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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