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