Economic Highlights for the Week Ending May 2, 2008

MONDAY, April 28th
The FOMC policy statement and data flows this week should go a long way toward firming up the economic and interest rate outlook.
TUESDAY, April 29th
The consumer confidence index fell to 62.3% in April from an upwardly revised reading of 65.9% in March. This is the lowest index level since October 1993 with the exception of March 2003 at the start of the Iraqi war. Confidence levels remain very weak and face downside risks going forward given sluggish job creation, higher energy costs, falling home values and tighter credit.
The S&P/Case-Shiller 10-city and 20-city house prices indexes showed further depreciation of home values in February. The 10-city composite index fell 2.9% month-over-month and is down 13.6% year-over-year. The 20-city index fell 2.7% on the month and remains 12.7% lower over the past year. Yearly declines are the highest on record. In addition, price declines appear to be accelerating.
WEDNESDAY, April 30th
GDP grew at a 0.6% rate in Q1 compared to expectations for a 0.2% pace. Over the past year, the economy expanded at a 2.5% rate. Inventory investment was a positive contributor to growth during the quarter while residential investment, consumer spending and stronger imports proved to be detractors. While growth was mildly positive in Q1, data suggests there is little momentum heading into Q2. The GDP price index, an economy-wide measure of inflation and a mainstay for the Fed, increased 2.6% in Q1. The price index continues to ease from its cyclical peak of 3.4% registered in Q405.
The FOMC cut rates by 25 basis points today, as widely expected. The target for the fed funds rate now stands at 2.0%. This is the seventh policy easing for a cumulative 3.25 points since September. Given substantial easing to date, the removal of the phrase “downside risks to growth remain” from the statement and inflationary risks, experts believe that this may be an end to the Fed’s rate cutting campaign.
The MBA mortgage applications index tumbled 11.1% to 567.0% for the week ending April 25. The purchase index declined 4.8% on the week and is down 20.4% from a year ago. The refinance index plunged 16.7% on a weekly basis but remains 5.5% higher than its year ago level. The jump in mortgage rates last week probably produced the steep drop-off in application activity; also recent news of declining home values could be impacting application activity.
THURSDAY, May 1st
The ISM manufacturing index was unchanged in April at 48.6%. The better-than-expected index reading remains below the key 50% level indicating contraction in nationwide manufacturing activity. The index is not low enough though to suggest that the overall economy is in recession. Despite slow activity, input price pressures continued to rise.
Personal income rose 0.3% in March as personal spending increased 0.4%. Ongoing job losses threaten to weaken both income and spending growth going forward. An inflation gauge in this data series, the core PCE deflator increased 0.2% on the month and was up 2.1% over the past year, slightly above the Fed’s implicit comfort zone for inflation.
Jobless claims jumped 35k to 380k for the week ending April 26. The gain in initial claims more than reverses a 30k decline in claims levels in the previous week. Longer term averages also remain elevated suggesting another decline in payroll employment for April due to increased layoffs and weaker hiring.
FRIDAY, May 2nd
The economy shed 20,000 payrolls in April, much less than an anticipated decline of 75,000. Jobs losses stemmed from manufacturing and construction industries. A sharp gain in service sector payrolls led to less-than-expected losses last month. The unemployment rate slipped to 5.0% of the workforce. While labor conditions are a long way from being healthy, they appear to be improving which supports expectations for rate cut pause.
FRIDAY, May 2nd
The economy shed 20,000 payrolls in April, much less than an anticipated decline of 75,000. Jobs losses stemmed from manufacturing and construction industries. A sharp gain in service sector payrolls led to less-than-expected losses last month. The unemployment rate slipped to 5.0% of the workforce. While labor conditions are a long way from being healthy, they appear to be improving which supports expectations for rate cut pause.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13058.20 12891.86 +166.34 or +1.29%
NASDAQ 2476.99 2422.93 +54.06 or +2.23%
WEEK IN ADVANCE
The economic calendar is very light in the week ahead and contains mostly second-tier data releases. Also, the Treasury conducts its quarterly refunding, auctioning $15 billion in 10-year notes Wednesday and $6.0 billion in 30-year bonds Thursday. New supply in the bond market could result in weaker demand, thus raising yields.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco