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