Economic Highlights for the Week Ending December 7, 2007

MONDAY, December 3rd
The ISM manufacturing index came in a 50.8% in November down just slightly from a reading of 50.9% in October. New orders and production maintained well during the month while employment contracted and input prices increased. The level of the index suggests that national factory activity is still growing, albeit at a very slow pace. The weak tone and sluggish growth in the manufacturing sector provide more fodder for a Fed easing when policy makers meet next week.
Motor vehicle sales increased 0.9% in November to an annual rate of 16.2 million units. Auto sales increased 6.7% to 7.47 million while light truck sales declined 4.2% to 8.22 million units. Consumers are probably shopping for more gas efficient cars hence the decline in truck sales.
TUESDAY, December 4th
Extremely low yields in the bond market curtailed demand for Treasuries Tuesday. Treasuries inversely followed stock market action but ended lower on the day before a slew of economic data on Wednesday and the employment report, Friday. In late trading the 10-year note was down 12/32 to 102-28/32 to yield 3.89%.
WEDNESDAY, December 5th
Productivity was revised even higher in Q3 growing at a 6.3% rate up from the first reading of 4.9%. This was its fastest quarterly pace in 4 years. Nevertheless, productivity has been trending lower over the past several years. Unit labor costs were revised sharply lower, to -2.0% from -0.2% originally.
The ISM non-manufacturing index fell 1.7 points to 54.1% in November, less than expectations of a reading of 55.0%. Business activity in the service sectors of the economy expanded at a slow pace last month in part because of the turmoil in housing and mortgage finance industries. Higher energy costs and the housing correction pose downside risks to service sector growth going forward.
The MBA mortgage applications index surged 22.5% to 791.8% for the week that ended November 30. Purchase applications increased 15.2% and refinance applications increased 31.9%. Lower fixed rates are behind the increase in application activity. More rate declines will continue to support mortgage activity in the near term.
THURSDAY, December 6th
Jobless claims fell 15k to 338k for the week that ended December 1. The level of claims remains elevated suggesting some deterioration in labor market conditions. Tomorrow’s employment report should clarify the labor picture and help determine the size of the Fed’s next rate cut.
Stocks climbed another leg higher Thursday as jobless claims decreased and Bush announced his plan to help troubled borrowers. The gist of it is to freeze, for five years, adjustable rates on mortgages due to reset between 2008 and 2010. The mortgage bailout plan was delivered right on the heels of a report detailing a high number of mortgage delinquencies and foreclosures in the third quarter. Homebuilder stocks helped led the gain with the Dow up 174.93 to 13619.89. The NASDAQ gained 42.67 to 2709.03.
Slower consumer spending and income gains for October as well as reports of weaker house price appreciation boosted Treasury prices and lowered yields substantially in the past few weeks and mortgage rates followed with the average 30-year fixed rate falling below the key 6.0% level for the first time since October 2005. 30-year fixed rates averaged 5.96% this week compared to 6.10% last week according to Freddie Mac’s mortgage market survey.
FRIDAY, December 7th
Payroll employment rose by 94k in November, exceeding estimates for a 70k gain. However, job growth continues to trend lower with revisions in the past two months resulting in a net 48k fewer jobs. Jobs were gained in services and retail while job losses occurred in manufacturing, construction and financial services. Average hourly earnings jumped 0.5% last month while the unemployment rate was unchanged at 4.7%. On balance, the mixed report supports a quarter point rate cut by the Fed next week.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13625.58 13371.72 +253.86 or +1.90%
NASDAQ 2706.16 2660.96 +45.20 or +1.70%
WEEK IN ADVANCE
With most signs pointing to year-end weakness, the Fed will likely cut the target fed funds rate by a quarter point to 4.25% when the FOMC meets to decide policy on Tuesday, December 11. Other than that, economists and financial markets will be keen on inflation indicators throughout the remainder of the week
Payroll employment rose by 94k in November, exceeding estimates for a 70k gain. However, job growth continues to trend lower with revisions in the past two months resulting in a net 48k fewer jobs. Jobs were gained in services and retail while job losses occurred in manufacturing, construction and financial services. Average hourly earnings jumped 0.5% last month while the unemployment rate was unchanged at 4.7%. On balance, the mixed report supports a quarter point rate cut by the Fed next week.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco