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
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