Economic Highlights for the Week Ending November 16, 2007

MONDAY, November 12th
VETERANS DAY, Observed
Bond Market ClosedStock and Futures Markets Open
TUESDAY, November 13th
The NAR's pending home sales index which tracks the number of signed real estate contracts that have not yet closed, rose to 85.7% in September from a reading of 85.5% in August. However, the index remains 20.4% below its year ago level of 107.6%. The current low level of the index and the steep drop off from last year implies that home sales will remain weak in the fourth quarter. Despite this, NAR's chief economist points out existing home sales will be the fifth highest on record in 2007 with median prices declining by less than 2%.
The government ran a $55.6 billion budget deficit in October compared to a $49.3 billion deficit in October 2006. October is the first month of the government's fiscal year. The budget picture improved in FY2007 with total budget deficit of $163 billion, which is 61% lower than FY2004 when the deficit peaked at $412 billion. As a share of GDP the budget deficit in FY2007 was 1.2% compared to 3.6% in FY2004. The federal deficit is set to widen again this fiscal year due to slower economic growth and weaker corporate tax revenues.
WEDNESDAY, November 14th
Retail sales rose 0.2% in October better than expectations for a 0.1% increase. Regardless, sales growth was weak. Sales at gasoline stations led October's gain. Motor vehicle sales also gained 0.2% on the month. Excluding both motor vehicles and gasoline sales spending rose 0.1%. Spending has been trending lower in recent months and faces downside risks as consumers face the headwinds of a weaker housing market, tighter credit, slower job growth and rising energy costs going forward.
The producer price index rose only 0.1% in October compared to an expected 0.3% gain. Food prices shot up 1.0% but energy costs dipped 0.8%. Excluding food and energy from the index, core producer prices were unchanged last month. Over the past year the PPI increased 6.0% while core prices gained 2.5%. Despite elevated yearly gains, wholesale inflation growth has been slower in recent months leaving some maneuverability for the Fed next month.
The MBA mortgage applications index jumped 5.5% to 707.3% for the week ending November 9. The purchase index climbed 4.8% last week as the refinance index increased 6.4%. Mortgage demand has increased in 5 of the last 6 weeks and remains 9.0% above last year's level.
THURSDAY, November 15th
The consumer price index rose 0.3% in October, matching expectations. A 1.4% gain in energy prices led the gain last month. Over the past year consumer inflation has risen 3.5%. Excluding the volatile food and energy components from the index, core consumer prices rose 0.2% on the month and were up 2.1% on the year, very tame and well within the Fed's comfort zone for inflation.
Jobless claims jumped 20k to 339k for the week ending November 10. Initial jobless claims are now at the upper end of the 300k to 340k range that has been in place since the second half of 2006. The elevated level of claims is consistent with weaker job creation over the past few months though the labor market in total is only modestly weaker than it was in 2006.
FRIDAY, November 16th
Industrial production fell 0.5% in October as output declined in all three major industry groups. Manufacturing fell 0.4%, mining dropped 0.6% while utilities plunged 1.6%. Broad based weakness led to lower resource usage. The amount of capacity utilized for output last month fell to 81.7% from 82.2% in September.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13176.79 13042.74 +134.05 or +1.03%
NASDAQ 2637.24 2627.94 +9.30 or +0.35%
WEEK IN ADVANCE
The holiday shortened week yields the latest readings on homebuilders' sentiment and the pace of new construction starts. With inflationary pressures under control at the moment, it will be the severity of economic weakness that will be the deciding factor on the Fed’s next move. Further weakness is expected from housing sector indicators; the question is how deeply it will impact the broader economy. We are already seeing evidence of spillover.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco