Economic Highlights for the Week Ending March 28, 2008

MONDAY, March 24th
Existing home sales gained 2.9% in February to an annual pace of 5.03 million units. The increase in home sales last month breaks a six-month string of declines. While the increase in sales last month is encouraging, economists at NAR are not expecting significant recovery until the second half of this year, when higher loan limits, along with monetary and fiscal stimulus will unleash pent-up demand. In the meantime, the housing correction will continue as rising defaults and foreclosures push inventories higher and accelerate price declines.
The Fed’s next rate move remains uncertain at this time. Policy decisions will be fluid depending on downside risks to growth and the state of credit markets. After an upside surprise in existing home sales, fed funds futures traders are currently pricing in a 60% probability of a 50 basis point rate cut when the FOMC meets at the end of April, down from a 71% chance earlier this morning.
TUESDAY, March 25th
Consumer confidence tumbled to 64.5% in March from a reading of 76.4% in February. The index is at its lowest level since the start of the Iraq war in 2003. The scores of the two index components, present conditions and expectations fell sharply during the month while consumers’ assessments of the labor market weakened significantly. Inflation expectations rose as well. Confidence continues to face downside risks in the near term amid weak economic conditions.
Both the 10-city and 20-city composite S&P/Case-Shiller house price indexes declined on a month-over month basis and posted the largest year-over-year declines since the inception of the index in 1988. The 10-city house price index fell 2.3% in January from December and dropped 11.4% from January one year ago. The 20-city house price index declined 2.4% on the month and was down 10.7% on the year. Because of tighter credit and weak housing market conditions, house price declines are expected to continue through 2008.
WEDNESDAY, March 26th
New home sales fell 1.8% in February to 590k, compared to expectations for a larger decline to a rate of 576k. This was the lowest level of new home sales since February 1995. Over the past year, sales have declined 29.8%.
The MBA mortgage applications index surged 48.1% to 965.9% for the week that ended March 21. The purchase index jumped 10.6% on the week but remains 1.8% below its level one year ago. The refinance index soared 82.2% during the week and is up 93.6% from one year ago. A sharp drop in mortgage interest rates resulted in a flood of applications last week. Lower rates will need to be maintained to sustain these volumes.
THURSDAY, March 27th
Jobless claims fell 9k to 366k for the week ending March 22. The level of claims remains elevated which indicates acceleration in the pace of layoffs. Continuing claims are on a rising trend which indicates a weaker pace of hiring. Soft labor market conditions portend of another decline in payrolls in the jobs report, April 4.
Mortgage rates were mixed but little changed this week, maintaining for the most part the large drop the week before. 30-year fixed rate mortgages averaged 5.85% this week compared to 5.87% last week according to Freddie Mac’s mortgage market survey. After the Fed’s big rate cut last week, economic data met expectations which lessened some of the recent gyrations in financial markets.
FRIDAY, March 28th
Personal income rose 0.5% in February, better than an expected gain of 0.3%. Income growth was boosted by a onetime jump in transfer payments related to the Medicare prescription drug plan. Personal spending increased 0.1% last month but long term spending growth has flat-lined. A closely watched inflation measure, the core PCE price index rose 0.1% in February and was up 2.0% over the past year. Core inflation has eased recently to bring it within the Fed’s comfort zone.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12216.40 12361.32 -144.92 or -1.17%
NASDAQ 2261.18 2258.11 +3.07 or +0.14%
WEEK IN ADVANCE
The economy remains a concern. Data flows in the coming week are expected to show further weakening with a decline in payrolls and contracting activity in the manufacturing sector. Data results will continue to be reflected in Fed rate decisions.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco