Economic Highlights for the Week Ending March 14, 2008

MONDAY, March 10th
Expectations for a 75 basis point rate cut increased significantly following last Friday’s bleak employment report. An 85k job loss since the beginning of this year has permutated recession fears into reality. Fed funds futures traders are pricing in a 98% probability the Fed will lower the fed funds target rate to 2.25% from 3.00% currently at the conclusion of their policy setting session March 18.
TUESDAY, March 11th
The international trade deficit on goods and services widened to $58.2 billion in January from a gap of $57.9 billion in December. The trade shortfall was better than expected even amid record high oil prices. Recent strong gains in exports have helped to improve the trade picture.
WEDNESDAY, March 12th
The Treasury budget deficit widened to $175.6 billion in February compared to a shortfall of $120 billion in February one 2007. Fiscal year-to-date the cumulative budget deficit is running at $263.3 billion a 62% increase from the $162.2 billion deficit for the same period last year. While calendar effects played a role in the outsized budget shortfall last month, the budget deficit is widening this year after several years of improvement.
The MBA mortgage applications index slipped 1.9% to 671.7% for the week ending March 7. The purchase index climbed 1.6% on the week while the refinance index fell 4.7% due to a jump in mortgage interest rates. Refinancing activity remains 5.9% above its year ago level while purchasing activity has dropped 11.0% from last year.
The Federal Reserve announced Tuesday that it will lend up to $200 billion in Treasury securities to primary dealers secured for a term of 28 days, instead of overnight. Stocks rallied on the news as Treasury prices fell and yields rose in the bond market. Today, stocks and bonds reversed direction and the dollar fell to a record low against the euro on speculation the Fed’s plan to fix credit markets, while helping, could not resolve all underlying problems in the financial system.
THURSDAY, March 13th
Retail sales fell 0.6% in February compared to expectations for a 0.2% gain. Weakness was led by a 1.9% decline in motor vehicle sales though other spending categories also fell last month. Excluding autos, total retail sales slipped 0.2%, better but still weak. Consumer spending is definitely being affected by higher energy and food costs, the housing downturn and credit crunch. Spending weakness is expected to persist with tax rebate checks expected to provide some relief starting in May.
Import prices rose 0.2% in February, less than an expected gain of 0.6%. Import prices continue to be driven by oil costs. Petroleum prices actually fell 1.5% in February while non-petroleum import prices gained 0.6%, hence the subdued gain in overall prices. Oil prices have since spiked to new record highs which will be reflected in import price readings in the months to follow.
Jobless claims were unchanged at 353k for the week ending March 8. The level of claims remains elevated, indicating sluggish labor market conditions with weak hiring and an accelerated pace of layoffs.
Average mortgage rates moved higher across the board for all loan products this week according to Freddie Mac. 30-year fixed rate mortgages averaged 6.13% this week compared to 6.03% last week. Economists at Freddie Mac point out however that lower home prices combined with still low mortgage rates makes the housing market very affordable for many homebuyers.
FRIDAY, March 14th
The Fed caught a break on consumer price data today. Both the consumer price index and the core CPI, which excludes food and energy costs, recorded no monthly change in February, which allows the FOMC leeway to cut aggressively next week without complications from the inflation outlook.
Stock Market Close for the Week
Latest A Week Ago Change
DJIA 11951.09 11893.69 +57.40 or +0.48%
NASDAQ 2212.49 2212.49 No weekly change
WEEK IN ADVANCE
Following weak data and financial market volatility, rate cut expectations at Tuesday’s FOMC meeting have solidified around a 75 basis point easing. Further easing is expected from there however, the size of future cuts will be determined by the developing results of increased credit market liquidity and monetary and fiscal stimulus already in the pipeline.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco