could help borrowers who are facing resets to refinance.
Jobless claims rose 4k to 319k for the week ending September 8, slightly lower than expected perhaps as a result of the Labor Day holiday and shortened work week. While layoffs remain contained, the pace of hiring has slowed resulting in weak net job creation.
Friday, September 14th
Retail sales rose 0.3% in August after a 0.5% gain in July. A tad weaker than expected, August retail sales were underpinned by strong auto sales. Excluding autos, retail sales fell 0.4% last month. Despite some weakness in August, spending remains above its Q2 averages which suggests a small boost to 3Q GDP.
Industrial production rose 0.2% in August, less than expected and based on weak manufacturing and mining output. A surge in utilities usage prevented a decline in total production. Capacity usage for output remained elevated but unchanged at 82.2%.
Import prices fell 0.3% in August due to a temporary drop in petroleum prices, which fell 1.3% on the month but have spiked sharply since then. Outside of the energy complex, import prices are still trending modestly higher but are unlikely to put significant pressure on consumer and producer prices for the same period.
Consumer sentiment rose to 83.8% in early September from a reading of 83.4% in August. Ratings of current conditions were about on par with the previous month while consumer expectations rose modestly. Sentiment levels appear to have stabilized for the moment at a lackluster level, which may be good given recent financial, housing and credit market turmoil. The final reading on sentiment will be released in two weeks.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13442.52 13113.38 +339.14 or +2.51%
NASDAQ 2602.18 2565.70 +36.48 or +1.42%

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Econimic Week in Advance

Jobs data this week made a rate cut a virtual certainty and most probably a necessity at the next FOMC meeting. The question is now; will it be an incremental 25 basis point cut or an aggressive 50 basis point cut? The Fed will be watching financial developments and other data up to the meeting date, Sept. 18, to determine their next policy move.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending September 7, 2007

MONDAY, September 3rd
LABOR DAY
All Markets Closed

TUESDAY, September 4th
The ISM index fell to 52.9% in August as demand waned for furniture, automobiles and computers after borrowing costs spiked. The level of the index shows continued expansion in the manufacturing sector but at a slower pace than in Q2. Manufacturing activity faces downside risks going forward if business investment falters.
Homebuilders are pulling back in an effort to reduce the abundance of unsold residential properties even as companies continue to add offices and factories. Construction spending decreased 0.4% in July, which is 2.0% lower than a year ago. Battered by a 1.4% decline in residential construction, private construction numbers decreased 0.7%, while public construction increased by 0.7%
WEDNESDAY, September 5th
The NAR's pending home sales index dropped 12.2% in July, in its sharpest decrease since September 2001 when it fell 16.1% from its year earlier level. The index tracks the number of signed real estate contracts and is considered a leading indicator of existing home sales. The sharp downturn in July is expected to be followed by another decline in August because of major mortgage market disruptions this summer.
The MBA mortgage applications index rose 1.3% to 622.9% for the week that ended August 31. Both purchase and refinancing indexes gained on the week. The overall index remains only modestly below its level during the first half of July before credit market troubles began. Despite subsequent volatility related to credit woes, the current level of mortgage applications remains 10% above its year ago level.
The Fed's survey of economic activity in the twelve Federal Reserve Banking Districts known as the beige book showed that economic activity continued to expand in most regions although at a slower pace in a few. Most Banks reported tighter lending standards for residential mortgages which has impacted housing activity. Outside of real estate, financial and credit market turmoil has had limited effect on the overall economy. The report signals still solid economic conditions which is not exactly a sure-fire catalyst for a rate cut September 18. Even so, it is likely the FOMC will cut rates when they meet in two weeks.
THURSDAY, September 6th
The ISM non-manufacturing index was 55.8% in August, unchanged from its July reading. Stronger than expected service industry activity last month was surprising since home construction, mortgage finance and financial services are part of the sector. Service sector activity continued to grow on a monthly basis, although there has been some slowing on a trend basis since mid-2004.
Productivity was upwardly revised to a rate of 2.6% in Q2 from 1.8% in the preliminary estimate. Unit labor costs were downwardly adjusted to 1.4% from the original print of 2.1%. Despite the improvement last quarter, productivity has trended lower over the last several years while unit labor costs continue to trend higher.
Jobless claims fell 19k to 318k for the week that ended September 1. The first drop in claims numbers in the past seven weeks puts the level of claims back near their year-to-date average, which is only slightly higher than its 2006 average. Nevertheless, these data suggest that August payrolls will likely be on the soft side amid somewhat sluggish labor market conditions.
FRIDAY, September 7th
Payrolls declined by 4k in August compared to expectations for a 100k gain. Moreover, revisions in the previous two months resulted in another net loss of 81k jobs. Weakness was led by steep losses in manufacturing and construction jobs. The unemployment rate however, remained unchanged at 4.6%. The housing correction is indeed impacting the broader economy. The downside risks to the economy going forward provide enough impetus for the Fed to cut rates when they meet September 18.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13113.38 13357.74 -244.36 or -1.83%
NASDAQ 2565.70 2596.36 -30.66 or -1.18%
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending August 31, 2007

MONDAY, August 27th
Existing home sales slipped 0.2% in July to an annual rate of 5.75 million units, compared to an expected rate of 5.70 million. This was the slowest pace of home sales since November 2002. Existing home sales remain down 9.0% on the year.
Financial markets are maintaining their expectations for a Fed rate cut in September. Fed funds futures traders are fully pricing in a 25 basis point rate cut in the target fed funds rate at the next FOMC meeting. A rate cut however is not a done deal. It’s interesting to note that the effective fed funds rate has been between 4.5% and 5.0% since August 10, when the Fed increased liquidity in the banking system to help calm credit market fears. The question is, will the Fed wait for the effective rate to move higher before formalizing a cut in the target?
TUESDAY, August 28th
The consumer confidence index fell to 105 in August from 1119 in July. Consumers' ratings of both the present situation and expectations for the future dropped sharply this month. Confidence levels were impacted mainly by recent financial market turmoil and sluggish labor market conditions. Downside risks remain as consumers cope with high debt burdens, rising gas prices, tighter credit and softer home prices.
WEDNESDAY, August 29th
The MBA mortgage applications index fell 4.0% to 615.2% for the week that ended August 24. Despite turmoil in the mortgage markets, application volume remains 10.5% higher than its year ago level. Both purchase and refinance applications dropped in the last week. Mortgage application activity retreated sharply in the last two weeks which is more consistent with the downturn in housing market conditions.
When credit conditions tighten, more home buyers are rejected which leads to larger application volumes when buyers refile. This has created an upward slant to the MBA mortgage applications index. Also, the index is more heavily weighted to conventional, fixed-rate mortgages. Indeed, subprime, Alt-A and jumbo mortgage applications have dropped almost 40% in the middle two weeks of August, which has not drastically impacted the overall index.
THURSDAY, August 30th
Long term mortgage rates continued to slide this week but short term mortgage rates increased sharply as the mortgage market continues to mirror the volatility in bond market yields. 30-year fixed rate mortgages averaged 6.45% this week compared to 6.52% last week and 6.44% a year ago according to Freddie Mac's mortgage market survey. Rates on one-year adjustable rate mortgages increased about a quarter of a percent.
Jobless claims jumped 9k to 334k for the week that ended August 25. Claims are maintaining in a new higher range that is consistent with some loosening in labor market conditions. The level of claims suggests that payroll employment for August could be weak.
FRIDAY, August 31st
Housing and the mortgage industry were the main topics in speeches made by President Bush and Fed Chairman Ben Bernanke today. The Fed Chief, in remarks to an annual symposium in Jackson Hole today, said that current conditions in mortgage finance and the housing sector will be watched closely for the impact on the broader economy and that the Fed is prepared to take action if necessary. Any developments between now and the next FOMC meeting on September 18 can affect monetary policy. Shortly after the Fed Chairman’s speech, the President outlined a plan designed to help potentially hundreds of thousands of subprime borrowers avoid foreclosure. Working with the FHA, more refinancing options, lower down payments, higher loan limits and additional tax benefits were among some of the proposed administrative and legislative initiatives. The proposed changes could help many distressed homeowners keep their homes but will likely take several months to enact.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending August 24th, 2007

Monday, August 20th
Rate cut expectations have increased substantially given the Fed's most recent response to an impending credit crunch. Last week, the Fed cut the discount rate by 50 basis points stating that downside risks to economic growth have heightened. The Fed’s tightening bias was essentially reversed to an easing bias given the weaker outlook for economic growth. Fed funds futures traders are fully pricing in a 25 basis point rate cut when the FOMC meets September 18 with a high probability of one more rate cut by the end of the year. Financial market reaction to the Fed’s latest moves will help determine if more easing is necessary.
Tuesday, August 21st
A speech today by Richmond Fed President Lacker dampened expectations of interest rate cuts at the Fed's September meeting. He argued that "financial market volatility, in and of itself, does not require a change in the target federal funds rate." Lacker stated further that financial market troubles only warrant a change in interest rates if it alters the outlook for inflation or growth.
Wednesday, August 22nd
The MBA mortgage applications index fell 5.5% to 641.1% for the week that ended August 17. After two weeks of gains, purchase applications decreased 5.0% while refinance applications dropped 6.4%. Even with the declines, the level of the index suggests healthy application activity; however, with the housing market still searching for the bottom, application activity may reflect shifting financial modalities rather than serving as a leading indicator of housing market activity.
Thursday, August 23rd
Mortgage rates dropped this week amid an ongoing rally in the bond market as investors continue to flee riskier investments affected by the subprime fallout. 30-year fixed rate mortgages averaged 6.52% this week compared to 6.62% last week according to Freddie Mac’s mortgage market survey. Rates are expected to remain under pressure as rate cut expectations continue to grow.
Jobless claims fell by 2k to 322k for the week that ended August 18. The decline, the first in four weeks, was smaller than expected. Jobless claims are on a slightly rising trend indicating a slower pace of hiring. But labor conditions still remain relatively healthy.
Stocks tumbled Thursday in a knee jerk reaction to comments by Countrywide’s Chief Executive, who projected an economic recession based on the housing sector slump negatively affecting consumer spending. For the most part though, the economy remains on solid footing. News that Bank of America invested $2 billion in the nation’s largest lender boosted their beleaguered shares and helped rouse the major indexes back to near even on the day. The Dow was down a fraction to 13235.88. The NASDAQ fell 11.10 to 2541.70.
Friday, August 24th
New home sales gained unexpectedly in July in a hopeful sign of some stabilization in the housing sector. New home sales rose 2.8% last month to an annual rate of 870k and were the strongest in the West where they rose 22.4%.
New orders for durable goods rose 5.9% in July led by demand for motor vehicles and civilian aircraft. Strength was broad based across most all categories. Excluding the transportation sector, durable goods orders still rose a strong 3.7%. Core capital goods orders and shipments, often used as a proxy for business investment, rebounded strongly last month which should boost third quarter growth. Unfilled orders were also up sharply boding well for hard goods production going forward.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13378.87 13079.08 +299.79 or +2.29%
NASDAQ 2576.69 2505.03 +71.66 or +2.86%
WEEK IN ADVANCE
More housing data on tap in the coming week with the NAR's existing home sales report. July sales will probably maintain around current levels before taking a leg lower when tighter lending standards and higher borrowing costs will show up in the data. The week's calendar rounds out with consumer confidence, personal income and the second revision to Q2 GDP

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending August 17th, 2007

Monday, August 13th
Moves by foreign and domestic central banks to increase liquidity last week in the face of credit market distress increased the odds of a fed rate cut substantially. Fed funds futures traders are pricing in a 56% chance for a rate cut at the next meeting in September to ensure that the flow of credit does not dry up. Markets are looking for a second rate cut as well by the end of the year.
Retail sales rose 0.3% in July after tumbling in June as consumers spent in department stores, restaurants and on apparel and accessories. Consumers cut spending on gasoline and cars however, because excluding motor vehicle sales, retail sales posted a stronger gain of 0.4%. The July levels of consumer spending are well above their Q2 averages which will help to drive solid economic growth in Q3.
Tuesday, August 14th
The producer price index rose 0.6% in July and showed that prices across all stages of processing were up more than anticipated. As expected, core prices -less food and energy – rose 0.1%. Producer prices are up 4% in the past year, while core prices are up 2.3%, marking the biggest gain in nearly two years.
The international trade deficit narrowed to $58.1 billion in June, while the May deficit was revised down slightly to $59.2 billion. Three major factors influence the trade deficit: energy prices, strong global economic growth and a weakening dollar. Elevated oil prices are due to distortions in oil supply and geopolitical risk. The current price, although lower than the record highs in 2006, is high compared to historic averages.
Wednesday, August 15th
The consumer price index rose 0.1% in July in line with estimates and related to a reprieve in energy price gains. Excluding food and energy prices from the index, core consumer prices rose 0.2% last month to bring the annualized gain to 2.2%, still a bit higher than the Fed would like to see but definitely lower than a cyclical high of 2.9% reached in September 2006. Easing inflationary pressures give the Fed room to move should they decide to cut rates sometime this year.
The MBA mortgage applications index rose 3.4% to 678.7% for the week that ended August 10. Both purchase and refinance indexes increased last week. Application activity overall remains 20% higher than its year ago level. Mortgage rates have declined somewhat in recent weeks and may account for the recent surge in application activity; however it could be related to multiple applications being filed rather than an increase in sales or refinance activity.
The NAHB housing market index fell 2 points in August to a level of 22. This is a new cyclical low and the second lowest reading on record since the index began in 1985. Builders rated present single family sales lower while projecting lower sales six months from now. Foot traffic through model homes also fell to its lowest level ever. Tighter lending standards, higher mortgage rates and rising defaults continue to pressure new home sales with builders unable to work off high inventory levels. Economists say that the bottom in the housing correction has yet to be reached and project that recovery in the sector could be as far off as the middle of next year.
Thursday, August 16th
Housing starts tumbled 6.1% in July to a rate of 1.38 million. New construction starts have slowed 20.9% over the last year under faltering sales and tighter credit. Both single family and multifamily starts declined last month. Building permits which are often used as a proxy for future new starts activity fell 2.8% to 1.37 million. Sinking permit issuance, dour home builder sentiment, bloated inventories, weakened demand and tighter credit all point toward further contraction in the home building business. Housing's contribution to economic growth will be substantially negative again in Q3 and probably Q4 as well.
Mortgage rates edged higher in the past week as Treasury prices settled down after a huge run-up related to credit market woes and equity decline. 30-year fixed rate mortgages averaged 6.62% this week compared to 6.59% last week according to Freddie Mac’s mortgage market survey. Economists at Freddie Mac stated today that problems in the non-prime sector have not yet affected the prime conforming market.
Friday, August 17th
The Fed cut the discount rate, the rate at which the Fed loans money to banks, by 50 basis points today in an effort to bring some order to recent gyrations in the financial markets. The Fed also said that downside risks to economic growth have heightened and that they are prepared to take further action if necessary.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending August 10, 2007

Monday, August 6th
Rate cut expectation have soared for future Fed meetings based on credit market concerns and the fallout from the subprime sector. Fed funds futures traders are pricing in a 92% chance the Fed will cut the target rate by 25 basis points to 5.0% when they meet October 31 compared with 14% odds just two weeks ago.
Tuesday, August 7th
The FOMC held rates steady today, leaving the target for the fed funds rate at 5.25%. This was the ninth straight meeting without a change in rates. Before that, the Fed bumped rates 17 times in a row moving the target from 1.0% to its current level of 5.25%. Non-action on monetary policy was widely expected. However there were changes in the policy statement language released after the meeting. First, the Fed acknowledged financial market volatility referring to recent capital market gyrations, the widening of credit spreads and tightening of credit standards. Secondly, the Committee expects continued moderate economic expansion but added that it will be supported by employment growth and a robust global economy. Finally, the Fed set the stage a balanced risk bias by saying their predominant concern remains inflation, but that downside risks to growth have increased somewhat. As always they wrapped up by saying that future policy adjustments will depend on incoming economic data.
Productivity grew at a 1.8% rate in Q2, compared to 0.7% in Q1. In the last five years productivity increased an average 2.1% per year, but has slowed in the past year to a paltry gain of 0.6%. Unit labor costs accelerated at a 2.1% rate in Q2, higher than an expected gain of 1.6%.
Consumer credit outstanding increased in June by $13.2 billion to$ 2.459 trillion, more than twice what the market expected. By historical standards, growth in revolving and non-revolving credit remained robust while advancing 8.4% and 5.3% respectively, over the month.
Wednesday, August 8th
The MBA mortgage applications index jumped 8.1% to 656.5% for the week that ended August 3. The purchase index shot up 7.4% to 447.4%, while the refinance index surged 9.1% to 1881.1%, its highest level since mid May. The gain in application activity this week could be a result of the recent downward pressure on rates but a rebound in the housing sector is not expected anytime soon.
The NAR lowered housing sales forecasts for the sixth straight month but said that price declines will be less severe. The Realtor group said they expect existing home sales to total 6.04 million in 2007, down from 6.22 million units predicted last month. The forecasted pace is still above June's rate of 5.75 million. The median price for an existing home is forecast to fall 1.2% to $219,300 this year slightly less than the 1.4% drop estimated a month ago.
Thursday, August 9th
Jobless claims rose 7k to 316k for the week that ended August 4. The four week moving average was up 2k in the last week and continuing claims increased 39k in the prior week. Initial claims rose in the last two weeks but remain in a relatively narrow and tight range. The gradual increase over the last couple of weeks though, is consistent with a reduced pace of hiring.
Lenders lowered mortgage interest rates this week amid softer job creation in July and an uptick in the unemployment rate. 30-year fixed rate mortgages averaged 6.59% this week compared to 6.68% last week according to Freddie Mac's mortgage market survey. Separately, Freddie Mac reported that cash out refinancing totaled $76.7 billion in the second quarter, $24.5 billion less than in the same quarter a year ago. Tougher credit standards and slumping house price appreciation likely resulted in the decline.
Treasury prices surged Thursday as subprime and credit market woes substantially increased the flight to quality bid in the bond market. News of the ECB loaning almost 95 billion euros to banks to avoid a cash crunch and France cutting off access to three funds exposed to U.S. credit markets boosted inflows. Rate cut expectations shot higher due to credit market turmoil and related issues, with fed funds futures traders pricing in nearly a 100% chance of a cut in September. The benchmark 10-year note was up 21/32 to 99-23/32 to yield 4.77%.
Friday, August 10th
Import prices jumped 1.5% in July compared to expectations for a 1.0% increase. A 7.0% surge in petroleum prices was at cause again for pushing overall import prices higher last month. Non-petroleum import prices gained just 0.2% in July. There is a risk that sharply higher import prices related to higher energy costs would be passed through to other goods and services.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Week in Advance

The FOMC meeting in the coming week is the highlight on an otherwise light economic calendar. Financial markets will be parsing the language in the policy statement as usual for indications on the interest rate and economic outlook. No significant changes are expected either in the fed funds target rate or in the post-meeting statement.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending August 3, 2007

Monday, July 30th

Bargain hunters were out Monday snapping up shares after last week's severe sell off. Investors, rotating back into stocks, showed interest in financials, homebuilders and retailers. Merger activity provided some lift but some deals stalled due to the credit crunch. Stocks rallied in the afternoon to end higher on the day. The Dow was up 92.84 to 13358.31. The NASDAQ gained 21.04 to 2583.28.
Tuesday, July 31st
Personal income rose 0.4% in June, less than an expected 0.5% gain. Consumer spending increased only 0.1% during the month due to soft retail and motor vehicle sales. A closely watched inflation gauge contained in this data series, the core PCE price index, gained just 0.1% on the month and 1.9% on the year. The annual gain in the price index is within the Fed's preferred range for inflation.
The consumer confidence index shot up 7.3 points in July to 112.6%. This is the highest confidence reading since August 2001. Ratings of both the present situation and expectations for the future increased substantially. Surprising given higher gas prices, modest job creation and stagnant house price appreciation.The monthly surge in confidence is welcome; however downside risks remain in the near term.
The employment cost index rose 0.9% in Q2 as benefit costs surged and wage gains fell mildly from the first quarter. For the year ending in June total compensation increased 3.3% up from a 3.0% gain in Q1.
Construction spending fell 0.3% in June compared to expectations for a 0.2% increase. This was the first decline in the past five months. Residential construction weakness continues to weigh on overall spending. In June, public construction and the nonresidential category provided little offset. There is little indication that residential weakness will abate soon.
Wednesday, August 1st
The ISM manufacturing index fell 2.2 points in July to 53.8%. Expectations were for a reading of 55.5%. Manufacturers kept the lid on inventories, which fell for the twelfth consecutive month. Because of the correlation to GDP growth, if these data maintain through September, it would indicate slower growth in Q3 than experienced in Q2.
Vehicle sales slipped in July, to a pace of 15.5 million units. The figures point to weakening credit quality, restrained employment trends and ascending fuel prices as probable causes for softness in sales.
The MBA mortgage applications index fell 0.3% to 607.1% for the week ending July 27. Despite a seven week decline, mortgage applications were 15.1% above a year ago.
Thursday, August 2nd
Sharply lower yields in the bond market placed downward pressure on mortgage interest rates this week however long term mortgage rates only edged down slightly. Bond yields have been tumbling lately as the subprime fallout drove investors into safer Treasury securities. 30-year fixed rate mortgages averaged 6.68% this week compared to 6.69% last week according to Freddie Mac's mortgage market survey.
Jobless claims rose 4k to 307k for the week ending July 28. Initial claims have settled into a relatively low and narrow range implying on-trend payroll creation and fairly tight labor market conditions.
Friday, August 3rd
Payroll employment increased 92k in July, less than an anticipated gain of 130k. Moreover, the prior two months were revised lower for 8k net fewer jobs. In July, strong service sector job growth was partially offset by job losses in government, manufacturing, and construction industries. Hourly earning rose 0.3%, in line with expectations while unemployment edged 0.1% higher to a 4.6% rate. These data point to a gradual softening of labor market conditions without significant wage pressures. Lack of inflation warnings and mild growth will keep the Fed on hold in the foreseeable future.


Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Week in Advance

A busy economic calendar will help to clarify economic performance after the Q2 rebound. The indicators are light on housing but heavy on other sectors of the economy, mainly manufacturing and labor. Signs of solid economic activity could help quell the volatility in the stock market and put a floor under Treasury yields.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending July 27, 2007

Monday, July 23rd
Based on solid economic indicators excluding the housing sector, fed funds futures traders expect key short term rates to stay at 5.25% when the Fed meets in August. Traders are pricing in a 90% chance that the Fed will remain on hold at the October 30 meeting, up from 85% last week. In the second half of this year, mortgage equity withdrawal declines and slower consumption growth could keep the economy below its long-term potential of slightly below 3%.
Tuesday, July 24th
National mortgage lender leader Countrywide Financial revealed that more good credit borrowers are lagging on loan payments, and a housing market recovery may not start until 2009 because of housing prices declines not seen in decades. Countrywide's stark assessment signaled a change in how housing executives are publically describing the market. The comments initiated a steep stock market sell-off today, the most volatile in a year.
Wednesday, July 25th
Existing home sales fell 3.8% in June to an annual pace of 5.75 million, shy of an expected 5.87 million pace. Rising mortgage rates combined with tightening lending standards are quashing demand for homes. Inventories declined but at the weakened sales pace, the month's supply of homes for sale remained unchanged at 8.8. Median prices rose slightly for the first time in 11 months gaining 0.3% over the past year to $230,100. Credit market distress and a still high level of inventories mean that the correction in the housing market will continue.
The Fed's survey of economic conditions in the twelve Federal Reserve Banking Districts known as the beige book was mostly positive with most areas reporting moderate activity in June and early July. Gains in manufacturing and commercial real estate were offset by the drag from residential housing. Demand for loans also weakened. Consumer spending was modest with some districts reporting mixed results while labor markets remained strong. Cost pressures were evident across the board with almost every single region reporting higher oil and gas prices. Survey results showing a steady economy and contained inflation means the Fed will remain on hold when they meet next month and possibly through the remainder of this year.
Thursday, July 26th
New home sales plunged 6.6% in June to an annual rate of 834k. Expectations were centered on an annual rate of 900k. Over the past year sales have declined 22.3% and are 40% lower than their July 2005 peak. Regionally, home sales plunged in the Northeast, Midwest and West but climbed higher in the South. Inventories were unchanged last month but because of the reduced sales pace the month's supply rose to 7.8 from 7.4 in May. Home prices were mixed with median prices down 2.2% to $237,900 and average prices climbing 3.7% to $316,200. The housing market is still searching for the trough. New home sales are expected to decline going forward as builders work off high inventory levels under weakened demand.
Bleak housing market demand and credit market risks placed downward pressure on rates this week. Housing demand is being stymied by tighter lending standards and a 40 basis point jump in average 30-year fixed rates in June. Rates eased this week though with 30-year fixed rate mortgages averaging 6.69% this week compared to 6.73% last week according to Freddie Mac's mortgage market survey.
Friday, July 27th
Economic growth rebounded in the second quarter as GDP grew at a 3.4% annual rate, compared to an anemic pace of 0.6% in the first quarter. Less of a drag from housing, robust inventory building and stronger exports all contributed to the revived growth rate. Consumer spending however, slowed sharply. An economy wide inflation gauge slowed to 2.7% last quarter from 4.2% in Q1.

America's best jobs in the hottest markets

I came across this article and wanted to share it with you. CNN Money Magazine identified Phoenix as #5 nationally in forecasting 2 yr job growth

America's best jobs in the hottest marketsThe great American hiring boom is slowing down--but as labor cools with the rest of the economy, a few choice regions will stay red-hot. You just have to know where to look.By Paul Kaihla, Business 2.0 Magazine senior writer - CNN Money Magazine

Phoenix ranks #5
2-year job-growth forecast: 5.6%
Metropolitan-area population: 4.0 million
Who's hiring now: ASU, Banner Health, suburban schools
Hottest jobs: Senior software developer ($84,800), IT project manager ($78,600), semiconductor process engineer ($78,000), physician's assistant ($76,200), construction project manager ($74,000)
In each of the past three years, the Phoenix area has created about 95,000 new jobs, many of them fueled by an unprecedented construction boom. This year's number is pegged at about 60,000--a major drop-off, to be sure, but still enough in the context of the national slowdown to place Phoenix solidly in the top 10. Low income taxes and sunny weather are still attracting a steady stream of newcomers, primarily from the Northeast and Midwest; 114,000 are expected this year, continuing to stoke demand for new roads, schools, and health-care facilities. So while Phoenix's homebuilding sector will likely be down about 40 percent in 2007, employment linked to long-term infrastructure projects will stay hot. Still, Phoenix remains largely a mom-and-pop economy, with small business expected to drive most of the job expansion.

Economic Highlights for the Upcomming Week July 27, 2007

The financial markets will be keen on new and existing home sales data in the coming week for the latest reading on the state of the housing market. Also important to the outlook and the direction of interest rates is the advance estimate of second quarter GDP due out on Friday.

Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 8.25% 8.25%
Fed Discount 6.25% 6.25% 6.25%
Fed Funds 5.25% 5.24% 5.25%
11th District COF 4.293% 4.358% 3.884%
10-Year Note 4.96% 4.77% 5.07%
30-Year Treasury Bond 5.06% 4.86% 5.11%
30-Yr Fixed (FHLMC) 6.73% 6.23% 6.80%
15-Yr Fixed (FHLMC) 6.38% 5.98% 6.41%
1-Yr Adj (FHLMC) 5.72% 5.51% 5.80%
6-Mo Libor (FNMA) 5.3817% 5.3651% 5.6382%

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco