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