Economic Highlights for the Week Ending January 11, 2008

MONDAY, January 7th
The magnitude of the Fed’s next rate cut came into question following the release of a bleak employment report for December. A quarter point cut was essentially priced in and then the jobs data brought a half-point rate cut into play. Expectations for the larger cut were still modestly increasing Monday with fed funds futures traders pricing in a 70% probability the Fed will cut the fed funds target by 50 basis points to 3.75% at the January 29-30 meeting, up from 66% odds on Friday.
TUESDAY, January 8th
The pending home sales index fell 2.6% in November to 87.6% after an upwardly revised level of 89.9% in October. November’s level remains above readings in August and September indicating stabilization in existing home sales according to economists at the NAR. The economists further project fairly steady existing home sales over the next several months, a gradual rise the second half of this year with additional improvement in 2009. Existing home sales are expected to total 5.66 million in 2007, the fifth highest on record, with a 1.9% drop in the median home price to $217,600.
Consumer credit increased by $15.5 billion in November after a subdued $2.0 billion gain in October. Over the past year consumer credit has grown an average of $10.3 billion a month or at a 5.2% annual rate. The surge in credit usage in November suggests consumers are using credit cards and other types of loans to finance consumption instead of mortgage equity withdrawals.
WEDNESDAY, January 9th
The MBA mortgage applications index surged 32.2% to 706.0% for the week ending January 4. The purchase index was up 14.7% on the week while the refinancing index gained a whopping 53.8%. Holiday related declines in mortgage activity have mostly been reversed with this week’s gains. The steady decrease in mortgage rates recently seems to have finally caught up with application activity, but it is still too early to tell if these gains will be maintained - which would essentially mark an end to last year’s housing market correction.
Economists from several major Wall Street firms and Moody’s Economy.com are saying that the economy could already be in recession based on last week’s employment report that showed a sharp jump in the unemployment rate with little growth. A recession is loosely defined as two back to back quarters where growth contracts. The National Bureau of Economic Research refines the process of determining a recession by looking at more detailed data and announcing the results six months to a year after it happens. Recession or not, growth has slowed significantly enough for the Fed to cut rates aggressively when they meet at the end of this month.
THURSDAY, January 10th
Slower economic growth evidenced by the dismal employment report placed downward pressure on interest rates in the past week. 30-year fixed rate mortgages averaged 5.87% this week compared with 6.07% last week according to Freddie Mac’s mortgage market survey. Economists at Freddie Mac point out that a recent quarter point drop in mortgage rates has boosted in refinance activity, which is expected to continue in the near term.
FRIDAY, January 11th
Import prices were unchanged in December better than an expected gain of 0.1%. A 0.6% drop in petroleum prices helped subdue overall import price gains. Non-petroleum prices rose a modest 0.3% on the month. Flat import prices and a drop in petroleum prices last month follow outsized gains in the previous two months. Petroleum is up over 50% in the last year which has driven a 10.9% rise in total import costs.
The international trade deficit on goods and services widened to $63.1 billion in November from a $57.8 billion trade gap in October. Imports surged in November on higher crude oil prices though consumer goods spiked as well probably in preparation for the holidays. Oil import volumes actually fell. Exports grew modestly on the month supported by strong global economies and a weaker dollar.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12606.30 12800.18 -193.88 or -1.51%
NASDAQ 2439.94 2504.65 -64.71 or -2.58%
WEEK IN ADVANCE
The economic calendar in the coming week is jam-packed with everything from inflation and spending to housing and manufacturing indicators. With the end of the month FOMC meeting fast approaching, economists and market players will be looking to the data to support an aggressive policy action by the Fed.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco