The White House temporarily suspends a rule that imposes a 90-day waiting period before foreclosed homes can be sold to receive government loans.
WASHINGTON (AP) -- The Bush administration is temporarily suspending a 5-year-old rule intended to deter property flippers, as part of an effort to help speed the sale of foreclosed properties.
For one year, the Federal Housing Administration will no longer impose a 90-day waiting period before foreclosed properties can be sold to receive government-backed loans.
The policy was put in place in 2003 to deter property "flipping" schemes, in which buyers are overcharged for foreclosures or other distressed properties. But the surge in vacant properties resulting from borrowers who were unable to afford their mortgages has become a far more pressing concern.
"A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community's recovery," FHA commissioner Brian Montgomery said in a prepared statement.
The new policy "will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes," Montgomery said.
Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48% from the same month last year, and up 7% from April, foreclosure listing company RealtyTrac Inc. said Friday.
Wednesday, June 18, 2008
Monday, June 09, 2008
Lenders slash prices to dump foreclosed homes
Article from MSNBC.com
Lenders slash prices to dump foreclosed homes
Lenders slash prices to dump foreclosures, days of multiple offers return
The Associated Press updated 11:18 a.m. MT, Sun., June. 8, 2008
Lenders stung by the housing bust are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, sparking bidding wars in some places that harken back to the market's go-go years and may signal the bottom is near.
The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously. Sales of foreclosures, vacant new homes and other distressed properties now dominate some markets, causing grief for individual homeowners who need to sell for other reasons, like a job in a new city.
Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, said Mark Zandi, chief economist at Moody's Economy.com. The number can be as high as 90 percent in some newly built subdivisions, where loose lending standards and speculation ran rampant, real estate agents say.
By setting prices at extraordinarily low levels, say, $175,000 for a house that sold for $350,000 three years ago, banks can spark multiple offers.
"It's not uncommon to have 10 to 20 offers on one house, and for the house to end up selling for more than its market price," said Erin Attardi, a Sacramento Realtor. The strategy, she said, allows the bank to be selective, picking buyers with solid financing or those able to pay in cash.
Over the past year, as the housing crisis accelerated, the number of properties turned over to bank ownership has more than doubled. As of April, there were more than 660,000 such properties in the U.S., up from 254,000 in April last year, according to real estate information company First American CoreLogic.
And there's a risk this isn't the bottom at all.
Investor demand could be swamped by the foreclosures expected to hit the market over the next year.
A record of almost 3 million American homeowners were at least one month late on their mortgages in the first quarter, the Mortgage Bankers Association said Thursday. And another record of almost 450,000 had entered the final stage of foreclosure.
Wherever the turning point, buyers are finding that the deep discounts on bank-owned homes can be a fabulous opportunity, but also a source of anguish. Sally Zuniga, 29, and her husband have been looking to buy their first home outside Sacramento and have been unsuccessful so far due to the intense competition.
"It's been aggravating, frustrating and emotionally straining," said Zuniga, a media buyer for an advertising agency.
This week, the couple put in an offer for a three-bedroom house with a pool that's listed as a "short sale," where the home is sold for less than the amount owed on the mortgage.
They've given the property owner until July 18 to respond — an indication of the longer period it commonly takes for such arrangements to be worked out. Their offer of $195,000 was $6,000 over the asking price, in an effort to make it stand out from competitors.
Some in the real estate industry see such competition as a sign that the housing market's gloom is lifting.
"It's actually stimulated the market," said Janice Ziesig, owner of Z House Realty Group in Orlando, Fla. "Things are moving now — more so than they were."
In the Orlando area, about a third of bank-owned properties receive more than one offer, Ziesig estimates. However, deals are more likely to fall through for foreclosures, she says, and properties often return to the market.
For would-be sellers who need to move soon, it's a particularly painful situation. In many cases, sellers whose houses are now worth less than their mortgage must bring cash to the closing table to pay off the balance of the loan. They can find renters or postpone their moving plans.
Leslie Jordan pulled her family's six-bedroom house outside Orlando, Fla., off the market last month after listing it for nearly a year. She was willing to sell for $415,000, down from her original asking price of $565,000, but wasn't able to reach a deal.
While most of the foreclosures in Jordan's area are on smaller homes, the overall environment of soaring foreclosures and overbuilding has pushed prices down dramatically.
"The buyers, they just want a deal," said Jordan, who had hoped to move to a less-dense area with better schools. "We just have to wait until things turn around."
For real estate agents, helping banks sell off properties is one of the only flourishing businesses these days. But it's not for everybody.
Agents can easily pay hundreds of dollars a month on upkeep — including utility bills, cleaning and lawn care — and must go through the hassle of getting reimbursed by the bank. They sometimes have to evict homeowners, tenants or squatters. And in many cases, they have to deal with vandalism or theft of everything from copper pipes to appliances and air conditioners.
Jeff Dolfinger, a broker in Poughkeepsie N.Y., who specializes in managing and selling foreclosed properties, estimates that about 90 percent of those homes in his market are being bought by investors.
"To them, this is the best real estate market ever," he said. "They'll wait for this turmoil to end and they'll put the properties right back on the market again"
Inevitably, there are tensions between real estate agents and mortgage companies, particularly when a short sale or foreclosure gets tied up in a bureaucratic tangle.
"The lenders don't work on the weekends," which are the busiest time for house-hunters, said Cindy Jones, associate broker with Re/Max Allegiance in Lakeridge, Va. "If you make on offer on a Thursday, the earliest anybody's going to (examine) it is Monday or Tuesday of the following week,"
A quick way for a lender to dispose of properties is through an auction. However, lenders lose an average of 56 percent of a property's value through auctions, compared with a 40 percent loss for ordinary sales, according to a report last month by Fitch Ratings.
Nevertheless, the report found that the use of auctions has been rising as lenders try to cope with rising inventory.
Some are more hesitant to cut prices. Chris Bowden, vice president of HomeSteps, a division of Freddie Mac that handles foreclosure sales, says being too aggressive on price can affect the value of nearby properties, which sometimes are also owned by Freddie Mac.
"We want to make sure that we are getting back every dollar that we can and preserving values in neighborhoods," Bowden said. "Our goal is to try to get the highest value we can for the property, and yet we've got to remain competitive."
Still, with foreclosures continuing to rise, there may be no better option than to follow the market.
"We're reacting to market conditions very quickly," said Cary Sternberg, who heads IndyMac Bancorp Inc.'s bank-owned properties division. "We're in the business of making loans to people. we're not in the business of owning property."
Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
URL: http://www.msnbc.msn.com/id/25009827/
Lenders slash prices to dump foreclosed homes
Lenders slash prices to dump foreclosures, days of multiple offers return
The Associated Press updated 11:18 a.m. MT, Sun., June. 8, 2008
Lenders stung by the housing bust are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, sparking bidding wars in some places that harken back to the market's go-go years and may signal the bottom is near.
The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously. Sales of foreclosures, vacant new homes and other distressed properties now dominate some markets, causing grief for individual homeowners who need to sell for other reasons, like a job in a new city.
Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, said Mark Zandi, chief economist at Moody's Economy.com. The number can be as high as 90 percent in some newly built subdivisions, where loose lending standards and speculation ran rampant, real estate agents say.
By setting prices at extraordinarily low levels, say, $175,000 for a house that sold for $350,000 three years ago, banks can spark multiple offers.
"It's not uncommon to have 10 to 20 offers on one house, and for the house to end up selling for more than its market price," said Erin Attardi, a Sacramento Realtor. The strategy, she said, allows the bank to be selective, picking buyers with solid financing or those able to pay in cash.
Over the past year, as the housing crisis accelerated, the number of properties turned over to bank ownership has more than doubled. As of April, there were more than 660,000 such properties in the U.S., up from 254,000 in April last year, according to real estate information company First American CoreLogic.
And there's a risk this isn't the bottom at all.
Investor demand could be swamped by the foreclosures expected to hit the market over the next year.
A record of almost 3 million American homeowners were at least one month late on their mortgages in the first quarter, the Mortgage Bankers Association said Thursday. And another record of almost 450,000 had entered the final stage of foreclosure.
Wherever the turning point, buyers are finding that the deep discounts on bank-owned homes can be a fabulous opportunity, but also a source of anguish. Sally Zuniga, 29, and her husband have been looking to buy their first home outside Sacramento and have been unsuccessful so far due to the intense competition.
"It's been aggravating, frustrating and emotionally straining," said Zuniga, a media buyer for an advertising agency.
This week, the couple put in an offer for a three-bedroom house with a pool that's listed as a "short sale," where the home is sold for less than the amount owed on the mortgage.
They've given the property owner until July 18 to respond — an indication of the longer period it commonly takes for such arrangements to be worked out. Their offer of $195,000 was $6,000 over the asking price, in an effort to make it stand out from competitors.
Some in the real estate industry see such competition as a sign that the housing market's gloom is lifting.
"It's actually stimulated the market," said Janice Ziesig, owner of Z House Realty Group in Orlando, Fla. "Things are moving now — more so than they were."
In the Orlando area, about a third of bank-owned properties receive more than one offer, Ziesig estimates. However, deals are more likely to fall through for foreclosures, she says, and properties often return to the market.
For would-be sellers who need to move soon, it's a particularly painful situation. In many cases, sellers whose houses are now worth less than their mortgage must bring cash to the closing table to pay off the balance of the loan. They can find renters or postpone their moving plans.
Leslie Jordan pulled her family's six-bedroom house outside Orlando, Fla., off the market last month after listing it for nearly a year. She was willing to sell for $415,000, down from her original asking price of $565,000, but wasn't able to reach a deal.
While most of the foreclosures in Jordan's area are on smaller homes, the overall environment of soaring foreclosures and overbuilding has pushed prices down dramatically.
"The buyers, they just want a deal," said Jordan, who had hoped to move to a less-dense area with better schools. "We just have to wait until things turn around."
For real estate agents, helping banks sell off properties is one of the only flourishing businesses these days. But it's not for everybody.
Agents can easily pay hundreds of dollars a month on upkeep — including utility bills, cleaning and lawn care — and must go through the hassle of getting reimbursed by the bank. They sometimes have to evict homeowners, tenants or squatters. And in many cases, they have to deal with vandalism or theft of everything from copper pipes to appliances and air conditioners.
Jeff Dolfinger, a broker in Poughkeepsie N.Y., who specializes in managing and selling foreclosed properties, estimates that about 90 percent of those homes in his market are being bought by investors.
"To them, this is the best real estate market ever," he said. "They'll wait for this turmoil to end and they'll put the properties right back on the market again"
Inevitably, there are tensions between real estate agents and mortgage companies, particularly when a short sale or foreclosure gets tied up in a bureaucratic tangle.
"The lenders don't work on the weekends," which are the busiest time for house-hunters, said Cindy Jones, associate broker with Re/Max Allegiance in Lakeridge, Va. "If you make on offer on a Thursday, the earliest anybody's going to (examine) it is Monday or Tuesday of the following week,"
A quick way for a lender to dispose of properties is through an auction. However, lenders lose an average of 56 percent of a property's value through auctions, compared with a 40 percent loss for ordinary sales, according to a report last month by Fitch Ratings.
Nevertheless, the report found that the use of auctions has been rising as lenders try to cope with rising inventory.
Some are more hesitant to cut prices. Chris Bowden, vice president of HomeSteps, a division of Freddie Mac that handles foreclosure sales, says being too aggressive on price can affect the value of nearby properties, which sometimes are also owned by Freddie Mac.
"We want to make sure that we are getting back every dollar that we can and preserving values in neighborhoods," Bowden said. "Our goal is to try to get the highest value we can for the property, and yet we've got to remain competitive."
Still, with foreclosures continuing to rise, there may be no better option than to follow the market.
"We're reacting to market conditions very quickly," said Cary Sternberg, who heads IndyMac Bancorp Inc.'s bank-owned properties division. "We're in the business of making loans to people. we're not in the business of owning property."
Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
URL: http://www.msnbc.msn.com/id/25009827/
Friday, June 06, 2008
Economic Highlights for the Week Ending June 6, 2008
MONDAY, June 2nd
It is widely expected for the Fed to remain on hold at the June 24-25 FOMC meeting. Just how long the Fed will remain on hold is another matter as policymakers try to juggle weak economic conditions with rising inflation. Traders believe there is a 60% chance the Fed will start to unwind policy easing as soon as December. The trajectory of the data between now and then will nail things down more precisely.
Construction spending faltered again in April, based on weakness in the residential sector however, overall spending declines were slightly less than expected. Construction spending fell 0.4% in April compared to an expected 0.6% decline. With nonresidential construction spending more volatile and budget strains on state and local governments affecting public sector spending, overall construction spending is expected to remain weak through this year and the first part of 2009.
The ISM index increased to 49.6% in May from a 48.6% reading in April. The level of the index suggests that manufacturing activity nationwide continued to contract last month but at a slower pace than in previous months. An index reading over the 50% level indicates expansion in the sector. Details in the data showed still weak employment, slightly improved production and higher input prices.
TUESDAY, June 3rd
Fed Chairman Ben Bernanke, in remarks to the International Monetary Conference, said that the Fed is aware of the implications of changes in the value of the dollar on inflation and will work with the Treasury to monitor foreign exchange markets. The Chairman was referring to the 16% drop in the dollar against the euro in the past year and its impact on inflation. Bernanke also signaled that the FOMC is done with policy easing for now and that interest rates are well positioned to promote growth and stabilize prices.
WEDNESDAY, June 4th
The MBA mortgage applications index fell 15.3% to 502.3% for the week ending May 30. Purchase application volume remains soft dropping 5.4% on the week to bring the yearly decline to 23.1%. The refinance index plunged 25.7% last week in response to higher rates. With this decline, refinancing activity is down 14.9% from its year ago level. Application activity for both refis and purchases is trending lower under weak home sales and tougher loan standards.
The ISM non-manufacturing index slipped to 51.7% in May from a level of 52.0% in April. A reading over the key 50% level indicates expansion in the service sector. Construction, government, financial and other service industries grew moderately last month amid rising price pressures and declining employment. Given residential construction weakness and turmoil in the mortgage market, service sector activity is expected to remain soft going forward.
THURSDAY, June 5th
Chain store sales rose 3.0% in May from May of a year ago, on a same-store basis according to the ICSC index. May’s stronger-than expected gain led by sales at wholesale, discount and drug stores. Sales at apparel and department stores declined sharply. Consumers are spending, albeit cautiously as they contend with high gas prices, debt burdens, falling home values and weak job growth.
Jobless claims decreased 18k to 357k for the week ending May 31. The decline could be related to the Memorial Day holiday. The pace of layoffs remains elevated but has stopped accelerating indicating soft labor market conditions.
FRIDAY, June 6th
Payroll employment declined by 49,000 jobs in May compared to an estimated 60,000 drop. This was the fifth consecutive decline in payrolls for a total job loss of 324k since the first of the year. Weakness was broad based with only education, health services, leisure, and government sectors of the economy adding to the payrolls. The unemployment rate jumped to 5.5% in May from 5.0% in April due to a large increase in the workforce combined with sub-par job creation.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12209.81 12638.32 -428.51 or -3.39%
NASDAQ 2474.56 2522.66 -48.10 or -1.91%
WEEK IN ADVANCE
The employment report pushes back the timetable for when the Fed will be able to start raising rates. Inflation remains the wild card if it does not ease under slower economic conditions. The consumer price index due out Friday in the coming week will identify the current level of consumer inflation.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
It is widely expected for the Fed to remain on hold at the June 24-25 FOMC meeting. Just how long the Fed will remain on hold is another matter as policymakers try to juggle weak economic conditions with rising inflation. Traders believe there is a 60% chance the Fed will start to unwind policy easing as soon as December. The trajectory of the data between now and then will nail things down more precisely.
Construction spending faltered again in April, based on weakness in the residential sector however, overall spending declines were slightly less than expected. Construction spending fell 0.4% in April compared to an expected 0.6% decline. With nonresidential construction spending more volatile and budget strains on state and local governments affecting public sector spending, overall construction spending is expected to remain weak through this year and the first part of 2009.
The ISM index increased to 49.6% in May from a 48.6% reading in April. The level of the index suggests that manufacturing activity nationwide continued to contract last month but at a slower pace than in previous months. An index reading over the 50% level indicates expansion in the sector. Details in the data showed still weak employment, slightly improved production and higher input prices.
TUESDAY, June 3rd
Fed Chairman Ben Bernanke, in remarks to the International Monetary Conference, said that the Fed is aware of the implications of changes in the value of the dollar on inflation and will work with the Treasury to monitor foreign exchange markets. The Chairman was referring to the 16% drop in the dollar against the euro in the past year and its impact on inflation. Bernanke also signaled that the FOMC is done with policy easing for now and that interest rates are well positioned to promote growth and stabilize prices.
WEDNESDAY, June 4th
The MBA mortgage applications index fell 15.3% to 502.3% for the week ending May 30. Purchase application volume remains soft dropping 5.4% on the week to bring the yearly decline to 23.1%. The refinance index plunged 25.7% last week in response to higher rates. With this decline, refinancing activity is down 14.9% from its year ago level. Application activity for both refis and purchases is trending lower under weak home sales and tougher loan standards.
The ISM non-manufacturing index slipped to 51.7% in May from a level of 52.0% in April. A reading over the key 50% level indicates expansion in the service sector. Construction, government, financial and other service industries grew moderately last month amid rising price pressures and declining employment. Given residential construction weakness and turmoil in the mortgage market, service sector activity is expected to remain soft going forward.
THURSDAY, June 5th
Chain store sales rose 3.0% in May from May of a year ago, on a same-store basis according to the ICSC index. May’s stronger-than expected gain led by sales at wholesale, discount and drug stores. Sales at apparel and department stores declined sharply. Consumers are spending, albeit cautiously as they contend with high gas prices, debt burdens, falling home values and weak job growth.
Jobless claims decreased 18k to 357k for the week ending May 31. The decline could be related to the Memorial Day holiday. The pace of layoffs remains elevated but has stopped accelerating indicating soft labor market conditions.
FRIDAY, June 6th
Payroll employment declined by 49,000 jobs in May compared to an estimated 60,000 drop. This was the fifth consecutive decline in payrolls for a total job loss of 324k since the first of the year. Weakness was broad based with only education, health services, leisure, and government sectors of the economy adding to the payrolls. The unemployment rate jumped to 5.5% in May from 5.0% in April due to a large increase in the workforce combined with sub-par job creation.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12209.81 12638.32 -428.51 or -3.39%
NASDAQ 2474.56 2522.66 -48.10 or -1.91%
WEEK IN ADVANCE
The employment report pushes back the timetable for when the Fed will be able to start raising rates. Inflation remains the wild card if it does not ease under slower economic conditions. The consumer price index due out Friday in the coming week will identify the current level of consumer inflation.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Saturday, May 31, 2008
Economic Highlights for the Week Ending May 30, 2008
MONDAY, May 26th
MEMORIAL DAY All Markets Closed
TUESDAY, May 27th
Consumer confidence sank to a 16-year low in May, falling to 57.2% from a reading of 62.8% in April. Consumers' assessments of current and future economic conditions continue to deteriorate sharply under surging inflation expectations. Such low confidence levels along with other burdens consumers are shouldering could severely impact spending thus slowing economic growth even further.
New home sales increased 3.3% in April to a pace of 526,000, better than an expected decline to a rate of 522,000. However, sales in March were revised sharply lower to 509,000 from 526,000 in the first estimate. April's figures will be subject to revision as well because new home sales track the number of signed contracts and do not reflect the number of cancellations, which have been high because of tighter credit and tougher standards for loans. Even with the apparent rebound in April, new home sales remain quite weak. The market is showing some signs of stabilizing though in reduced inventory levels and firmer prices.
The Case-Shiller home price index fell 14.1% in the first quarter from the same quarter one year ago. It was the steepest drop in home prices since the inception of the index in 1988. The largest declines were in the Las Vegas, Miami and Phoenix markets.
WEDNESDAY, May 28th
The MBA mortgage applications index fell 4.6% to 593.3% for the week ending May 23. Total mortgage application volume is down 6.8% from its year ago level. The purchase index edged 0.1% higher as the refinance index tumbled 8.9%. Purchase applications remain 17.4% below its year ago level indicating sluggish home buying demand while refinancing activity continues to be hampered by interest rates.
Durable goods orders fell 0.5% in April compared to expectations for a 2.0% decline. The gain was led by demand for electrical equipment though orders for primary metals, machinery and defense goods also increased strongly. Orders for non-defense capital goods excluding aircraft, a proxy for business investment rose 4.2% last month, signally a pocket of strength in otherwise sluggish economic conditions.
A Fed official hinted, in prepared remarks today that a rate hike may not be far off. Indeed, fed funds futures traders are pricing in a 73% chance of a quarter point bump in December. The economic data in the meantime will help determine the timing of policy reversal.
THURSDAY, May 29th
Growth was a tad better in the first quarter according to the preliminary estimate of GDP. The economy grew at a 0.9% pace in Q1 compared to advance estimate of 0.6% growth. A measure of economy-wide inflation remained unchanged at 2.6% last quarter.
Jobless claims rose 4k to 372k for the week ending May 24. Claims levels are consistent with a high pace of layoffs however they are not accelerating. Also, claims data suggest that job creation remains weak
Mortgage rates drifted higher this week over increasing expectations that the Fed may need to raise rates sooner rather than later to tame inflationary pressures. Also, recent economic data suggests the economy is not as weak as anticipated by the financial markets. 30-year fixed rate mortgages averaged 6.08% this week compared to 5.98% last week according to Freddie Mac's mortgage market survey.
FRIDAY, May 30th
Personal income rose 0.2% in April led strong transfer payments such as rental income. Wage and salary growth actually declined on the month. Consumer spending increased 0.2% last month, as expected, but has declined sharply in the last three months reflecting slower economic conditions. The core PCE price index, a favorite inflation measure for the Fed, rose a mild 0.1% on the month and 2.1% on the year, which is just over the Fed’s implicit target for core inflation.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12638.32 12479.63 +158.69 or +1.27%
NASDAQ 2522.66 2444.67 +77.99 or +3.19%
WEEK IN ADVANCE
With the Fed presumably on hold, the economic data coming in a bit better than expected and inflationary pressure in play interest rates are facing upward pressure in the weeks ahead. The economic story has largely been better but still weak which should keep a lid on rates climbing too far, too fast.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Saturday, May 24, 2008
Economic Highlights for the Week Ending May 23, 2008
MONDAY, May 19th
The Fed is expected to hold rates steady until the inflation outlook can be sorted out. Fed funds futures traders are pricing in an 80% probability the Fed will hold the fed funds target at its current level of 2.0% at the June meeting. The hope is that policy stimulus in the pipeline will help restore solid economic growth but in the meantime, slower economic growth will help to curtail inflationary pressures. The Fed will need some time to observe this happening and confirm it through the economic data.
The index of leading economic indicators rose 0.1% in April better than expected. Like a lot of economic data recently, the LEI is signaling that economic activity has stalled, but not collapsed and that recovery may still take a while. The level of the index is consistent with continued sluggish growth over the next six to nine months.
TUESDAY, May 20th
The producer price index increased 0.2% in April less than an expected gain of 0.4% as food and energy costs subsided during the month. Over the last year, producer prices have increased 6.4%, one of its fastest paces in the past 25 years. Excluding food and energy prices, the core PPI jumped 0.4% last month and gained 3.0% over the last year. A temporary reprieve in catapulting food and energy costs brought underlying price pressures to bear from earlier stages of processing. Upward price pressures from food and energy are expected to resume in the months ahead.
WEDNESDAY, May 21st
The MBA mortgage applications index fell 7.8% to 621.6% for the week ending May 16. The purchase index fell 6.9% on the week and remains 19.5% lower than its year ago level. The refinance index tumbled 8.7% last week but is up 2.6% over last year. Mortgage rates have yet to respond to substantial Fed easing. Stubborn rates combined with falling home values, tighter credit and weak economic conditions have crimped loan demand and dried up many refinancing opportunities. It appears the housing market is still searching for a bottom.
The minutes from the April 29-30 FOMC meeting showed that the quarter point cut at that time was a close call and future cuts would be unlikely even if the economic conditions worsened. Policy makers then turned their attention to financial markets and inflation as the primary drivers of policy decisions. Accompanying the release of the meeting minutes was the latest Fed forecast which projected even slower growth and higher inflation and unemployment. Growth for 2008 is expected to be between 0.3% and 1.2% down from 1.2% to 2.0% previously, unemployment was forecast to be between 5.5% and 5.7% up from 5.2% to 5.5% earlier and inflation was projected to rise between 3.1% and 3.4% from 2.1% to 2.4% originally.
WEDNESDAY, May 21st
Long term mortgage rates eased somewhat on a couple of weaker-than-expected economic reports last week. Consumer sentiment dropped to a multi-decade low while industrial output declined sharply. 30-year fixed rate mortgages averaged 5.98% this week compared to 6.01% last week according to Freddie Mac's mortgage market survey. Short term mortgage rates were a bit higher on average related to expectations that Fed is done cutting rates for now.
Jobless claims fell 9k to 365k for the week ending May 17. Initial claims have leveled off in recent weeks indicating a stable, but elevated pace of layoffs. Continuing claims continue to trend higher indicating weak job creation. Jobless claims data suggest another weak employment report for May, due to be released June 6.
FRIDAY, May 23rd
Existing homes sales fell 1.0% in April to an annualized pace of 4.89 million compared to expectations for a larger decline to a rate of 4.85 million according to the National Association of Realtors. Sales declines have slowed recently indicting still weak but stable housing market conditions. Lower prices and low interest rates are stimulating sales increases in some areas, reports the NAR.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12479.63 12986.80 -501.17 or -3.90%
NASDAQ 2444.67 2528.85 -84.18 or -3.32%
WEEK IN ADVANCE
In the week ahead, inflation remains the key to the interest rate outlook. Some of the economic data and Fedspeak will address inflation concerns while the financial markets will continue to battle with rising oil prices and their impact on the economy and inflation.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Saturday, May 17, 2008
Economic Highlights for the Week Ending May 16, 2008
MONDAY, May 12th
It looks like the Fed will be on hold for the next few meetings. Fed funds futures traders are pricing in roughly an 85% probability the fed funds rate target will remain unchanged at 2.00% following the June 25 FOMC meeting. With policy currently accommodative, the Fed believes they have addressed growth conditions for now. Inflation remains a concern though and further lowering of rates could exacerbate price pressures.
TUESDAY, May 13th
Retail sales fell 0.2% in April as expected. Weak motor vehicle & parts sales led the decline last month. Sales at gas stations also fell, despite higher prices. Excluding autos, retail sales jumped 0.5% on surprising gains at building supply and electronics and appliance stores. Excluding autos and gas, core retail sales gained 0.6% on the month. Despite the strength in core retail sales, consumer spending has been trending lower and is expected to remain weak going forward.
Import prices jumped 1.8% in April, largely in line with expectations. Petroleum prices once again led the advance though food prices boosted import costs as well. Excluding petroleum, import prices still rose 1.1% on the month showing a transfer of percolating inflationary pressures from abroad to the domestic economy.
The National Association of Realtors reported that the national median house price fell 7.7% in Q1 from the same period one year ago and was down 4.6% from Q4. That was the largest year-over-year drop in home prices since the NAR started tracking them in 1982. The national median sales price now stands at $196,300, the first time below 200k since the onset of the housing bubble 5 years ago.
WEDNESDAY, May 14th
The consumer price index increased 0.2% in April, a bit lower than an expected 0.3% gain. A 0.9% jump in food prices fed the gain as energy prices remained, surprisingly unchanged on the month. Excluding food and energy prices from the index, the core CPI rose just 0.1% to bring the yearly gain to 2.3%. Consumer inflation is somewhat higher than the Fed would like to see however it appears to be easing mildly under weak economic conditions.
The MBA mortgage applications index rose 2.9% to 674.4% for the week ending May 9. The purchase index fell 0.7% on the week and is down 12.4% from one year ago. The refinance index jumped 6.5% on a weekly basis and is up 14.5% its year ago level. Low rates are boosting refinance activity while falling home values are deterring prospective home buyers, thus weighing on purchase application volumes.
THURSDAY, May 15th
The NAHB housing market index fell to 19 in May from a level of 20 in April. Already at a severely depressed level, it was disheartening to observe another drop in sentiment. All three components of the index, ratings of present sales, sales six months from now and buyer traffic moved lower on the month. Builder sentiment remained mired at a low point as falling home values and tougher lending standards continue to deter buyers and curb demand.
Industrial production fell 0.7% in April, more than double expectations for a 0.3% decline. Sharp drops in mining and manufacturing output led to the large decline in overall production. Utility production gained on the month. The amount of capacity used for production fell sharply as well to 79.7% from 80.4% previously. Easing capacity utilization rates indicate some slack in resource usage, which will help to lower inflation.
FRIDAY, May 16th
Housing starts increased 8.2% in April to an annual rate of 1.032 million compared to an expected decline to a pace of 935k. After falling in March to their lowest level since 1991, starts unexpectedly rebounded in April. It is good to see starts over the million mark again; however they remain quite weak. High inventory levels compounded by weak new home sales and low home builder sentiment will keep new construction activity in the cellar for a while longer.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12986.80 12745.88 +240.92 or +1.89%
NASDAQ 2528.85 2445.52 +83.33 or +3.41%
WEEK IN ADVANCE
There are a couple of hurdles in the week ahead on an otherwise light economic calendar. The producer price index on Tuesday is the next major inflation reading. Inflation remains the key to the current on-hold stance for the Fed. Also, existing home sales, due out Friday will relay the latest data from the housing sector.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
It looks like the Fed will be on hold for the next few meetings. Fed funds futures traders are pricing in roughly an 85% probability the fed funds rate target will remain unchanged at 2.00% following the June 25 FOMC meeting. With policy currently accommodative, the Fed believes they have addressed growth conditions for now. Inflation remains a concern though and further lowering of rates could exacerbate price pressures.
TUESDAY, May 13th
Retail sales fell 0.2% in April as expected. Weak motor vehicle & parts sales led the decline last month. Sales at gas stations also fell, despite higher prices. Excluding autos, retail sales jumped 0.5% on surprising gains at building supply and electronics and appliance stores. Excluding autos and gas, core retail sales gained 0.6% on the month. Despite the strength in core retail sales, consumer spending has been trending lower and is expected to remain weak going forward.
Import prices jumped 1.8% in April, largely in line with expectations. Petroleum prices once again led the advance though food prices boosted import costs as well. Excluding petroleum, import prices still rose 1.1% on the month showing a transfer of percolating inflationary pressures from abroad to the domestic economy.
The National Association of Realtors reported that the national median house price fell 7.7% in Q1 from the same period one year ago and was down 4.6% from Q4. That was the largest year-over-year drop in home prices since the NAR started tracking them in 1982. The national median sales price now stands at $196,300, the first time below 200k since the onset of the housing bubble 5 years ago.
WEDNESDAY, May 14th
The consumer price index increased 0.2% in April, a bit lower than an expected 0.3% gain. A 0.9% jump in food prices fed the gain as energy prices remained, surprisingly unchanged on the month. Excluding food and energy prices from the index, the core CPI rose just 0.1% to bring the yearly gain to 2.3%. Consumer inflation is somewhat higher than the Fed would like to see however it appears to be easing mildly under weak economic conditions.
The MBA mortgage applications index rose 2.9% to 674.4% for the week ending May 9. The purchase index fell 0.7% on the week and is down 12.4% from one year ago. The refinance index jumped 6.5% on a weekly basis and is up 14.5% its year ago level. Low rates are boosting refinance activity while falling home values are deterring prospective home buyers, thus weighing on purchase application volumes.
THURSDAY, May 15th
The NAHB housing market index fell to 19 in May from a level of 20 in April. Already at a severely depressed level, it was disheartening to observe another drop in sentiment. All three components of the index, ratings of present sales, sales six months from now and buyer traffic moved lower on the month. Builder sentiment remained mired at a low point as falling home values and tougher lending standards continue to deter buyers and curb demand.
Industrial production fell 0.7% in April, more than double expectations for a 0.3% decline. Sharp drops in mining and manufacturing output led to the large decline in overall production. Utility production gained on the month. The amount of capacity used for production fell sharply as well to 79.7% from 80.4% previously. Easing capacity utilization rates indicate some slack in resource usage, which will help to lower inflation.
FRIDAY, May 16th
Housing starts increased 8.2% in April to an annual rate of 1.032 million compared to an expected decline to a pace of 935k. After falling in March to their lowest level since 1991, starts unexpectedly rebounded in April. It is good to see starts over the million mark again; however they remain quite weak. High inventory levels compounded by weak new home sales and low home builder sentiment will keep new construction activity in the cellar for a while longer.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12986.80 12745.88 +240.92 or +1.89%
NASDAQ 2528.85 2445.52 +83.33 or +3.41%
WEEK IN ADVANCE
There are a couple of hurdles in the week ahead on an otherwise light economic calendar. The producer price index on Tuesday is the next major inflation reading. Inflation remains the key to the current on-hold stance for the Fed. Also, existing home sales, due out Friday will relay the latest data from the housing sector.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Thursday, May 15, 2008
Economic Highlights for the Week Ending May 9, 2008
MONDAY, May 5th
The ISM non-manufacturing index increased to 52.0% in April from a reading of 49.6% in March. This was the first reading above the key 50% level in four months suggesting expansion in the service industries. A pickup in employment last month is consistent with stronger demand. Nevertheless, service sector activity is trending lower over the long term in part related to the downturn in residential construction and turmoil in mortgage finance industries.
TUESDAY, May 6th
Financial markets expect the Fed to hold off on any other rate adjustments at this time but the question remains “for how long?’ Fed funds futures traders are pricing in just a 15% chance of another rate cut in June. Sentiment is clearly weighted toward no change in rates and for an extended period of time. December futures contracts are priced for the current 2.00% fed funds target rate implying no change in rates for the remainder of this year. Traders are fully pricing in a rate hike to 2.25% in February of next year, of course rate expectations will fluctuate between now and then as new information becomes available.
WEDNESDAY, May 7th
Nonfarm business productivity increased at a strong 2.2% annualized pace in the first quarter, up from 1.8% in Q4. This was well above estimates for a 1.5% rate of growth. Nonfarm unit labor costs rose at a 2.2% annual pace in Q1, slightly less than expected. These data indicate solid productivity growth, despite weaker economic conditions and without associated wage inflation.
Consumer credit increased by $15.3 billion in March, or at a 5.9% annual rate. Revolving credit rose by $6.3 billion as consumers used credit cards to fund consumption. Non-revolving credit shot $9.0 billion higher, which was surprising given anemic auto sales. Expect consumer credit to continue growing at a fairly robust pace, due to sharp declines in mortgage equity withdrawals.
The MBA mortgage applications index jumped 15.6% to 655.4% for the week ending May 2. Despite the gain, total application activity remains 3.7% below last year’s level. The purchase index gained 12.1% on the week but is down 13.0% from one year ago. The refinance index climbed 19.3% this week and is up 7.5% from last year. Lower rates should continue to support application activity going forward.
The pending home sales index dropped 1.0% in March to a level of 83.0, after a reading of 83.8 in February, the NAR reported today. The index remains 20.1% lower than its year ago level. Economists at the NAR forecast flat home sales activity over the next several months with some chance for a pickup in sales activity over the summer, which hinges on the accessibility of more affordable loans.
THURSDAY, May 8th
Chain store sales rose 3.6% in April, much higher than expected, boosted largely by calendar effects related to an early Easter. Wholesale clubs, department, drug and discount stores all posted solid gains last month while sales at furniture and apparel shops declined. Higher gas prices contributed to the sales gains as well. The outlook for spending remains weak going forward with some offset expected to be provided by tax rebate checks currently being sent to consumers.
Jobless claims fell 18k to 365k for the week ending May 3. Despite the decline last week, the level of claims remains elevated which means a large number of layoffs. Moreover, continuing claims have been trending higher over the last two years indicating sluggish job creation and making it difficult for laid off workers to find new jobs.
FRIDAY, May 9th
The international trade deficit narrowed sharply in March while February’s trade gap was less than first reported. The trade deficit dropped to $58.2 billion in March following a $61.7 billion gap in February. The trade picture improved on a $6.1 billion decline in imports related to a weaker domestic economy. Exports also declined on the month, by $2.6 billion, but continue to trend higher due to a weak dollar. The trade gap reduction in March will end up contributing as much as 0.6 percentage points to Q1 GDP growth in the next revision.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12745.88 13058.20 -312.32 or -2.39%
NASDAQ 2445.52 2476.99 -31.47 or -1.27%
WEEK IN ADVANCE
Economists and financial markets will be looking to a host of data releases in the coming week to provide further confirmation that the recession will be short and shallow, with modest inflationary pressures.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
The ISM non-manufacturing index increased to 52.0% in April from a reading of 49.6% in March. This was the first reading above the key 50% level in four months suggesting expansion in the service industries. A pickup in employment last month is consistent with stronger demand. Nevertheless, service sector activity is trending lower over the long term in part related to the downturn in residential construction and turmoil in mortgage finance industries.
TUESDAY, May 6th
Financial markets expect the Fed to hold off on any other rate adjustments at this time but the question remains “for how long?’ Fed funds futures traders are pricing in just a 15% chance of another rate cut in June. Sentiment is clearly weighted toward no change in rates and for an extended period of time. December futures contracts are priced for the current 2.00% fed funds target rate implying no change in rates for the remainder of this year. Traders are fully pricing in a rate hike to 2.25% in February of next year, of course rate expectations will fluctuate between now and then as new information becomes available.
WEDNESDAY, May 7th
Nonfarm business productivity increased at a strong 2.2% annualized pace in the first quarter, up from 1.8% in Q4. This was well above estimates for a 1.5% rate of growth. Nonfarm unit labor costs rose at a 2.2% annual pace in Q1, slightly less than expected. These data indicate solid productivity growth, despite weaker economic conditions and without associated wage inflation.
Consumer credit increased by $15.3 billion in March, or at a 5.9% annual rate. Revolving credit rose by $6.3 billion as consumers used credit cards to fund consumption. Non-revolving credit shot $9.0 billion higher, which was surprising given anemic auto sales. Expect consumer credit to continue growing at a fairly robust pace, due to sharp declines in mortgage equity withdrawals.
The MBA mortgage applications index jumped 15.6% to 655.4% for the week ending May 2. Despite the gain, total application activity remains 3.7% below last year’s level. The purchase index gained 12.1% on the week but is down 13.0% from one year ago. The refinance index climbed 19.3% this week and is up 7.5% from last year. Lower rates should continue to support application activity going forward.
The pending home sales index dropped 1.0% in March to a level of 83.0, after a reading of 83.8 in February, the NAR reported today. The index remains 20.1% lower than its year ago level. Economists at the NAR forecast flat home sales activity over the next several months with some chance for a pickup in sales activity over the summer, which hinges on the accessibility of more affordable loans.
THURSDAY, May 8th
Chain store sales rose 3.6% in April, much higher than expected, boosted largely by calendar effects related to an early Easter. Wholesale clubs, department, drug and discount stores all posted solid gains last month while sales at furniture and apparel shops declined. Higher gas prices contributed to the sales gains as well. The outlook for spending remains weak going forward with some offset expected to be provided by tax rebate checks currently being sent to consumers.
Jobless claims fell 18k to 365k for the week ending May 3. Despite the decline last week, the level of claims remains elevated which means a large number of layoffs. Moreover, continuing claims have been trending higher over the last two years indicating sluggish job creation and making it difficult for laid off workers to find new jobs.
FRIDAY, May 9th
The international trade deficit narrowed sharply in March while February’s trade gap was less than first reported. The trade deficit dropped to $58.2 billion in March following a $61.7 billion gap in February. The trade picture improved on a $6.1 billion decline in imports related to a weaker domestic economy. Exports also declined on the month, by $2.6 billion, but continue to trend higher due to a weak dollar. The trade gap reduction in March will end up contributing as much as 0.6 percentage points to Q1 GDP growth in the next revision.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12745.88 13058.20 -312.32 or -2.39%
NASDAQ 2445.52 2476.99 -31.47 or -1.27%
WEEK IN ADVANCE
Economists and financial markets will be looking to a host of data releases in the coming week to provide further confirmation that the recession will be short and shallow, with modest inflationary pressures.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Friday, May 02, 2008
Economic Highlights for the Week Ending May 2, 2008
MONDAY, April 28th
The FOMC policy statement and data flows this week should go a long way toward firming up the economic and interest rate outlook.
TUESDAY, April 29th
The consumer confidence index fell to 62.3% in April from an upwardly revised reading of 65.9% in March. This is the lowest index level since October 1993 with the exception of March 2003 at the start of the Iraqi war. Confidence levels remain very weak and face downside risks going forward given sluggish job creation, higher energy costs, falling home values and tighter credit.
The S&P/Case-Shiller 10-city and 20-city house prices indexes showed further depreciation of home values in February. The 10-city composite index fell 2.9% month-over-month and is down 13.6% year-over-year. The 20-city index fell 2.7% on the month and remains 12.7% lower over the past year. Yearly declines are the highest on record. In addition, price declines appear to be accelerating.
WEDNESDAY, April 30th
GDP grew at a 0.6% rate in Q1 compared to expectations for a 0.2% pace. Over the past year, the economy expanded at a 2.5% rate. Inventory investment was a positive contributor to growth during the quarter while residential investment, consumer spending and stronger imports proved to be detractors. While growth was mildly positive in Q1, data suggests there is little momentum heading into Q2. The GDP price index, an economy-wide measure of inflation and a mainstay for the Fed, increased 2.6% in Q1. The price index continues to ease from its cyclical peak of 3.4% registered in Q405.
The FOMC cut rates by 25 basis points today, as widely expected. The target for the fed funds rate now stands at 2.0%. This is the seventh policy easing for a cumulative 3.25 points since September. Given substantial easing to date, the removal of the phrase “downside risks to growth remain” from the statement and inflationary risks, experts believe that this may be an end to the Fed’s rate cutting campaign.
The MBA mortgage applications index tumbled 11.1% to 567.0% for the week ending April 25. The purchase index declined 4.8% on the week and is down 20.4% from a year ago. The refinance index plunged 16.7% on a weekly basis but remains 5.5% higher than its year ago level. The jump in mortgage rates last week probably produced the steep drop-off in application activity; also recent news of declining home values could be impacting application activity.
THURSDAY, May 1st
The ISM manufacturing index was unchanged in April at 48.6%. The better-than-expected index reading remains below the key 50% level indicating contraction in nationwide manufacturing activity. The index is not low enough though to suggest that the overall economy is in recession. Despite slow activity, input price pressures continued to rise.
Personal income rose 0.3% in March as personal spending increased 0.4%. Ongoing job losses threaten to weaken both income and spending growth going forward. An inflation gauge in this data series, the core PCE deflator increased 0.2% on the month and was up 2.1% over the past year, slightly above the Fed’s implicit comfort zone for inflation.
Jobless claims jumped 35k to 380k for the week ending April 26. The gain in initial claims more than reverses a 30k decline in claims levels in the previous week. Longer term averages also remain elevated suggesting another decline in payroll employment for April due to increased layoffs and weaker hiring.
FRIDAY, May 2nd
The economy shed 20,000 payrolls in April, much less than an anticipated decline of 75,000. Jobs losses stemmed from manufacturing and construction industries. A sharp gain in service sector payrolls led to less-than-expected losses last month. The unemployment rate slipped to 5.0% of the workforce. While labor conditions are a long way from being healthy, they appear to be improving which supports expectations for rate cut pause.
FRIDAY, May 2nd
The economy shed 20,000 payrolls in April, much less than an anticipated decline of 75,000. Jobs losses stemmed from manufacturing and construction industries. A sharp gain in service sector payrolls led to less-than-expected losses last month. The unemployment rate slipped to 5.0% of the workforce. While labor conditions are a long way from being healthy, they appear to be improving which supports expectations for rate cut pause.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13058.20 12891.86 +166.34 or +1.29%
NASDAQ 2476.99 2422.93 +54.06 or +2.23%
WEEK IN ADVANCE
The economic calendar is very light in the week ahead and contains mostly second-tier data releases. Also, the Treasury conducts its quarterly refunding, auctioning $15 billion in 10-year notes Wednesday and $6.0 billion in 30-year bonds Thursday. New supply in the bond market could result in weaker demand, thus raising yields.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
The FOMC policy statement and data flows this week should go a long way toward firming up the economic and interest rate outlook.
TUESDAY, April 29th
The consumer confidence index fell to 62.3% in April from an upwardly revised reading of 65.9% in March. This is the lowest index level since October 1993 with the exception of March 2003 at the start of the Iraqi war. Confidence levels remain very weak and face downside risks going forward given sluggish job creation, higher energy costs, falling home values and tighter credit.
The S&P/Case-Shiller 10-city and 20-city house prices indexes showed further depreciation of home values in February. The 10-city composite index fell 2.9% month-over-month and is down 13.6% year-over-year. The 20-city index fell 2.7% on the month and remains 12.7% lower over the past year. Yearly declines are the highest on record. In addition, price declines appear to be accelerating.
WEDNESDAY, April 30th
GDP grew at a 0.6% rate in Q1 compared to expectations for a 0.2% pace. Over the past year, the economy expanded at a 2.5% rate. Inventory investment was a positive contributor to growth during the quarter while residential investment, consumer spending and stronger imports proved to be detractors. While growth was mildly positive in Q1, data suggests there is little momentum heading into Q2. The GDP price index, an economy-wide measure of inflation and a mainstay for the Fed, increased 2.6% in Q1. The price index continues to ease from its cyclical peak of 3.4% registered in Q405.
The FOMC cut rates by 25 basis points today, as widely expected. The target for the fed funds rate now stands at 2.0%. This is the seventh policy easing for a cumulative 3.25 points since September. Given substantial easing to date, the removal of the phrase “downside risks to growth remain” from the statement and inflationary risks, experts believe that this may be an end to the Fed’s rate cutting campaign.
The MBA mortgage applications index tumbled 11.1% to 567.0% for the week ending April 25. The purchase index declined 4.8% on the week and is down 20.4% from a year ago. The refinance index plunged 16.7% on a weekly basis but remains 5.5% higher than its year ago level. The jump in mortgage rates last week probably produced the steep drop-off in application activity; also recent news of declining home values could be impacting application activity.
THURSDAY, May 1st
The ISM manufacturing index was unchanged in April at 48.6%. The better-than-expected index reading remains below the key 50% level indicating contraction in nationwide manufacturing activity. The index is not low enough though to suggest that the overall economy is in recession. Despite slow activity, input price pressures continued to rise.
Personal income rose 0.3% in March as personal spending increased 0.4%. Ongoing job losses threaten to weaken both income and spending growth going forward. An inflation gauge in this data series, the core PCE deflator increased 0.2% on the month and was up 2.1% over the past year, slightly above the Fed’s implicit comfort zone for inflation.
Jobless claims jumped 35k to 380k for the week ending April 26. The gain in initial claims more than reverses a 30k decline in claims levels in the previous week. Longer term averages also remain elevated suggesting another decline in payroll employment for April due to increased layoffs and weaker hiring.
FRIDAY, May 2nd
The economy shed 20,000 payrolls in April, much less than an anticipated decline of 75,000. Jobs losses stemmed from manufacturing and construction industries. A sharp gain in service sector payrolls led to less-than-expected losses last month. The unemployment rate slipped to 5.0% of the workforce. While labor conditions are a long way from being healthy, they appear to be improving which supports expectations for rate cut pause.
FRIDAY, May 2nd
The economy shed 20,000 payrolls in April, much less than an anticipated decline of 75,000. Jobs losses stemmed from manufacturing and construction industries. A sharp gain in service sector payrolls led to less-than-expected losses last month. The unemployment rate slipped to 5.0% of the workforce. While labor conditions are a long way from being healthy, they appear to be improving which supports expectations for rate cut pause.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13058.20 12891.86 +166.34 or +1.29%
NASDAQ 2476.99 2422.93 +54.06 or +2.23%
WEEK IN ADVANCE
The economic calendar is very light in the week ahead and contains mostly second-tier data releases. Also, the Treasury conducts its quarterly refunding, auctioning $15 billion in 10-year notes Wednesday and $6.0 billion in 30-year bonds Thursday. New supply in the bond market could result in weaker demand, thus raising yields.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Sunday, April 27, 2008
Economic Highlights for the Week Ending April 25, 2008
MONDAY, April 21st
The size of the next rate cut has been pared back amid better than expected economic readings and improved financial market sentiment related to earnings and the belief that the worst of the credit crisis has passed. Fed funds futures traders are fully pricing in a quarter point rate cut at the conclusion of the two-day FOMC meeting. That would target the fed funds rate at 2.0%.
TUEDAY, April 22nd
Existing home sales fell 2.0% in March to an annual rate of 4.93 million units, in line with market expectations. NAR economists state that sales activity, while uneven at times, has remained within a narrow range since last September, indicating stable but still weak conditions. Support will come in the form of more policy measures, continued low rates and fiscal stimulus later in the year to help offset downside risks of a more severe economic downturn and raucous financial market turmoil.
The Fed has used other tactics besides easing monetary policy to address the credit crisis. One of them, the Term Auction Facility or TAF, which makes 28-day credit available to banks, took place today and drew stronger demand than the first TAF indicating the need for liquidity amid still critical credit market conditions. More lending facilities may be created in an effort to lower interbank lending rates and encourage banks to lend to one another.
WEDNESDAY, April 23rd
The MBA mortgage applications index fell 14.2% to 637.6% for the week ending April 18. The purchase index fell 6.4% on the week as refinancings dropped 20.2%. The decline in application volumes was due to tighter credit, and a substantial jump in mortgage rates.
While a quarter point rate cut is widely expected by the FOMC at their meeting next week, analysts and some economists believe that holding steady on rates would accomplish more for the Fed. It would surprise the markets; help establish the Fed’s inflation fighting credibility, could reverse some of the recent gains in commodity prices and bolster the dollar. The argument is that because rates have fallen so low investors have been buying commodities; that combined with much stronger global demand and industrialization has resulted in what many are calling a commodities bubble.
THURSDAY, April 24th
New home sales plunged 8.5% in March to an annualized pace of 526,000, much weaker than an expected pace of 580,000. The sales plunge in March combined with downward revisions in previous months makes the first quarter the worst yet for the housing downturn. Given the high inventory level and weakened demand, declines are expected to continue in the housing sector through this year though, at a gradually diminishing pace.
Jobless claims fell 33k to 342k for the week ending April 19. Even with the weekly drop, the level of claims remains elevated. In 2007, initial claims averaged 322k; thus far in 2008 claims have averaged 353k. Claims and their longer term averages suggest acceleration in the pace of layoffs and a downward trend in the pace of hiring.
Diminished rate cut expectations combined with scattered inflationary pressures have recently raised yields in the bond market which in turn resulted in higher mortgage rates this week. 30-year fixed rate mortgages averaged 6.03% this week compared to 5.88% last week according to Freddie Mac’s mortgage market survey.
FRIDAY, April 25th
Consumer sentiment dropped to 62.6% in April, a 26-year nadir, from 63.2% in mid-April and 69.5% in March. Consumers seem equally anxious about present and future economic circumstances. Sentiment is mired at a level that historically has been associated with recession. Downside risks to consumer attitudes remain in the form falling house prices, high energy prices, sluggish job growth and tighter credit.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12891.86 12849.36 +42.50 or +0.33%
NASDAQ 2422.93 2402.97 +19.96 or 0.83%
WEEK IN ADVANCE
The economic calendar is busy again in the coming week and provides the advance estimate for Q1 GDP as well as the first readings on payrolls, manufacturing and consumer spending starting off the second quarter. Also, the FOMC holds a two-day policy meeting, where a quarter-point rate cut is widely expected. The policy statement is due out Wednesday afternoon. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
The size of the next rate cut has been pared back amid better than expected economic readings and improved financial market sentiment related to earnings and the belief that the worst of the credit crisis has passed. Fed funds futures traders are fully pricing in a quarter point rate cut at the conclusion of the two-day FOMC meeting. That would target the fed funds rate at 2.0%.
TUEDAY, April 22nd
Existing home sales fell 2.0% in March to an annual rate of 4.93 million units, in line with market expectations. NAR economists state that sales activity, while uneven at times, has remained within a narrow range since last September, indicating stable but still weak conditions. Support will come in the form of more policy measures, continued low rates and fiscal stimulus later in the year to help offset downside risks of a more severe economic downturn and raucous financial market turmoil.
The Fed has used other tactics besides easing monetary policy to address the credit crisis. One of them, the Term Auction Facility or TAF, which makes 28-day credit available to banks, took place today and drew stronger demand than the first TAF indicating the need for liquidity amid still critical credit market conditions. More lending facilities may be created in an effort to lower interbank lending rates and encourage banks to lend to one another.
WEDNESDAY, April 23rd
The MBA mortgage applications index fell 14.2% to 637.6% for the week ending April 18. The purchase index fell 6.4% on the week as refinancings dropped 20.2%. The decline in application volumes was due to tighter credit, and a substantial jump in mortgage rates.
While a quarter point rate cut is widely expected by the FOMC at their meeting next week, analysts and some economists believe that holding steady on rates would accomplish more for the Fed. It would surprise the markets; help establish the Fed’s inflation fighting credibility, could reverse some of the recent gains in commodity prices and bolster the dollar. The argument is that because rates have fallen so low investors have been buying commodities; that combined with much stronger global demand and industrialization has resulted in what many are calling a commodities bubble.
THURSDAY, April 24th
New home sales plunged 8.5% in March to an annualized pace of 526,000, much weaker than an expected pace of 580,000. The sales plunge in March combined with downward revisions in previous months makes the first quarter the worst yet for the housing downturn. Given the high inventory level and weakened demand, declines are expected to continue in the housing sector through this year though, at a gradually diminishing pace.
Jobless claims fell 33k to 342k for the week ending April 19. Even with the weekly drop, the level of claims remains elevated. In 2007, initial claims averaged 322k; thus far in 2008 claims have averaged 353k. Claims and their longer term averages suggest acceleration in the pace of layoffs and a downward trend in the pace of hiring.
Diminished rate cut expectations combined with scattered inflationary pressures have recently raised yields in the bond market which in turn resulted in higher mortgage rates this week. 30-year fixed rate mortgages averaged 6.03% this week compared to 5.88% last week according to Freddie Mac’s mortgage market survey.
FRIDAY, April 25th
Consumer sentiment dropped to 62.6% in April, a 26-year nadir, from 63.2% in mid-April and 69.5% in March. Consumers seem equally anxious about present and future economic circumstances. Sentiment is mired at a level that historically has been associated with recession. Downside risks to consumer attitudes remain in the form falling house prices, high energy prices, sluggish job growth and tighter credit.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12891.86 12849.36 +42.50 or +0.33%
NASDAQ 2422.93 2402.97 +19.96 or 0.83%
WEEK IN ADVANCE
The economic calendar is busy again in the coming week and provides the advance estimate for Q1 GDP as well as the first readings on payrolls, manufacturing and consumer spending starting off the second quarter. Also, the FOMC holds a two-day policy meeting, where a quarter-point rate cut is widely expected. The policy statement is due out Wednesday afternoon. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Monday, April 21, 2008
MONDAY, April 14th
MONDAY, April 14th
Retail sales gained 0.2% in March, driven by sales at gas stations, sporting goods stores, restaurants and bars. Weakness was concentrated in home-related product stores such as furniture, building materials and garden supplies. Even with the gain last month, longer term spending trends remain very weak as consumers cope with job losses, falling home values, high energy prices and tighter credit.
TUESDAY, April 15th
The producer price index jumped 1.1% in March, nearly twice consensus estimates, as food and energy prices surged during the month. Excluding food and energy prices, the core PPI rose 0.2% last month as expected. Over the past year the PPI surged 6.9% as core wholesale prices increased 2.8%, near a cyclical high. Looking ahead, inflationary pressures should recede under weak economic conditions.
The NAHB housing market index was unchanged at a level of 20 in April, the same as in March and February. The composition of the index components changed, though, with lower ratings for present single-family home sales while sales six months from now was tracking higher. Foot traffic through model homes increased as well. It may be some time before a recovery is staged but at least for now the index is not moving lower.
WEDNESDAY, April 16th
The consumer price index rose 0.3% in March, matching market expectations. A 1.9% increase in energy prices led the gain last month. Food price increases remained moderate. Over the past year consumer inflation has grown at a 4.0% rate. Excluding food and energy prices the core CPI was up 0.2% on the month and 2.4% on the year. Consumer inflation has eased slightly from the beginning of the year, giving the Fed leeway to adjust monetary policy as necessary.
The MBA mortgage applications index climbed 2.5% to 743.4% for the week ending April 11. All of the gain was a result of a 5.2% increase in refinance applications. Purchase applications declined 0.8% on the week. Refinancing activity is currently being supported by low rates but resurgence in purchase activity will need borrowers to meet higher loan standards and higher lender confidence.
Construction starts for new homes tumbled 11.9% in March to an annualized pace of 947,000. This was the first drop below a million units (at an annual rate) since 1991. Housing starts are down 36.5% over the past year. An outsized 24.6% decline in multifamily starts led the decline last month.
The Fed’s beige book survey indicated that the economy continued to weaken in March and early April. Labor markets, consumer spending, transportation and residential and commercial construction activity have all softened appreciably. Tourism, energy, agriculture and health services were positive contributors to growth. Loan demand decreased under tighter credit standards. Input cost increases were widespread but pass-through of these costs was limited. This report supports another rate cut, either 25 or 50 basis points as the Fed works to lessen the depth of a recession rather than contain the eruption of inflation.
THURSDAY, April 17th
The index of leading economic indicators rose 0.1% in March following five consecutive monthly declines. Weakness emanated from higher layoffs, lower stock prices, weak residential construction and building permits. Strength in the manufacturing components and money supply provided the offset. One monthly gain does not indicate full economic recovery however it can be taken to mean that the downturn may be less severe. The level of the index indicates slow and possibly contracting economic growth over the next six to nine months.
Jobless claims rose 17k to 372k for the week ending April 12. Claims remain elevated, illustrating softer labor market conditions and continued job losses. Expect the employment report for April to show another decline in payrolls.
FRIDAY, April 18th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12849.36 12325.42 +523.94 or +4.25%
NASDAQ 2402.97 2290.24 +112.73 or +4.92%
WEEK IN ADVANCE
With few signs of housing’s recovery evident, new and existing home sales will be of the most interest in the coming week. Along with data flows the Fed will be watching the financial markets before making their move at the end of the month.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
MONDAY, April 14th
MONDAY, April 14th
Retail sales gained 0.2% in March, driven by sales at gas stations, sporting goods stores, restaurants and bars. Weakness was concentrated in home-related product stores such as furniture, building materials and garden supplies. Even with the gain last month, longer term spending trends remain very weak as consumers cope with job losses, falling home values, high energy prices and tighter credit.
TUESDAY, April 15th
The producer price index jumped 1.1% in March, nearly twice consensus estimates, as food and energy prices surged during the month. Excluding food and energy prices, the core PPI rose 0.2% last month as expected. Over the past year the PPI surged 6.9% as core wholesale prices increased 2.8%, near a cyclical high. Looking ahead, inflationary pressures should recede under weak economic conditions.
The NAHB housing market index was unchanged at a level of 20 in April, the same as in March and February. The composition of the index components changed, though, with lower ratings for present single-family home sales while sales six months from now was tracking higher. Foot traffic through model homes increased as well. It may be some time before a recovery is staged but at least for now the index is not moving lower.
WEDNESDAY, April 16th
The consumer price index rose 0.3% in March, matching market expectations. A 1.9% increase in energy prices led the gain last month. Food price increases remained moderate. Over the past year consumer inflation has grown at a 4.0% rate. Excluding food and energy prices the core CPI was up 0.2% on the month and 2.4% on the year. Consumer inflation has eased slightly from the beginning of the year, giving the Fed leeway to adjust monetary policy as necessary.
The MBA mortgage applications index climbed 2.5% to 743.4% for the week ending April 11. All of the gain was a result of a 5.2% increase in refinance applications. Purchase applications declined 0.8% on the week. Refinancing activity is currently being supported by low rates but resurgence in purchase activity will need borrowers to meet higher loan standards and higher lender confidence.
Construction starts for new homes tumbled 11.9% in March to an annualized pace of 947,000. This was the first drop below a million units (at an annual rate) since 1991. Housing starts are down 36.5% over the past year. An outsized 24.6% decline in multifamily starts led the decline last month.
The Fed’s beige book survey indicated that the economy continued to weaken in March and early April. Labor markets, consumer spending, transportation and residential and commercial construction activity have all softened appreciably. Tourism, energy, agriculture and health services were positive contributors to growth. Loan demand decreased under tighter credit standards. Input cost increases were widespread but pass-through of these costs was limited. This report supports another rate cut, either 25 or 50 basis points as the Fed works to lessen the depth of a recession rather than contain the eruption of inflation.
THURSDAY, April 17th
The index of leading economic indicators rose 0.1% in March following five consecutive monthly declines. Weakness emanated from higher layoffs, lower stock prices, weak residential construction and building permits. Strength in the manufacturing components and money supply provided the offset. One monthly gain does not indicate full economic recovery however it can be taken to mean that the downturn may be less severe. The level of the index indicates slow and possibly contracting economic growth over the next six to nine months.
Jobless claims rose 17k to 372k for the week ending April 12. Claims remain elevated, illustrating softer labor market conditions and continued job losses. Expect the employment report for April to show another decline in payrolls.
FRIDAY, April 18th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12849.36 12325.42 +523.94 or +4.25%
NASDAQ 2402.97 2290.24 +112.73 or +4.92%
WEEK IN ADVANCE
With few signs of housing’s recovery evident, new and existing home sales will be of the most interest in the coming week. Along with data flows the Fed will be watching the financial markets before making their move at the end of the month.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Monday, April 14, 2008
Economic Highlights for the Week Ending April 11, 2008
MONDAY, April 7th
Consumer credit rose by $5.16 billion to $2.54 trillion in February, according to Federal Reserve data released today. Consumer credit in January was upwardly revised to $10.29 billion from $6.9 billion in the original estimate. February credit growth was led by gains in the revolving credit category as consumers used credit cards to fund consumption. Consumer credit will be worth watching as a spending gauge as consumers contend with slumping housing markets, high energy prices and slow job growth.
TUESDAY, April 8th
The pending home sales index fell to 84.6% in February from a level of 86.2% in January. The index, which tracks contracts signed, was down 1.9% on the month and off 21.4% over the last year. The slight decline in the index in February suggests that there will be little change in the pace of existing home sales over the next few months. The chief economist at NAR said it could be summertime before sales start to improve and later in the year before any sustainable increases.
Deciding on monetary policy was difficult for the FOMC on March 18 due to uncertainties in the economic outlook, financial market stress and somewhat elevated inflation. Committee members were unsure if monetary policy alone would be enough to address contracting growth, house price declines, soft labor markets and financial market turmoil related to credit losses. The vote was 8-2 in favor of a 75 basis point rate cut with members agreeing that more time would be needed to assess the effects of monetary policy easing to date.
WEDNESDAY, April 9th
The MBA mortgage applications index increased 5.4% to 725.6% for the week ending April 4. The purchase index was up 8.1% on the week but remains 7.0% lower than a year ago. The refinance index gained 3.4% on a weekly basis and is 35.2% higher from one year ago. Rates were little changed, remaining quite low in the last week which continued to support application activity.
Easing expectations for a larger rate cut this month have climbed back up as many sources, including the IMF, Bloomberg and several Fed officials continue to forecast very weak economic growth for the U.S. this year. Fed funds futures traders were pricing in a 40% chance the Fed will lower rates by 50 basis points to 1.75% when they meet at the end of the month. Odds were running at about 12% for a half point rate cut just one week ago. It is still widely expected for the Fed to cut at least a quarter point at the next policy meeting.
THURSDAY, April 10th
The international trade deficit widened to $62.3 billion in February from a shortfall of $59.0 billion in January. Imports increased more than exports in February, accounting for the larger deficit. Export growth continues to be supported by the weak dollar. Surprisingly, import gains were driven by non-petroleum goods as petroleum imports actually declined. The larger trade deficit will detract from Q1 GDP.
Jobless claims plunged 53k to 357k for the week ending April 5. Even with the decline, the 4-week moving average was up 3k to 376k, the highest level since the aftermath of Hurricane Katrina. Claims levels remain elevated indicating an upward trend in layoffs combined with a moderate pace of hiring. Labor market conditions remain weak.
Chain store sales fell 0.5% in March, hurt by an early Easter, cold weather and weak economic conditions. An early Easter holiday will shift some sales into April, however, weak economic fundamentals will continue to weigh on consumer spending going forward with tax rebate checks perhaps providing some relief starting in May.
FRIDAY, April 11th
The import price index jumped 2.8% in March pushing the year-over-year gain to 14.8%. The oversized gain reflects the rebound in crude oil prices last month though non-petroleum prices posted a record high increase as well. Imported petroleum prices surged by 9.1% in March and have climbed 60% over the past year. Consumer and producer prices for March, due out next week, will likely show large gains related to higher energy prices.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12325.42 12609.42 -284.00 or -2.25%
NASDAQ 2290.24 2370.98 -80.74 or -3.40%
WEEK IN ADVANCE
A boatload of economic data in the coming week should help solidify the interest rate outlook. Key indicators include retail sales, housing starts, and consumer and producer prices. Also, the Fed’s beige book could provide some insight on their next policy decision.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Consumer credit rose by $5.16 billion to $2.54 trillion in February, according to Federal Reserve data released today. Consumer credit in January was upwardly revised to $10.29 billion from $6.9 billion in the original estimate. February credit growth was led by gains in the revolving credit category as consumers used credit cards to fund consumption. Consumer credit will be worth watching as a spending gauge as consumers contend with slumping housing markets, high energy prices and slow job growth.
TUESDAY, April 8th
The pending home sales index fell to 84.6% in February from a level of 86.2% in January. The index, which tracks contracts signed, was down 1.9% on the month and off 21.4% over the last year. The slight decline in the index in February suggests that there will be little change in the pace of existing home sales over the next few months. The chief economist at NAR said it could be summertime before sales start to improve and later in the year before any sustainable increases.
Deciding on monetary policy was difficult for the FOMC on March 18 due to uncertainties in the economic outlook, financial market stress and somewhat elevated inflation. Committee members were unsure if monetary policy alone would be enough to address contracting growth, house price declines, soft labor markets and financial market turmoil related to credit losses. The vote was 8-2 in favor of a 75 basis point rate cut with members agreeing that more time would be needed to assess the effects of monetary policy easing to date.
WEDNESDAY, April 9th
The MBA mortgage applications index increased 5.4% to 725.6% for the week ending April 4. The purchase index was up 8.1% on the week but remains 7.0% lower than a year ago. The refinance index gained 3.4% on a weekly basis and is 35.2% higher from one year ago. Rates were little changed, remaining quite low in the last week which continued to support application activity.
Easing expectations for a larger rate cut this month have climbed back up as many sources, including the IMF, Bloomberg and several Fed officials continue to forecast very weak economic growth for the U.S. this year. Fed funds futures traders were pricing in a 40% chance the Fed will lower rates by 50 basis points to 1.75% when they meet at the end of the month. Odds were running at about 12% for a half point rate cut just one week ago. It is still widely expected for the Fed to cut at least a quarter point at the next policy meeting.
THURSDAY, April 10th
The international trade deficit widened to $62.3 billion in February from a shortfall of $59.0 billion in January. Imports increased more than exports in February, accounting for the larger deficit. Export growth continues to be supported by the weak dollar. Surprisingly, import gains were driven by non-petroleum goods as petroleum imports actually declined. The larger trade deficit will detract from Q1 GDP.
Jobless claims plunged 53k to 357k for the week ending April 5. Even with the decline, the 4-week moving average was up 3k to 376k, the highest level since the aftermath of Hurricane Katrina. Claims levels remain elevated indicating an upward trend in layoffs combined with a moderate pace of hiring. Labor market conditions remain weak.
Chain store sales fell 0.5% in March, hurt by an early Easter, cold weather and weak economic conditions. An early Easter holiday will shift some sales into April, however, weak economic fundamentals will continue to weigh on consumer spending going forward with tax rebate checks perhaps providing some relief starting in May.
FRIDAY, April 11th
The import price index jumped 2.8% in March pushing the year-over-year gain to 14.8%. The oversized gain reflects the rebound in crude oil prices last month though non-petroleum prices posted a record high increase as well. Imported petroleum prices surged by 9.1% in March and have climbed 60% over the past year. Consumer and producer prices for March, due out next week, will likely show large gains related to higher energy prices.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12325.42 12609.42 -284.00 or -2.25%
NASDAQ 2290.24 2370.98 -80.74 or -3.40%
WEEK IN ADVANCE
A boatload of economic data in the coming week should help solidify the interest rate outlook. Key indicators include retail sales, housing starts, and consumer and producer prices. Also, the Fed’s beige book could provide some insight on their next policy decision.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Saturday, April 05, 2008
Economic Highlights for the Week Ending April 4, 2008
MONDAY, March 31st
With some relief in terms of inflationary pressure and continued signs of pervasive weakness, financial markets fully expect the FOMC to continue trimming rates in the near future. Fed funds futures traders are fully pricing in a quarter-point rate cut to 2.0% at the conclusion of the Fed’s two-day meeting, April 29-30. Traders ascribe a 75% chance the rate cut will be a half point.
TUESDAY, April 1st
The ISM manufacturing index rose to 48.6% in March from a reading of 48.3% in February. These data bested expectations for a small decline. However, this is the third reading below the key 50% level in the last four months indicating contraction national manufacturing conditions. Despite the contraction input prices remain stubbornly high. With business investment softening and consumer confidence faltering, demand is expected to be subdued with corresponding weak manufacturing production in the months ahead.
Construction spending fell 0.3% in February as January’s decline was revised to be much smaller. Construction spending has fallen for five straight months due to weakness in the residential sector where expenditures dropped 0.9% in February, the 24th consecutive monthly decline, and remain 18.8% lower over the past year.
WEDNESDAY, April 2nd
Motor vehicle sales fell 1.7% in March to an annualized pace of 15.1 million units. This was the slowest sales pace since October 2005. Auto sales were higher while truck sales dropped because of gas mileage considerations. Vehicle sales are likely to remain weak as house price declines, sluggish job growth, tighter credit and higher gas prices curtail consumer spending, especially for big-ticket items.
The MBA mortgage applications index plunged 28.7% to 688.3% for the week ending March 28. This reversed a substantial portion of last week’s 48.1% surge. Nevertheless, total mortgage application volumes are still 6.0% above their year ago level. The purchase index fell 11.8% on the week and is down a similar 11.6% from one year ago. Refinance applications dropped 38.1% from the previous week but remain 25.6% above their year ago level. Refinance applications accounted for 53.4% of total loan applications, down from 62.0% a week earlier.
Fed Chief Ben Bernanke forecasted flat to slightly contracting growth the first half of this year with the possibility of some improvement sometime in the second half of the year in comments made to the Congressional Joint Economic Committee today. The Chairman also said that monetary and fiscal stimulus that has already taken place should be enough to support modest growth later this year suggesting the Fed may be nearing an end to their rate cutting campaign.
THURSDAY, April 3rd
The ISM non-manufacturing index increased slightly in March to 49.6% from 49.3% in February. This was the third consecutive sub-50% reading indicating mild contraction in service sector activity. Details in the data suggest moderate weakening may continue in the near term, which is consistent with the broader economic outlook.
Jobless claims jumped 38k to 407k for the week ending March 29. The surge in unemployment filings was unexpected, and raises the level of claims to the highest in 2 years since the aftermath of Hurricane Katrina. Jobless claims have been trending higher over the last year and a half indicating increased layoffs and subdued hiring amid weakened labor market conditions.
The economic readings of late while still showing weakness have not been as weak as economists have forecast. Rates drifted slightly higher this week related to better than expected data results. 30-year fixed rate mortgages averaged 5.88% this week compared to 5.85% last week according to Freddie Mac’s mortgage market survey. Economists at Freddie Mac point out though, that recession worries are keeping a lid on any large upward swings in rates right now and that rates remain at historically low levels.
FRIDAY, April 4th
Employers continued to shed jobs in March providing further confirmation of a mild recession currently taking place. Payroll employment shrank by 80,000 last month, more than expected and the biggest decline since March 2003. Moreover, the previous two months were downwardly revised to show a net loss of 67,000 more jobs. The unemployment rate jumped to 5.1% of the work force from 4.8% in February. The third consecutive month of substantial payroll declines will place pressure on Fed to continue cutting rates, perhaps more aggressively than their current outlook would warrant.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12609.42 12216.40 +393.02 or +3.22%
NASDAQ 2370.98 2261.18 +109.80 or +4.85%
WEEK IN ADVANCE
Data in the coming week, which is light and mostly second-tier, takes a back seat to scheduled Fed speeches and the FOMC meeting minutes from March 18 in terms of the interest rate outlook. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
With some relief in terms of inflationary pressure and continued signs of pervasive weakness, financial markets fully expect the FOMC to continue trimming rates in the near future. Fed funds futures traders are fully pricing in a quarter-point rate cut to 2.0% at the conclusion of the Fed’s two-day meeting, April 29-30. Traders ascribe a 75% chance the rate cut will be a half point.
TUESDAY, April 1st
The ISM manufacturing index rose to 48.6% in March from a reading of 48.3% in February. These data bested expectations for a small decline. However, this is the third reading below the key 50% level in the last four months indicating contraction national manufacturing conditions. Despite the contraction input prices remain stubbornly high. With business investment softening and consumer confidence faltering, demand is expected to be subdued with corresponding weak manufacturing production in the months ahead.
Construction spending fell 0.3% in February as January’s decline was revised to be much smaller. Construction spending has fallen for five straight months due to weakness in the residential sector where expenditures dropped 0.9% in February, the 24th consecutive monthly decline, and remain 18.8% lower over the past year.
WEDNESDAY, April 2nd
Motor vehicle sales fell 1.7% in March to an annualized pace of 15.1 million units. This was the slowest sales pace since October 2005. Auto sales were higher while truck sales dropped because of gas mileage considerations. Vehicle sales are likely to remain weak as house price declines, sluggish job growth, tighter credit and higher gas prices curtail consumer spending, especially for big-ticket items.
The MBA mortgage applications index plunged 28.7% to 688.3% for the week ending March 28. This reversed a substantial portion of last week’s 48.1% surge. Nevertheless, total mortgage application volumes are still 6.0% above their year ago level. The purchase index fell 11.8% on the week and is down a similar 11.6% from one year ago. Refinance applications dropped 38.1% from the previous week but remain 25.6% above their year ago level. Refinance applications accounted for 53.4% of total loan applications, down from 62.0% a week earlier.
Fed Chief Ben Bernanke forecasted flat to slightly contracting growth the first half of this year with the possibility of some improvement sometime in the second half of the year in comments made to the Congressional Joint Economic Committee today. The Chairman also said that monetary and fiscal stimulus that has already taken place should be enough to support modest growth later this year suggesting the Fed may be nearing an end to their rate cutting campaign.
THURSDAY, April 3rd
The ISM non-manufacturing index increased slightly in March to 49.6% from 49.3% in February. This was the third consecutive sub-50% reading indicating mild contraction in service sector activity. Details in the data suggest moderate weakening may continue in the near term, which is consistent with the broader economic outlook.
Jobless claims jumped 38k to 407k for the week ending March 29. The surge in unemployment filings was unexpected, and raises the level of claims to the highest in 2 years since the aftermath of Hurricane Katrina. Jobless claims have been trending higher over the last year and a half indicating increased layoffs and subdued hiring amid weakened labor market conditions.
The economic readings of late while still showing weakness have not been as weak as economists have forecast. Rates drifted slightly higher this week related to better than expected data results. 30-year fixed rate mortgages averaged 5.88% this week compared to 5.85% last week according to Freddie Mac’s mortgage market survey. Economists at Freddie Mac point out though, that recession worries are keeping a lid on any large upward swings in rates right now and that rates remain at historically low levels.
FRIDAY, April 4th
Employers continued to shed jobs in March providing further confirmation of a mild recession currently taking place. Payroll employment shrank by 80,000 last month, more than expected and the biggest decline since March 2003. Moreover, the previous two months were downwardly revised to show a net loss of 67,000 more jobs. The unemployment rate jumped to 5.1% of the work force from 4.8% in February. The third consecutive month of substantial payroll declines will place pressure on Fed to continue cutting rates, perhaps more aggressively than their current outlook would warrant.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12609.42 12216.40 +393.02 or +3.22%
NASDAQ 2370.98 2261.18 +109.80 or +4.85%
WEEK IN ADVANCE
Data in the coming week, which is light and mostly second-tier, takes a back seat to scheduled Fed speeches and the FOMC meeting minutes from March 18 in terms of the interest rate outlook. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Sunday, March 30, 2008
Economic Highlights for the Week Ending March 28, 2008
MONDAY, March 24th
Existing home sales gained 2.9% in February to an annual pace of 5.03 million units. The increase in home sales last month breaks a six-month string of declines. While the increase in sales last month is encouraging, economists at NAR are not expecting significant recovery until the second half of this year, when higher loan limits, along with monetary and fiscal stimulus will unleash pent-up demand. In the meantime, the housing correction will continue as rising defaults and foreclosures push inventories higher and accelerate price declines.
The Fed’s next rate move remains uncertain at this time. Policy decisions will be fluid depending on downside risks to growth and the state of credit markets. After an upside surprise in existing home sales, fed funds futures traders are currently pricing in a 60% probability of a 50 basis point rate cut when the FOMC meets at the end of April, down from a 71% chance earlier this morning.
TUESDAY, March 25th
Consumer confidence tumbled to 64.5% in March from a reading of 76.4% in February. The index is at its lowest level since the start of the Iraq war in 2003. The scores of the two index components, present conditions and expectations fell sharply during the month while consumers’ assessments of the labor market weakened significantly. Inflation expectations rose as well. Confidence continues to face downside risks in the near term amid weak economic conditions.
Both the 10-city and 20-city composite S&P/Case-Shiller house price indexes declined on a month-over month basis and posted the largest year-over-year declines since the inception of the index in 1988. The 10-city house price index fell 2.3% in January from December and dropped 11.4% from January one year ago. The 20-city house price index declined 2.4% on the month and was down 10.7% on the year. Because of tighter credit and weak housing market conditions, house price declines are expected to continue through 2008.
WEDNESDAY, March 26th
New home sales fell 1.8% in February to 590k, compared to expectations for a larger decline to a rate of 576k. This was the lowest level of new home sales since February 1995. Over the past year, sales have declined 29.8%.
The MBA mortgage applications index surged 48.1% to 965.9% for the week that ended March 21. The purchase index jumped 10.6% on the week but remains 1.8% below its level one year ago. The refinance index soared 82.2% during the week and is up 93.6% from one year ago. A sharp drop in mortgage interest rates resulted in a flood of applications last week. Lower rates will need to be maintained to sustain these volumes.
THURSDAY, March 27th
Jobless claims fell 9k to 366k for the week ending March 22. The level of claims remains elevated which indicates acceleration in the pace of layoffs. Continuing claims are on a rising trend which indicates a weaker pace of hiring. Soft labor market conditions portend of another decline in payrolls in the jobs report, April 4.
Mortgage rates were mixed but little changed this week, maintaining for the most part the large drop the week before. 30-year fixed rate mortgages averaged 5.85% this week compared to 5.87% last week according to Freddie Mac’s mortgage market survey. After the Fed’s big rate cut last week, economic data met expectations which lessened some of the recent gyrations in financial markets.
FRIDAY, March 28th
Personal income rose 0.5% in February, better than an expected gain of 0.3%. Income growth was boosted by a onetime jump in transfer payments related to the Medicare prescription drug plan. Personal spending increased 0.1% last month but long term spending growth has flat-lined. A closely watched inflation measure, the core PCE price index rose 0.1% in February and was up 2.0% over the past year. Core inflation has eased recently to bring it within the Fed’s comfort zone.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12216.40 12361.32 -144.92 or -1.17%
NASDAQ 2261.18 2258.11 +3.07 or +0.14%
WEEK IN ADVANCE
The economy remains a concern. Data flows in the coming week are expected to show further weakening with a decline in payrolls and contracting activity in the manufacturing sector. Data results will continue to be reflected in Fed rate decisions.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Existing home sales gained 2.9% in February to an annual pace of 5.03 million units. The increase in home sales last month breaks a six-month string of declines. While the increase in sales last month is encouraging, economists at NAR are not expecting significant recovery until the second half of this year, when higher loan limits, along with monetary and fiscal stimulus will unleash pent-up demand. In the meantime, the housing correction will continue as rising defaults and foreclosures push inventories higher and accelerate price declines.
The Fed’s next rate move remains uncertain at this time. Policy decisions will be fluid depending on downside risks to growth and the state of credit markets. After an upside surprise in existing home sales, fed funds futures traders are currently pricing in a 60% probability of a 50 basis point rate cut when the FOMC meets at the end of April, down from a 71% chance earlier this morning.
TUESDAY, March 25th
Consumer confidence tumbled to 64.5% in March from a reading of 76.4% in February. The index is at its lowest level since the start of the Iraq war in 2003. The scores of the two index components, present conditions and expectations fell sharply during the month while consumers’ assessments of the labor market weakened significantly. Inflation expectations rose as well. Confidence continues to face downside risks in the near term amid weak economic conditions.
Both the 10-city and 20-city composite S&P/Case-Shiller house price indexes declined on a month-over month basis and posted the largest year-over-year declines since the inception of the index in 1988. The 10-city house price index fell 2.3% in January from December and dropped 11.4% from January one year ago. The 20-city house price index declined 2.4% on the month and was down 10.7% on the year. Because of tighter credit and weak housing market conditions, house price declines are expected to continue through 2008.
WEDNESDAY, March 26th
New home sales fell 1.8% in February to 590k, compared to expectations for a larger decline to a rate of 576k. This was the lowest level of new home sales since February 1995. Over the past year, sales have declined 29.8%.
The MBA mortgage applications index surged 48.1% to 965.9% for the week that ended March 21. The purchase index jumped 10.6% on the week but remains 1.8% below its level one year ago. The refinance index soared 82.2% during the week and is up 93.6% from one year ago. A sharp drop in mortgage interest rates resulted in a flood of applications last week. Lower rates will need to be maintained to sustain these volumes.
THURSDAY, March 27th
Jobless claims fell 9k to 366k for the week ending March 22. The level of claims remains elevated which indicates acceleration in the pace of layoffs. Continuing claims are on a rising trend which indicates a weaker pace of hiring. Soft labor market conditions portend of another decline in payrolls in the jobs report, April 4.
Mortgage rates were mixed but little changed this week, maintaining for the most part the large drop the week before. 30-year fixed rate mortgages averaged 5.85% this week compared to 5.87% last week according to Freddie Mac’s mortgage market survey. After the Fed’s big rate cut last week, economic data met expectations which lessened some of the recent gyrations in financial markets.
FRIDAY, March 28th
Personal income rose 0.5% in February, better than an expected gain of 0.3%. Income growth was boosted by a onetime jump in transfer payments related to the Medicare prescription drug plan. Personal spending increased 0.1% last month but long term spending growth has flat-lined. A closely watched inflation measure, the core PCE price index rose 0.1% in February and was up 2.0% over the past year. Core inflation has eased recently to bring it within the Fed’s comfort zone.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12216.40 12361.32 -144.92 or -1.17%
NASDAQ 2261.18 2258.11 +3.07 or +0.14%
WEEK IN ADVANCE
The economy remains a concern. Data flows in the coming week are expected to show further weakening with a decline in payrolls and contracting activity in the manufacturing sector. Data results will continue to be reflected in Fed rate decisions.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Thursday, March 20, 2008
Economic Highlights for the Week Ending March 14, 2008
MONDAY, March 10th
Expectations for a 75 basis point rate cut increased significantly following last Friday’s bleak employment report. An 85k job loss since the beginning of this year has permutated recession fears into reality. Fed funds futures traders are pricing in a 98% probability the Fed will lower the fed funds target rate to 2.25% from 3.00% currently at the conclusion of their policy setting session March 18.
TUESDAY, March 11th
The international trade deficit on goods and services widened to $58.2 billion in January from a gap of $57.9 billion in December. The trade shortfall was better than expected even amid record high oil prices. Recent strong gains in exports have helped to improve the trade picture.
WEDNESDAY, March 12th
The Treasury budget deficit widened to $175.6 billion in February compared to a shortfall of $120 billion in February one 2007. Fiscal year-to-date the cumulative budget deficit is running at $263.3 billion a 62% increase from the $162.2 billion deficit for the same period last year. While calendar effects played a role in the outsized budget shortfall last month, the budget deficit is widening this year after several years of improvement.
The MBA mortgage applications index slipped 1.9% to 671.7% for the week ending March 7. The purchase index climbed 1.6% on the week while the refinance index fell 4.7% due to a jump in mortgage interest rates. Refinancing activity remains 5.9% above its year ago level while purchasing activity has dropped 11.0% from last year.
The Federal Reserve announced Tuesday that it will lend up to $200 billion in Treasury securities to primary dealers secured for a term of 28 days, instead of overnight. Stocks rallied on the news as Treasury prices fell and yields rose in the bond market. Today, stocks and bonds reversed direction and the dollar fell to a record low against the euro on speculation the Fed’s plan to fix credit markets, while helping, could not resolve all underlying problems in the financial system.
THURSDAY, March 13th
Retail sales fell 0.6% in February compared to expectations for a 0.2% gain. Weakness was led by a 1.9% decline in motor vehicle sales though other spending categories also fell last month. Excluding autos, total retail sales slipped 0.2%, better but still weak. Consumer spending is definitely being affected by higher energy and food costs, the housing downturn and credit crunch. Spending weakness is expected to persist with tax rebate checks expected to provide some relief starting in May.
Import prices rose 0.2% in February, less than an expected gain of 0.6%. Import prices continue to be driven by oil costs. Petroleum prices actually fell 1.5% in February while non-petroleum import prices gained 0.6%, hence the subdued gain in overall prices. Oil prices have since spiked to new record highs which will be reflected in import price readings in the months to follow.
Jobless claims were unchanged at 353k for the week ending March 8. The level of claims remains elevated, indicating sluggish labor market conditions with weak hiring and an accelerated pace of layoffs.
Average mortgage rates moved higher across the board for all loan products this week according to Freddie Mac. 30-year fixed rate mortgages averaged 6.13% this week compared to 6.03% last week. Economists at Freddie Mac point out however that lower home prices combined with still low mortgage rates makes the housing market very affordable for many homebuyers.
FRIDAY, March 14th
The Fed caught a break on consumer price data today. Both the consumer price index and the core CPI, which excludes food and energy costs, recorded no monthly change in February, which allows the FOMC leeway to cut aggressively next week without complications from the inflation outlook.
Stock Market Close for the Week
Latest A Week Ago Change
DJIA 11951.09 11893.69 +57.40 or +0.48%
NASDAQ 2212.49 2212.49 No weekly change
WEEK IN ADVANCE
Following weak data and financial market volatility, rate cut expectations at Tuesday’s FOMC meeting have solidified around a 75 basis point easing. Further easing is expected from there however, the size of future cuts will be determined by the developing results of increased credit market liquidity and monetary and fiscal stimulus already in the pipeline.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Expectations for a 75 basis point rate cut increased significantly following last Friday’s bleak employment report. An 85k job loss since the beginning of this year has permutated recession fears into reality. Fed funds futures traders are pricing in a 98% probability the Fed will lower the fed funds target rate to 2.25% from 3.00% currently at the conclusion of their policy setting session March 18.
TUESDAY, March 11th
The international trade deficit on goods and services widened to $58.2 billion in January from a gap of $57.9 billion in December. The trade shortfall was better than expected even amid record high oil prices. Recent strong gains in exports have helped to improve the trade picture.
WEDNESDAY, March 12th
The Treasury budget deficit widened to $175.6 billion in February compared to a shortfall of $120 billion in February one 2007. Fiscal year-to-date the cumulative budget deficit is running at $263.3 billion a 62% increase from the $162.2 billion deficit for the same period last year. While calendar effects played a role in the outsized budget shortfall last month, the budget deficit is widening this year after several years of improvement.
The MBA mortgage applications index slipped 1.9% to 671.7% for the week ending March 7. The purchase index climbed 1.6% on the week while the refinance index fell 4.7% due to a jump in mortgage interest rates. Refinancing activity remains 5.9% above its year ago level while purchasing activity has dropped 11.0% from last year.
The Federal Reserve announced Tuesday that it will lend up to $200 billion in Treasury securities to primary dealers secured for a term of 28 days, instead of overnight. Stocks rallied on the news as Treasury prices fell and yields rose in the bond market. Today, stocks and bonds reversed direction and the dollar fell to a record low against the euro on speculation the Fed’s plan to fix credit markets, while helping, could not resolve all underlying problems in the financial system.
THURSDAY, March 13th
Retail sales fell 0.6% in February compared to expectations for a 0.2% gain. Weakness was led by a 1.9% decline in motor vehicle sales though other spending categories also fell last month. Excluding autos, total retail sales slipped 0.2%, better but still weak. Consumer spending is definitely being affected by higher energy and food costs, the housing downturn and credit crunch. Spending weakness is expected to persist with tax rebate checks expected to provide some relief starting in May.
Import prices rose 0.2% in February, less than an expected gain of 0.6%. Import prices continue to be driven by oil costs. Petroleum prices actually fell 1.5% in February while non-petroleum import prices gained 0.6%, hence the subdued gain in overall prices. Oil prices have since spiked to new record highs which will be reflected in import price readings in the months to follow.
Jobless claims were unchanged at 353k for the week ending March 8. The level of claims remains elevated, indicating sluggish labor market conditions with weak hiring and an accelerated pace of layoffs.
Average mortgage rates moved higher across the board for all loan products this week according to Freddie Mac. 30-year fixed rate mortgages averaged 6.13% this week compared to 6.03% last week. Economists at Freddie Mac point out however that lower home prices combined with still low mortgage rates makes the housing market very affordable for many homebuyers.
FRIDAY, March 14th
The Fed caught a break on consumer price data today. Both the consumer price index and the core CPI, which excludes food and energy costs, recorded no monthly change in February, which allows the FOMC leeway to cut aggressively next week without complications from the inflation outlook.
Stock Market Close for the Week
Latest A Week Ago Change
DJIA 11951.09 11893.69 +57.40 or +0.48%
NASDAQ 2212.49 2212.49 No weekly change
WEEK IN ADVANCE
Following weak data and financial market volatility, rate cut expectations at Tuesday’s FOMC meeting have solidified around a 75 basis point easing. Further easing is expected from there however, the size of future cuts will be determined by the developing results of increased credit market liquidity and monetary and fiscal stimulus already in the pipeline.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Monday, March 10, 2008
Economic Highlights for the Week Ending March 7, 2008
MONDAY, March 3rd
The ISM manufacturing index fell to 48.3% in February from 50.7% in January. An index level below the 50% threshold indicates contracting activity in the manufacturing sector. Prices eased somewhat but remain stubbornly high. The index is not low enough to suggest a recession for the broader economy. That threshold is below 44%.
Construction spending tumbled a greater-than-expected 1.7% in January following an outsized decline of 1.3% in December. Spending declined across most all sectors of construction. Weakness in construction activity is expected to detract from Q1 GDP and persist through 2008 amid higher inventories, tighter credit conditions and tighter state and local government budgets.
TUESDAY, March 4th
Fed Chairman Ben Bernanke, speaking to a group of community bankers today outlined his approach to help homeowners avoid foreclosure in an effort to counter the effects rising foreclosure rates would have on an already-ailing housing market. The Chairman said that rather than lowering interest rates, it would be more effective for lenders to write down the principal amount owed. Many borrowers owe more on the home than the home is worth and some equity in the home would provide financial incentive for homeowners to stay. Bernanke also said that lenders stand to lose more through foreclosures than they would by reducing the principal amount owed.
WEDNESDAY, March 5th
A Federal Reserve survey of business conditions, known as the beige book, showed softening or weakening activity in two-thirds of the twelve banking districts in January and the first half of February. The remaining Districts reported subdued or modest growth. In addition, price pressures for food, raw materials and energy were cited across all areas. Based on this report, expectations are for a 50 basis point rate cut because of slow growth and accompanying, higher input costs.
The MBA mortgage applications index gained 3.0% to 684.9% for the week ending February 29. The purchase index climbed 1.5% on the week but is 10.4% lower than its year ago level. The refinance index jumped 4.5% last week and is up 15% over last year. Application activity will continue to be supported by mortgage interest rate declines.
THURSDAY, March 6th
The NAR’s pending home sales index, based on contracts signed in January, was unchanged from December’s level of 85.9%, which was better than expectation for further weakening. The index remains 19.6% below year ago levels, just barely above a record low. Nevertheless, economists at NAR are hoping that the stable January reading is a preliminary step toward more home sales activity in the coming months.
Delinquencies stood at 5.82% of all outstanding mortgages in the fourth quarter, up from 5.59% in the third quarter and 4.95% in Q406 according to the MBA National Delinquency Survey. The delinquency rate does not include loans in the foreclosure process. Loans in foreclosure accounted for 2.04% of all outstanding loans in the fourth quarter, up from 1.69% in Q3 and 1.19% in the fourth quarter of 2006. The delinquency rate in the last quarter was the highest since 1985 and the percent of loans in foreclosure are at the highest level ever in the 36-year history of the survey.
Weak economic data boosted Treasury prices and lowered yields in the bond market recently and mortgage interest rate followed suit. 30-year fixed rate mortgages averaged 6.03% this week compared to 6.24% last week according to Freddie Mac’s mortgage market survey.
FRIDAY, March 7th
Payroll employment declined for the second month in February further solidifying views that the economy is in recession. Payrolls decreased by 63k last month, with downward revisions in the previous two months resulting in a net loss of 46k more jobs. The unemployment rate fell to 4.8%, from 4.9% previously, related to a reduction in the workforce. Odds of a 75 basis point rate cut at the next meeting increased to nearly 80% after the release of employment data today.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11893.69 12266.39 -372.70 or -3.04%
NASDAQ 2212.49 2271.48 -58.99 or -2.60%
WEEK IN ADVANCE
The Fed will definitely cut rates this month amid weakened economic conditions; however rising inflation makes the Fed’s job tricky. Because of this, the consumer price index in the coming week takes on added significance.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
The ISM manufacturing index fell to 48.3% in February from 50.7% in January. An index level below the 50% threshold indicates contracting activity in the manufacturing sector. Prices eased somewhat but remain stubbornly high. The index is not low enough to suggest a recession for the broader economy. That threshold is below 44%.
Construction spending tumbled a greater-than-expected 1.7% in January following an outsized decline of 1.3% in December. Spending declined across most all sectors of construction. Weakness in construction activity is expected to detract from Q1 GDP and persist through 2008 amid higher inventories, tighter credit conditions and tighter state and local government budgets.
TUESDAY, March 4th
Fed Chairman Ben Bernanke, speaking to a group of community bankers today outlined his approach to help homeowners avoid foreclosure in an effort to counter the effects rising foreclosure rates would have on an already-ailing housing market. The Chairman said that rather than lowering interest rates, it would be more effective for lenders to write down the principal amount owed. Many borrowers owe more on the home than the home is worth and some equity in the home would provide financial incentive for homeowners to stay. Bernanke also said that lenders stand to lose more through foreclosures than they would by reducing the principal amount owed.
WEDNESDAY, March 5th
A Federal Reserve survey of business conditions, known as the beige book, showed softening or weakening activity in two-thirds of the twelve banking districts in January and the first half of February. The remaining Districts reported subdued or modest growth. In addition, price pressures for food, raw materials and energy were cited across all areas. Based on this report, expectations are for a 50 basis point rate cut because of slow growth and accompanying, higher input costs.
The MBA mortgage applications index gained 3.0% to 684.9% for the week ending February 29. The purchase index climbed 1.5% on the week but is 10.4% lower than its year ago level. The refinance index jumped 4.5% last week and is up 15% over last year. Application activity will continue to be supported by mortgage interest rate declines.
THURSDAY, March 6th
The NAR’s pending home sales index, based on contracts signed in January, was unchanged from December’s level of 85.9%, which was better than expectation for further weakening. The index remains 19.6% below year ago levels, just barely above a record low. Nevertheless, economists at NAR are hoping that the stable January reading is a preliminary step toward more home sales activity in the coming months.
Delinquencies stood at 5.82% of all outstanding mortgages in the fourth quarter, up from 5.59% in the third quarter and 4.95% in Q406 according to the MBA National Delinquency Survey. The delinquency rate does not include loans in the foreclosure process. Loans in foreclosure accounted for 2.04% of all outstanding loans in the fourth quarter, up from 1.69% in Q3 and 1.19% in the fourth quarter of 2006. The delinquency rate in the last quarter was the highest since 1985 and the percent of loans in foreclosure are at the highest level ever in the 36-year history of the survey.
Weak economic data boosted Treasury prices and lowered yields in the bond market recently and mortgage interest rate followed suit. 30-year fixed rate mortgages averaged 6.03% this week compared to 6.24% last week according to Freddie Mac’s mortgage market survey.
FRIDAY, March 7th
Payroll employment declined for the second month in February further solidifying views that the economy is in recession. Payrolls decreased by 63k last month, with downward revisions in the previous two months resulting in a net loss of 46k more jobs. The unemployment rate fell to 4.8%, from 4.9% previously, related to a reduction in the workforce. Odds of a 75 basis point rate cut at the next meeting increased to nearly 80% after the release of employment data today.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11893.69 12266.39 -372.70 or -3.04%
NASDAQ 2212.49 2271.48 -58.99 or -2.60%
WEEK IN ADVANCE
The Fed will definitely cut rates this month amid weakened economic conditions; however rising inflation makes the Fed’s job tricky. Because of this, the consumer price index in the coming week takes on added significance.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Saturday, March 01, 2008
Economic Highlights for the Week Ending February 29, 2008
MONDAY, February 25th
Rate cut expectations remain firmly in place as the Fed tries to minimize the severity of the economic downturn. Fed funds futures traders are pricing in a 94% chance the Fed will lower the fed funds rate by 50 basis points to 2.50% when the FOMC next meets March 18.
Existing home sales slipped 0.4% in January to an annual rate of 4.89 million units from an upwardly revised pace of 4.91 million units in December, according to the NAR’s latest tally. Over the past year, home re-sales have declined 23.4%. Housing market weakness is expected to continue this year with perhaps some improvement in the second half as monetary and fiscal stimulus kicks in, loan limits increase, credit loosens and prices stabilize.
TUESDAY, February 26th
The producer price index jumped by 1.0% in January far exceeding estimates for a 0.3% gain. Over the past year the PPI has increased 7.7%, its fastest pace since 1981. The core PPI which excludes food and energy costs, climbed 0.4% on the month, which was twice as much as expected and 2.4% over the past year. The rise in wholesale inflation concerns the Fed; however it could dissipate under slower economic conditions going forward.
Consumer confidence plunged 12.3 points to 75.0% in February, its lowest level since the Iraq invasion, March 2003. Unfortunately it looks as though confidence levels could get worse before they get better as consumers cope with tighter credit, higher energy prices, volatile equity markets, weaker housing markets and sagging job creation.
The S&P Case-Shiller 10-city composite house price index fell 2.3% in December over November and was down 9.8% for all of 2007. The 20-city composite house price index dropped 2.2% month over month and 9.1% over the past year. The Case-Shiller indexes are considered to be very accurate readings of house price movements because they compare same-home sales prices.
WEDNESDAY, February 27th
Federal Reserve Chairman Ben Bernanke, in semi-annual testimony to Congress today acknowledged downside risks to economic growth and how rising inflation pressures could complicate policymakers’ attempts to revive the economy. The Chairman’s comments did suggest the Fed, expecting inflation to moderate significantly, would address slower growth prospects through rate cuts.
New home sales tumbled 2.8% in January to an annual rate of 588,000 units, less than an expected pace of 600,000 units. Clearly the new home construction market continues to be impacted by credit market turmoil, weak job growth and low consumer confidence. Economists expect residential construction to continue falling in 2008, albeit at a gradually diminishing pace.
The MBA mortgage applications index fell 19.2% to 665.1% for the week ending February 22. The purchase index rose 0.2% on the week but fell 10.7% from its level of a year ago. Refinancing applications accounting for 52% of total applications plunged 30.4% last week. Despite this, refinance activity is still 26.5% above its year ago level.
THURSDAY, February 28th
Jobless claims rose 19k to 373k for the week ending February 23. Some of the rise may be holiday related however; the level of initial claims for unemployment remains elevated indicating some erosion in labor market conditions, weaker job creation and accelerating layoffs.
30-year fixed rate mortgages averaged 6.24% this week compared to 6.04% last week according to Freddie Mac’s mortgage market survey. Higher rates in the past three weeks have resulted in a sharp decline in mortgage demand, especially for refinancing.
FRIDAY, February 29th
Personal income rose 0.3% in January as consumer spending rose 0.4%. Income and spending growth has eased and will detract from Q1 GDP. A closely watch inflation gauge in this data series, the core PCE price index, rose 0.3% on the month and 2.2% on the year. The price index remains elevated by the Fed’s standards but weak economic growth this year should dampen core inflation.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12266.39 12381.02 -114.63 or -0.93%
NASDAQ 2271.48 2303.35 -31.87 or -1.38%
WEEK IN ADVANCE
It is too soon to be looking for improvement in the economy just yet. Economists are expecting another weak round of data in the coming week making a 50 basis point rate cut necessary, later in March.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Tuesday, February 26, 2008
Economic Highlights for the Week Ending February 22, 2008
MONDAY, February 18th
PRESIDENTS DAY All Markets Closed
TUESDAY, February 19th
The NAHB housing market index increased to 20 in February from a record low reading of 19 in January. Home builders rated present, single-family home sales just slightly better, as ratings of sales six months from now, declined. Foot traffic through model homes increased, basically accounting for the overall gain in the index. While the index level is no where near a recovery level, at least it has moved off of its all time low.
With the risks to growth still biased toward weakening, financial markets are expecting another large cut from the Fed next month. Fed funds futures traders are fully pricing in a 50 basis point rate cut when the FOMC meets March 18. That would bring the target for the fed funds rate down to 2.50% from its current level of 3.00%.
WEDNESDAY, February 20th
The consumer price index rose 0.4% in January compared to expectations for a 0.3% gain. Price pressures were broad based, with significant increases in all categories. The CPI has gained 4.4% over the past year. The core CPI, which excludes food and energy costs, increased 0.3% on the month and 2.5% on the year. The above-trend rise in inflation is worrisome to the Fed and could complicate their rate decision in March.
New residential construction starts rebounded slightly in January from a very sharp decline in December, only because of a surge in the highly volatile multifamily category. Housing starts increased 0.8% in January to an annual pace of 1.01 million units, up slightly from a rate of 1.00 million units in December. Expect residential construction activity to remain soft through the first half of the year then hopefully start to respond to rate cuts in the pipeline in the second half of 2008.
The January 29-30 FOMC meeting minutes stressed risks to growth remained even after a series of aggressive rate cuts last month. They also confirmed that there was a great deal of uncertainty in the economic outlook. With regard to financial markets they acknowledged improvement but that strain remained and credit was more restrictive. Inflation data had been disappointing to the Committee, but they hoped that price pressures would ease under sluggish economic conditions. The Fed is likely to continue easing aggressively, 50 basis points at the next meeting, as they try to manage a complicated set of risks. Although economists do not consider a strong economic recovery likely, the FOMC, in that situation could reverse policy easing as aggressively as they implemented it.
THURSDAY, February 21st
The index of leading economic indicators fell 0.1% in January after declining by the same amount in December. This was the fourth consecutive monthly decline in the index which is consistent with very sluggish growth, possibly contracting growth in the next few quarters.
Jobless claims fell 9k to 349k for the week ending February 16. The four-week moving average, which smoothes out weekly fluctuations jumped 11k to 361k, confirming an elevated pace of layoffs and weakened labor market conditions.
Long term fixed mortgage rates shot higher this week as the one-year adjustable rates edged lower. Yields in the bond market have been moving in a similar fashion as traders sort through rate cut expectations, inflation fears, credit market turmoil and contracting economic growth. 30-year fixed rate mortgages averaged 6.04% this week compared to 5.72% last week according to Freddie Mac’s mortgage market survey. The average one-year ARM dropped below the 5.0% level to 4.98%.
FRIDAY, February 22nd
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12381.02 12348.21 +32.81 or +0.27%
NASDAQ 2303.35 2321.80 -18.45 or -0.79%
WEEK IN ADVANCE
It appears the Fed has to cope with the opposing forces of rising inflation pressures and downside risks to economic growth. For now, the latter takes precedence when deciding policy. The data will be watched closely in the meantime for any shifts in bias. Home sales and producer prices in the coming week will provide the latest economic & inflation readings.
PRESIDENTS DAY All Markets Closed
TUESDAY, February 19th
The NAHB housing market index increased to 20 in February from a record low reading of 19 in January. Home builders rated present, single-family home sales just slightly better, as ratings of sales six months from now, declined. Foot traffic through model homes increased, basically accounting for the overall gain in the index. While the index level is no where near a recovery level, at least it has moved off of its all time low.
With the risks to growth still biased toward weakening, financial markets are expecting another large cut from the Fed next month. Fed funds futures traders are fully pricing in a 50 basis point rate cut when the FOMC meets March 18. That would bring the target for the fed funds rate down to 2.50% from its current level of 3.00%.
WEDNESDAY, February 20th
The consumer price index rose 0.4% in January compared to expectations for a 0.3% gain. Price pressures were broad based, with significant increases in all categories. The CPI has gained 4.4% over the past year. The core CPI, which excludes food and energy costs, increased 0.3% on the month and 2.5% on the year. The above-trend rise in inflation is worrisome to the Fed and could complicate their rate decision in March.
New residential construction starts rebounded slightly in January from a very sharp decline in December, only because of a surge in the highly volatile multifamily category. Housing starts increased 0.8% in January to an annual pace of 1.01 million units, up slightly from a rate of 1.00 million units in December. Expect residential construction activity to remain soft through the first half of the year then hopefully start to respond to rate cuts in the pipeline in the second half of 2008.
The January 29-30 FOMC meeting minutes stressed risks to growth remained even after a series of aggressive rate cuts last month. They also confirmed that there was a great deal of uncertainty in the economic outlook. With regard to financial markets they acknowledged improvement but that strain remained and credit was more restrictive. Inflation data had been disappointing to the Committee, but they hoped that price pressures would ease under sluggish economic conditions. The Fed is likely to continue easing aggressively, 50 basis points at the next meeting, as they try to manage a complicated set of risks. Although economists do not consider a strong economic recovery likely, the FOMC, in that situation could reverse policy easing as aggressively as they implemented it.
THURSDAY, February 21st
The index of leading economic indicators fell 0.1% in January after declining by the same amount in December. This was the fourth consecutive monthly decline in the index which is consistent with very sluggish growth, possibly contracting growth in the next few quarters.
Jobless claims fell 9k to 349k for the week ending February 16. The four-week moving average, which smoothes out weekly fluctuations jumped 11k to 361k, confirming an elevated pace of layoffs and weakened labor market conditions.
Long term fixed mortgage rates shot higher this week as the one-year adjustable rates edged lower. Yields in the bond market have been moving in a similar fashion as traders sort through rate cut expectations, inflation fears, credit market turmoil and contracting economic growth. 30-year fixed rate mortgages averaged 6.04% this week compared to 5.72% last week according to Freddie Mac’s mortgage market survey. The average one-year ARM dropped below the 5.0% level to 4.98%.
FRIDAY, February 22nd
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12381.02 12348.21 +32.81 or +0.27%
NASDAQ 2303.35 2321.80 -18.45 or -0.79%
WEEK IN ADVANCE
It appears the Fed has to cope with the opposing forces of rising inflation pressures and downside risks to economic growth. For now, the latter takes precedence when deciding policy. The data will be watched closely in the meantime for any shifts in bias. Home sales and producer prices in the coming week will provide the latest economic & inflation readings.
Monday, February 18, 2008
Should Buyers Wait for the Market Bottom?
The housing market will continue its downward spiral, forecasts say, and that means opportunities for buyers. But waiting for the market bottom may not be the smartest strategy. Here are 5 reasons to buy now -- and 5 reasons you may want to wait.
By Melinda Fulmer, MSN Real Estate
5 REASONS TO BUY
1. Prices in the neighborhood you are interested in are relatively stable. Either they are holding their own or increasing, or the pace of decline is slowing significantly. If you have to move and don't like apartments, the small penalty you pay for missing the bottom may not mean much.
2. You plan to stay in the home for more than five years. If you can stick it out that long before selling, economists say you’ll probably ride out any downturn and come out ahead on price.
3. Your rent rivals a mortgage payment. If you can afford to buy, it can give you one bonus that renting can't: the mortgage-interest deduction on your taxes.
4. You've found the right house in the right area for you. The schools are great. You love the area and know it would be hard to find another house like the one you have your eye on. In a better market, you would most likely have much more competition for that home.
5. You've built equity in your house and are moving to a place where homes are cheaper. In your new market, your money will go a lot further.
5 REASONS TO HOLD OFF
1. You've lived in your house less than two years. Chances are you haven't had enough time to accumulate equity in your home. Indeed, you may have negative equity, if you live in many areas such as California, Florida, Arizona or Nevada.
2. Your job security is uncertain. If your company or business is in distress, it's probably better to stay put until the smoke clears.
3. You don't plan to stay in your next house at least five years. While it's not important to buy at the exact bottom of the market, it is important to stay long enough to ride it out completely.
4. You don't have good credit or a decent down payment. Do you have a job and income you can document? As a result of the subprime lending crisis, lenders are much more careful about whom they're giving their money to.
5. You have an existing home to sell in a neighborhood where prices are dropping precipitously or where the number of foreclosures is spiking. In this climate, you're probably better off waiting out the storm. Courtesy of Laurie Marlowe LandAmerica Capital Title
By Melinda Fulmer, MSN Real Estate
5 REASONS TO BUY
1. Prices in the neighborhood you are interested in are relatively stable. Either they are holding their own or increasing, or the pace of decline is slowing significantly. If you have to move and don't like apartments, the small penalty you pay for missing the bottom may not mean much.
2. You plan to stay in the home for more than five years. If you can stick it out that long before selling, economists say you’ll probably ride out any downturn and come out ahead on price.
3. Your rent rivals a mortgage payment. If you can afford to buy, it can give you one bonus that renting can't: the mortgage-interest deduction on your taxes.
4. You've found the right house in the right area for you. The schools are great. You love the area and know it would be hard to find another house like the one you have your eye on. In a better market, you would most likely have much more competition for that home.
5. You've built equity in your house and are moving to a place where homes are cheaper. In your new market, your money will go a lot further.
5 REASONS TO HOLD OFF
1. You've lived in your house less than two years. Chances are you haven't had enough time to accumulate equity in your home. Indeed, you may have negative equity, if you live in many areas such as California, Florida, Arizona or Nevada.
2. Your job security is uncertain. If your company or business is in distress, it's probably better to stay put until the smoke clears.
3. You don't plan to stay in your next house at least five years. While it's not important to buy at the exact bottom of the market, it is important to stay long enough to ride it out completely.
4. You don't have good credit or a decent down payment. Do you have a job and income you can document? As a result of the subprime lending crisis, lenders are much more careful about whom they're giving their money to.
5. You have an existing home to sell in a neighborhood where prices are dropping precipitously or where the number of foreclosures is spiking. In this climate, you're probably better off waiting out the storm. Courtesy of Laurie Marlowe LandAmerica Capital Title
Friday, February 15, 2008
Economic Highlights for the Week Ending February 15, 2008
MONDAY, February 11th
The possibility of contracting growth in Q1 has financial markets believing that the FOMC will continue to cut rates in an effort to stimulate economic activity. Fed funds futures traders are fully pricing in a 50 basis point rate cut when policymakers meet March 18. That would take the fed funds target rate to 2.50% from 3.00% currently.
TUESDAY, February 12th
The Treasury posted a budget surplus of $17.8 billion in January compared to a $38.2 billion surplus in January a year ago. Fiscal year to date, the government is running a deficit of $87.7 billion vs. a $45.5 billion deficit for the same period last year. After improving in the last few years, the budget deficit is widening once again.
Warren Buffett’s offer to cover $800 billion in municipal bonds guaranteed by several ailing bond insurers sapped buying in the bond market Tuesday. The offer was perceived as a stabilizing force in the muni market and traders unwound some of the safety bid in response. The 10-year note was down 11/32 to 98-21/32 to yield 3.66%.
WEDNESDAY, February 13th
Retail sales increased 0.3% in January, besting expectations for a decline of 0.3%. The surprising gain was led by strong demand for motor vehicles and gasoline. There were some pockets of weakness with building supply, electronic/appliance, sports/hobby and furniture stores posting monthly declines. Excluding cars and gas, core retail sales were unchanged last month. The outlook is for consumer spending to remain weak through the first half of this year as consumers contend with sluggish job growth, higher energy prices and the effects of the housing downturn.
The MBA mortgage applications index fell 2.1% to 1063.5% for the week ending February 8. The purchase index slipped 0.3% on the week as the refinancing index dropped 3.0%. The pullback in mortgage application activity is related to the recent uptick in mortgage rates. Refinance applications accounted for 67.4% of total application volume.
The economic stimulus package became official today with tax rebate checks scheduled to be sent out, starting in May. The timing of the stimulus combined with the Fed’s most recent rate cuts will not necessarily prevent a recession but will help to minimize and shorten one. Economists at Moody’s Economy.com project that the stimulus package and a fed funds rate of 2.5% by mid-year will boost GDP growth by 2.0% in the second half of 2008.
THURSDAY, February 14th
The NAR reported that the national median price of an existing single family home fell to $206,200 in Q4, down 5.8% from the fourth quarter of 2006 when the median price was $219,300. While that is the largest quarterly decline on record the NAR’s chief economist points out that roughly half of the 150 major metro areas tracked in this data series showed rising home prices in the fourth quarter of last year.
Jobless claims fell 9k to 348k for the week ending February 9. The level of claims, unaffected by seasonal or holiday distortions last week, remains on an upward trend, indicating an elevated pace of layoffs.
The international trade deficit on goods and services shrank to $58.8 billion in December from a shortfall of $63.1 billion in November. The improvement in the trade picture is due to increasing exports, related to a weaker dollar while imports declined because of slower economic growth here at home. For all of 2007, the trade deficit totaled $711.6 billion, 6.2% less than in 2006.
FRIDAY, February 15th
Import prices jumped 1.7% in January compared to consensus expectation for a 0.5% increase. A 5.5% advance in petroleum prices led the overall gain last month however there were also some non-fuel price related pressures. Over the past year import prices have increased 13.7% - the highest year-on-year increase in 25 years of record keeping. Elevated import prices have the potential to be passed through to consumer and producer prices as well.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12348.21 12182.13 +166.08 or +1.36%
NASDAQ 2321.80 2304.85 +16.95 or +0.73%
WEEK IN ADVANCE
Data will be monitored closely in the weeks ahead as financial markets, economists and the Fed grapple with the current state of the economy and pin down the outlook. Housing indicators and consumer prices feature prominently on the this week's economic calendar.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
The possibility of contracting growth in Q1 has financial markets believing that the FOMC will continue to cut rates in an effort to stimulate economic activity. Fed funds futures traders are fully pricing in a 50 basis point rate cut when policymakers meet March 18. That would take the fed funds target rate to 2.50% from 3.00% currently.
TUESDAY, February 12th
The Treasury posted a budget surplus of $17.8 billion in January compared to a $38.2 billion surplus in January a year ago. Fiscal year to date, the government is running a deficit of $87.7 billion vs. a $45.5 billion deficit for the same period last year. After improving in the last few years, the budget deficit is widening once again.
Warren Buffett’s offer to cover $800 billion in municipal bonds guaranteed by several ailing bond insurers sapped buying in the bond market Tuesday. The offer was perceived as a stabilizing force in the muni market and traders unwound some of the safety bid in response. The 10-year note was down 11/32 to 98-21/32 to yield 3.66%.
WEDNESDAY, February 13th
Retail sales increased 0.3% in January, besting expectations for a decline of 0.3%. The surprising gain was led by strong demand for motor vehicles and gasoline. There were some pockets of weakness with building supply, electronic/appliance, sports/hobby and furniture stores posting monthly declines. Excluding cars and gas, core retail sales were unchanged last month. The outlook is for consumer spending to remain weak through the first half of this year as consumers contend with sluggish job growth, higher energy prices and the effects of the housing downturn.
The MBA mortgage applications index fell 2.1% to 1063.5% for the week ending February 8. The purchase index slipped 0.3% on the week as the refinancing index dropped 3.0%. The pullback in mortgage application activity is related to the recent uptick in mortgage rates. Refinance applications accounted for 67.4% of total application volume.
The economic stimulus package became official today with tax rebate checks scheduled to be sent out, starting in May. The timing of the stimulus combined with the Fed’s most recent rate cuts will not necessarily prevent a recession but will help to minimize and shorten one. Economists at Moody’s Economy.com project that the stimulus package and a fed funds rate of 2.5% by mid-year will boost GDP growth by 2.0% in the second half of 2008.
THURSDAY, February 14th
The NAR reported that the national median price of an existing single family home fell to $206,200 in Q4, down 5.8% from the fourth quarter of 2006 when the median price was $219,300. While that is the largest quarterly decline on record the NAR’s chief economist points out that roughly half of the 150 major metro areas tracked in this data series showed rising home prices in the fourth quarter of last year.
Jobless claims fell 9k to 348k for the week ending February 9. The level of claims, unaffected by seasonal or holiday distortions last week, remains on an upward trend, indicating an elevated pace of layoffs.
The international trade deficit on goods and services shrank to $58.8 billion in December from a shortfall of $63.1 billion in November. The improvement in the trade picture is due to increasing exports, related to a weaker dollar while imports declined because of slower economic growth here at home. For all of 2007, the trade deficit totaled $711.6 billion, 6.2% less than in 2006.
FRIDAY, February 15th
Import prices jumped 1.7% in January compared to consensus expectation for a 0.5% increase. A 5.5% advance in petroleum prices led the overall gain last month however there were also some non-fuel price related pressures. Over the past year import prices have increased 13.7% - the highest year-on-year increase in 25 years of record keeping. Elevated import prices have the potential to be passed through to consumer and producer prices as well.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12348.21 12182.13 +166.08 or +1.36%
NASDAQ 2321.80 2304.85 +16.95 or +0.73%
WEEK IN ADVANCE
Data will be monitored closely in the weeks ahead as financial markets, economists and the Fed grapple with the current state of the economy and pin down the outlook. Housing indicators and consumer prices feature prominently on the this week's economic calendar.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Saturday, February 09, 2008
Economic Highlights for the Week Ending February 8, 2008
MONDAY, February 4th
The Federal Reserve’s Senior Loan Officer Survey showed weaker demand and tighter lending standards for both residential and commercial mortgages, from nontraditional to prime, in January. A net 52.9% of respondents reported tighter credit standards on prime mortgages, compared to 40.8% in the previous survey and well above the 15% reported in Q207. Additionally, most respondents expect further deterioration in credit quality in 2008.
TUESDAY, February 5th
The ISM non-manufacturing index fell sharply in January to 41.9% from a reading of 54.4% in December. The service sector has long been a stable support to economic growth but the latest data indicate contraction the service industries and are consistent with recession in the overall economy.
The service sector encompasses almost 90% of the economy so today’s steep plunge into receding territory spooked the financial markets and increased rate cut expectations. Fed funds futures were pricing in a 76% probability today that the Fed would cut the fed funds rate by a half point before the next FOMC meeting, March 18. Just yesterday, 80% of bets were placed on the Fed cutting by a quarter-point the next time they meet in March.
WEDNESDAY, February 6th
Productivity grew at a 1.8% rate in the fourth quarter better than an expected rate of 1.0%. The gain in productivity last quarter was a result of strong output but fewer hours worked to achieve that output. Unit labor costs rose just 2.1% last quarter and were up a mild 1.0% over the past year. Stronger productivity without higher labor costs is good news for inflation.
The MBA mortgage applications index gained 3.0% to 1086.6% for the week ending February 1. The purchase index jumped 12% during the week while the refinance index fell 1.0%. Refinancing applications accounted for 69.2% of all mortgage applications. Lower rates continue to drive total mortgage application activity which remains 72.4% above its year ago level.
THURSDAY, February 7th
Chain store sales at stores open at least one year rose just 0.5% in January according to an index compiled by the International Council of Shopping Centers. This was the weakest January on record for the ICSC and follows a downbeat holiday shopping season. Apparel, department and furniture stores posted big declines last month while drug stores and wholesale clubs reported strong gains. With consumer finances under pressure, the outlook for same store sales remains weak.
Consumer credit increased in December by a very modest $4.5 billion after an outsized increase of $17.1 billion in November. It brings the annual rate of growth in consumer credit down to 2.1%. Consumers used both revolving and non-revolving forms of credit modestly in December. Credit usage is expected to slow further as consumers deal with tighter credit, weaker housing and sluggish job growth.
Jobless claims fell 22k to 356k for the week ending February 2. The downshift in initial claims is not surprising given the huge run-up last week. Nevertheless, the level of claims remains elevated indicating acceleration in the pace of layoffs.
The NAR’s pending home sales index fell 1.5% in December to 85.9%. The index has dropped 24.2% from a year ago. Declines in the index suggest further weakening in existing homes sales in the months to come.
FRIDAY, February 8th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12182.13 12743.19 -561.06 or -4.40%
NASDAQ 2304.85 2413.36 -108.51 or -4.49%
WEEK IN ADVANCE
Amid much uncertainty and volatility in the financial markets, market players, economists and analysts will look to the data in the coming weeks for a handle on the economic outlook and monetary policy. Retail sales data in the week ahead stands out among the reports as most critical because two-thirds of all economic activity is based on consumer spending.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
The Federal Reserve’s Senior Loan Officer Survey showed weaker demand and tighter lending standards for both residential and commercial mortgages, from nontraditional to prime, in January. A net 52.9% of respondents reported tighter credit standards on prime mortgages, compared to 40.8% in the previous survey and well above the 15% reported in Q207. Additionally, most respondents expect further deterioration in credit quality in 2008.
TUESDAY, February 5th
The ISM non-manufacturing index fell sharply in January to 41.9% from a reading of 54.4% in December. The service sector has long been a stable support to economic growth but the latest data indicate contraction the service industries and are consistent with recession in the overall economy.
The service sector encompasses almost 90% of the economy so today’s steep plunge into receding territory spooked the financial markets and increased rate cut expectations. Fed funds futures were pricing in a 76% probability today that the Fed would cut the fed funds rate by a half point before the next FOMC meeting, March 18. Just yesterday, 80% of bets were placed on the Fed cutting by a quarter-point the next time they meet in March.
WEDNESDAY, February 6th
Productivity grew at a 1.8% rate in the fourth quarter better than an expected rate of 1.0%. The gain in productivity last quarter was a result of strong output but fewer hours worked to achieve that output. Unit labor costs rose just 2.1% last quarter and were up a mild 1.0% over the past year. Stronger productivity without higher labor costs is good news for inflation.
The MBA mortgage applications index gained 3.0% to 1086.6% for the week ending February 1. The purchase index jumped 12% during the week while the refinance index fell 1.0%. Refinancing applications accounted for 69.2% of all mortgage applications. Lower rates continue to drive total mortgage application activity which remains 72.4% above its year ago level.
THURSDAY, February 7th
Chain store sales at stores open at least one year rose just 0.5% in January according to an index compiled by the International Council of Shopping Centers. This was the weakest January on record for the ICSC and follows a downbeat holiday shopping season. Apparel, department and furniture stores posted big declines last month while drug stores and wholesale clubs reported strong gains. With consumer finances under pressure, the outlook for same store sales remains weak.
Consumer credit increased in December by a very modest $4.5 billion after an outsized increase of $17.1 billion in November. It brings the annual rate of growth in consumer credit down to 2.1%. Consumers used both revolving and non-revolving forms of credit modestly in December. Credit usage is expected to slow further as consumers deal with tighter credit, weaker housing and sluggish job growth.
Jobless claims fell 22k to 356k for the week ending February 2. The downshift in initial claims is not surprising given the huge run-up last week. Nevertheless, the level of claims remains elevated indicating acceleration in the pace of layoffs.
The NAR’s pending home sales index fell 1.5% in December to 85.9%. The index has dropped 24.2% from a year ago. Declines in the index suggest further weakening in existing homes sales in the months to come.
FRIDAY, February 8th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12182.13 12743.19 -561.06 or -4.40%
NASDAQ 2304.85 2413.36 -108.51 or -4.49%
WEEK IN ADVANCE
Amid much uncertainty and volatility in the financial markets, market players, economists and analysts will look to the data in the coming weeks for a handle on the economic outlook and monetary policy. Retail sales data in the week ahead stands out among the reports as most critical because two-thirds of all economic activity is based on consumer spending.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Saturday, February 02, 2008
Economic Highlights for the Week Ending February 1, 2008
MONDAY, January 28th
Sales of new single-family homes fell 4.7% in December to an annual pace of 604,000 units. Sales were weaker than expected last month and follow a downward revision in November. For all of 2007 new home sales totaled 773,000, down 26.3% from 2006 and their lowest since 1996 when 756,000 new homes were sold.
TUESDAY, January 29th
The S&P/Case-Shiller 10-city and 20-city composite indexes fell 2.2% and 2.1% in November from October. In fact, prices declined in all 20 major metro areas in November. Over the past year the 10-city house price index fell 8.4%, the largest yearly decline since the index began in 1988. The 20-city index dropped 7.7% over the past year. Downward pressure on prices is expected to continue through this year under weak housing market conditions.
WEDNESDAY, January 30th
The advance estimate of GDP indicated that the economy grew at a weak 0.6% pace in the fourth quarter. It was about half of consensus expectations. Over the past year, the economy expanded at a 2.5% rate of growth, its slowest pace since 2002. Weakness was concentrated in residential and inventory investment while consumer and business spending slowed, as did export growth. Economic growth is expected to remain weak and could possibly contract in the first quarter. Economy-wide inflation measured by the GDP price index rose 2.6% in Q4 due to higher energy prices.
The MBA mortgage applications index rose 7.5% to 1054.9% for the week that ended January 25. Total applications remain 67.2% higher than year ago levels. Last week, the purchase index fell 17.7% while the refinance index gained 22.1%. Lower rates continue to support refinancing activity, which accounted for 73% of total applications.
The FOMC backed up last week’s surprise 75 basis point cut with an additional 50 basis point cut at the conclusion of their regularly scheduled policy meeting today. The target for the fed funds rate now stands at 3.00%. The Fed also cut the discount rate by a half-point to 3.50%. The Fed acted decisively and aggressively, easing monetary policy by 1 ¼ points in a little over a week to help stave off a recession, and if not, certainly shorten one.
THURSDAY, January 31st
Personal income rose 0.5% in December as consumer spending increased 0.2%. Incomes grew at a solid rate of 5.8% in 2007 while spending grew at a 5.7% rate – still in line with long term averages. A closely watched inflation gauge contained in this data series, the core PCE price deflator rose 0.2% on the month and 2.2% on the year. The yearly rate remains above the Fed’s preferred target for inflation.
Jobless claims jumped 69k to 375k for the week ending January 26. Volatility in claims data last week, in part, could be holiday related. If claims were to stay at this elevated level for several weeks it would indicate severe deterioration in labor market conditions.
After falling sharply in the past four weeks, fixed mortgage rates rose this week. Mortgage rates were largely following movements in Treasuries yields during the week. 30-year fixed rate mortgages averaged 5.68% this week compared to 5.48% last week according to Freddie Mac’s mortgage market survey. Economists at Freddie Mac point out that despite the bump in rates this week, rates remain historically low. The 30-year fixed rate mortgage averaged 6.34% in the same week last year.
FRIDAY, February 1st
Payroll employment actually fell in January, posting a net loss of 17,000 jobs. This was way below expectations for a 75,000 job gain last month. December’s job gains were revised significantly higher to 82,000 from an initial estimate of 18.000. Still, labor market weakness is apparent with 2007’s job gains only slightly more than half of job growth in 2006. The unemployment rate dipped to 4.9% of the workforce. These data reinforce the Fed’s latest moves and set up for more easing to come.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12743.19 12207.17 +536.02 or +4.39%
NASDAQ 2413.36 2326.20 +87.16 or +3.75%
WEEK IN ADVANCE
After a ton of data and significant policy action in the past two weeks, all economic and Fed activity downshifts in the coming week providing the financial markets time to reflect and regroup
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
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