Economic Highlights for the Week Ending October 12, 2007

MONDAY, October 8th
Better than expected job growth in September and an upside surprise in the revision to August payrolls had the markets aggressively scaling back future rate cut expectations. Fed funds futures traders are pricing in roughly a 50/50% chance the FOMC will remain on hold at the end of this month when they meet. While policy adjustments in October remain a coin toss, traders are pricing in a high probability of a quarter point rate cut at the December session.
TUESDAY, October 9th
The September 18 FOMC meeting minutes showed that the Fed voted unanimously to cut rates by a half point. The aggressive action was based on more evidence of an extremely weak housing sector and the Committee's increasing confidence that inflation no longer poses a significant threat to the economy. Policy makers were also concerned about the economic impact of tighter credit conditions and financial market turmoil. The minutes provided little direction in the way of the timing or size of future rate moves.
WEDNESDAY, October 10th
The MBA mortgage applications index rose 2.4% to 652.0% for the week that ended October 5. The purchase index increased 2.1% on the week while the refinance index rose 2.7%. Refinancing accounted for 46% of total applications. Application volumes in the last few weeks remain in a narrow range as many in the market for home financing and refinancing wait to see if further rate cuts by the Fed will help to lower mortgage rates.
THURSDAY , October 11th
Import prices jumped 1.0% in September, in line with expectations. A 5.4% increase in petroleum prices was responsible for the gain in overall import prices last month. Risk remains that surging petroleum prices could pass through to other goods and services. For now though, import price increases remain moderate.
The international trade deficit on goods and services fell 2.4% in August to $57.6 billion from a downwardly revised shortfall of $59.0 billion in July. The improvement in the trade deficit came from stronger exports while imports fell off slightly. Exports are booming because of stronger global economies and the weakening dollar.
Jobless claims fell 12k to 308k for the week that ended October 6, despite widespread layoffs in the home building and lending industries. This indicates hiring in other sectors but job creation remains below trend and is expected to remain soft in the months ahead.
Mortgage rates edged higher this week as the employment figures released last Friday reduced rate cut expectations at the next FOMC meeting in October. 30-year fixed rate mortgages averaged 6.40% this week compared with 6.37% last week according to Freddie Mac's mortgage market survey.
FRIDAY, October 12th
Retail sales rose 0.6% in September better than an expected 0.2% gain. Gasoline and motor vehicle sales were the strongest contributors to total retail sales last month. Excluding motor vehicles, core retail sales increased a strong 0.4%. Household spending is stronger this quarter over last quarter indicating a positive boost to Q3 GDP.
The producer price index surged 1.1% in September much higher than an expected 0.4% increase. Food prices jumped 1.5% while energy prices soared 4.1%. Over the past year the PPI has gained 4.4%. Excluding food and energy from the index the core PPI rose just 0.1% last month and 2.0% over the last year.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 14081.05 14066.01 +15.04 or +0.11%
NASDAQ 2800.12 2780.32 +19.80 or +0.71%
WEEK IN ADVANCE
Data watch is still on for the Fed's upcoming policy decision at the end of the month. The beige book on Wednesday will help to document the Fed's most recent outlook while other indicators of interest include consumer prices and housing starts. So far the data has lessened odds of a rate cut to just 34%. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco