Economic Highlights for the Week Ending November 30, 2007

MONDAY, November 26th
Financial markets continue to call for additional easing from the Fed and are almost fully pricing in a quarter point rate cut when the FOMC meets December 11. The economic data becomes all important between now and then and if weaker than expected may be enough to tip the scales in favor of lower rates.
TUESDAY, November 27th
The S&P/Case-Shiller Home Price Indexes, the U.S. National, 10-City Composite and 20-City Composite continued to show steep annual price declines. The quarterly U.S. National Home Price Index was down 1.7% from Q207 and off 4.5% from the third quarter of last year. The quarter/quarter decline was the largest in the index's 21-year history. The 10-metro house price index was down 5.5% year over year while the 20-metro index declined 4.9%. The indexes are highly regarded as an accurate measure of house price changes. Shiller, the chief economist behind the indexes, notes that the housing cycle is very important to the business cycle and that home price movements are an important indicator of the overall economy.
WEDNESDAY, November 28th
Existing home sales fell 1.2% in October to an annual rate of 4.97 million, off slightly from an expected pace of 5.00 million units. Total existing home sales remain down 20.7% from a year ago.
The MBA mortgage applications index fell 4.3% to 652.5% for the week that ended November 23. Purchase applications gained 6.1% for the week while refinancings tumbled 15.3%. Total applications remain 8.9% above their year ago level. Other housing indicators show that the market has not yet bottomed out and save for a sharp drop in rates application activity in the next month is expected to remain slow.
The Fed's round-up of economic activity in the twelve Federal Reserve Banking Districts, called the beige book, showed that the expansion continued in most areas during October and early November but at a slower pace than previously. Housing was the main source of weakness though retail spending was softer too. Businesses outside of housing and the real estate industries remain cautiously optimistic because the spillover effects have been relatively minor thus far. The pace of hiring was slower while wage and other inflationary pressures remained subdued. The tone of the report was decidedly more downbeat than before which financial markets took to mean that the Fed will once again cut rates when they meet December 11.
THURSDAY, November 29th
The preliminary estimate for GDP showed the economy grew at a 4.9% rate in the third quarter up significantly from the 3.9% rate in the advance estimate. Stronger inventory investment and exports were at cause for the strong upward revision.
New home sales rose 1.7% in October to an annual rate of 728k after a sharp downward revision to September data. September new home sales were adjusted from 770k to just 716k. New home sales are now 23.5% below their year ago level.
Jobless claims jumped 23k to 352k for the week that ended November 24. It could be Thanksgiving holiday related volatility but if this level is maintained for several weeks or more it indicates much weaker labor market conditions.
Long term mortgage rates fell again this week as Treasury yields in the bond market fell to multi-year lows. Worries over the subprime fallout on credit markets and housing weakness on the overall economy had investors seeking out the relative safety of government securities in the past few weeks. Stronger Treasury prices always result in a corresponding drop in yields, and mortgage rates followed suit. 30-year fixed rate mortgages averaged 6.10% this week compared to 6.20% last week according to Freddie Mac’s mortgage market survey.
FRIDAY, November 30th
Construction spending decreased 0.8% in October compared to expectations for a more modest decline of 0.3%. Residential construction led the weakness falling by 2.0% last month in its 20th straight monthly decline. Over the past year residential construction spending has fallen 16.2% reflecting the plunge in new housing starts.
Treasury prices were mixed today but gained a record amount over the past month on credit market concerns and a flight to safety bid. Treasuries sold off or gained today as traders absorbed Bernanke's remarks from last night and weak economic data. Expectations for another rate cut solidified on the Fed Chief's guidance with outlook unwinding some safe haven flows. In late trading the 10-year note was down 3/32 to 102-15/32 to yield 3.94%.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13371.72 12980.88 +390.34 or +3.01%
NASDAQ 2660.96 2596.60 +64.36 or +2.48%
WEEK IN ADVANCE
Recent Fed speak combined with weak economic readings have opened the door for a rate cut when the FOMC meets December 11. In the week ahead policymakers will be looking for more evidence of economic slowing in which to bolster their case. The economic data scheduled to be released will probably disappoint as manufacturing activity and November payrolls are expected to be on the weak side. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco