Economic Highlights for the Week Ending March 30, 2007

Monday, March 26th
New home sales fell 3.9% in February to an annual rate of 848,000 after plunging 15.8% in January. Weaker sales and rising inventories indicate that the housing market remains mired in its correction. Looking forward, expect continued weakness as builders sell off excess inventories amid slower demand and tighter credit standards.
Tuesday, March 27th
The leading measure of U.S. home prices showed year over year declines for the first time in 11 years. The S&P Case/Shiller (CSI) house price index covering 10 metro areas fell 0.7% in January from a year earlier while the index of 20 major metros was down 0.2%. The growth rate of the 10 metro composite index is at its lowest level since 1994.
The consumer confidence index fell to 107.2% in March from 111.2% in February. Waning consumer optimism was related to the recent jump in gas prices. Consumers indicated their confidence in current conditions but downgraded their expectations for the future.
Wednesday, March 28th
In testimony to the Joint Economic Committee today Fed Chairman Ben Bernanke said that the Fed continues to see higher inflation as the predominate risk to the economy but that downside risks to growth have increased on housing market weakness and softer business spending. The Chairman indicated the change of language in the last policy statement reflected these uncertainties and injected more flexibility into policy decisions. Bernanke believes the subprime situation will remain contained and that for now, steady monetary policy is the correct path to take for the economy.
The MBA mortgage applications index slipped 0.2% to 671.0% for the week that ended March 23. Purchase activity increased marginally last week while refinancing activity decreased. Nevertheless, refinancing applications were 41.0% above their year ago level.
Thursday, March 29th
Growth was slightly stronger in the fourth quarter compared to previous estimates. GDP grew at an annualized pace of 2.5% in Q4, up from 2.2% in the preliminary estimate. Inventory investment was not as weak as estimated and net exports were stronger. Even with the upward adjustment, growth remains slow mainly due to the housing market correction which shaved a full percentage point from growth during the period.
Mortgage rates were little changed again this week as slower growth indicators offset higher inflation readings. 30-year fixed rate mortgages averaged 6.16% this week, the same as last week according to Freddie Mac's mortgage market survey.
Jobless claims fell 10k to 308k for the week that ended March 24. Lower jobless claims over the last several weeks indicate improvement in labor market conditions. However, improvements may be short lived as auto manufacturing and residential construction weakness will lead to more layoffs down the road.
Friday, March 30th
Personal income increased 0.6% in February while consumer spending expanded 0.6%. Both income and spending gains were higher than expected last month. Inflation accelerated in February. The core rate of inflation tracked in this data series grew 0.3% in February and was up 2.4% over the last year, still above the Fed’s comfort zone of 2.0%.
Construction spending increased 0.3% in February compared to expectations for a 0.5% decline. Strength in nonresidential and public construction spending led the gain in February but was not enough to offset residential construction weakness. Looking ahead, residential construction will continue to be a drag on quarterly economic growth through the first half of this year.