Economic Highlights for the Week Ending November 9, 2007

MONDAY, November 5th
The ISM non-manufacturing index rose to 55.8% in October from a reading of 54.8% in September. The gain shows some resiliency in the expansion taking place in the service industries which includes financial services, home construction and government sectors of the economy. Despite this though, service sector activity has been trending modestly lower over the past several years.
TUESDAY, November 6th
The Federal Reserve’s senior loan officer survey, covering the three month period ending in October, confirmed that tighter credit conditions exist not just for subprime borrowers but for prime borrowers as well. Because of this demand has been curtailed. 45% of banks reported weaker demand for non-traditional mortgages, while 51% reported a drop in demand for prime loans; for subprime loans, 50% of banks reported a weaker demand. Credit is harder to obtain across most loan types including residential and commercial mortgages, commercial and industrial loans and non-credit card consumer loans.
WEDNESDAY, November 7th
The MBA mortgage applications index fell 1.6% to 670.6% for the week ending November 2. The purchase index was unchanged from last week while the refinance index declined 3.2%. Mortgage activity fell slightly this week after 4 weeks of increases. Application volumes were little changed in the past week because mortgage rates did not change appreciably. Mortgage demand would be stimulated by a drop in rates.
Productivity grew at a 4.9% rate in the third quarter after gaining 2.2% in Q2. Stronger economic growth increased output in Q3 while the number of hours worked eased. While productivity surged, unit labor costs retreated, falling 0.2% quarter over quarter. Nevertheless, labor costs remain elevated rising a sharp 4.3% over the past year.
Consumer credit rose by a modest $3.7 billion in September. Revolving credit led the overall gain because the non-revolving credit category remained unchanged. With cash-out refinancing on the decline, consumers are using credit cards to fund consumption.
THURSDAY, November 8th
Treasury prices gained as yield fell Thursday after Chairman Bernanke in testimony to Congress today said that the Fed expects economic growth to slow noticeably in the fourth quarter from a strong pace in the third. He also warned that the housing downturn could intensify amid tighter credit conditions and that further sharp increase in oil prices remain a risk to growth and inflation. Rate cut expectations increased to a near certainty with fed funds futures traders pricing in a 90% probability the Fed will lower the target fed funds rate to 4.25% next month. The 10-year note was up 7/32 to 99-23/32 to yield 4.28%.
Long term mortgage rates were little changed this week while adjustable rates fell following the Fed's decision to cut rates last week. 30-year fixed rate mortgages averaged 6.24% this week compared to 6.26% last week according to Freddie Mac's mortgage market survey. 1-year ARMs averaged 5.50% this week compared to 5.57% last week.
Chain store sales rose just 1.6% in October from October one year ago. Unseasonably warm weather in many parts of the country affected sales results while the state of consumer finances and credit also played a role. Weak chain store sales last month provide little momentum to kick off the all important holiday shopping season.
FRIDAY, November 9th
Import prices jumped 1.8% in October due to sharply higher petroleum prices, which surged 6.9%. Non-petroleum import prices rose 0.5% on the month and are up 3.2% on the year. Total imports gained 9.6% over the past year. Import prices are trending higher, moderately so excluding energy costs, and could place upward pressure on overall inflation.
The international trade deficit narrowed to $56.5 billion from a downwardly revised gap of $56.8 billion in August. Booming exports, related to strength in the global economy and a weakening dollar, are responsible for the improvement in the trade deficit and will boost growth estimates for Q3 GDP.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13042.74 13595.10 -552.36 or -4.06%
NASDAQ 2627.94 2810.48 -182.54 or -6.49%
WEEK IN ADVANCE
The economic calendar is chock full of data in the coming week. Economists and financial markets will get the latest numbers on inflation, consumer spending and output to help shape the outlook.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco