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