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