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
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