Arizona Real Estate

Property-flipping rule suspended

2008-06-18T07:11:00.000-07:00

The White House temporarily suspends a rule that imposes a 90-day waiting period before foreclosed homes can be sold to receive government loans.
WASHINGTON (AP) -- The Bush administration is temporarily suspending a 5-year-old rule intended to deter property flippers, as part of an effort to help speed the sale of foreclosed properties.
For one year, the Federal Housing Administration will no longer impose a 90-day waiting period before foreclosed properties can be sold to receive government-backed loans.
The policy was put in place in 2003 to deter property "flipping" schemes, in which buyers are overcharged for foreclosures or other distressed properties. But the surge in vacant properties resulting from borrowers who were unable to afford their mortgages has become a far more pressing concern.
"A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community's recovery," FHA commissioner Brian Montgomery said in a prepared statement.
The new policy "will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes," Montgomery said.
Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48% from the same month last year, and up 7% from April, foreclosure listing company RealtyTrac Inc. said Friday.

Lenders slash prices to dump foreclosed homes

2008-06-09T07:20:00.000-07:00

Article from MSNBC.com
Lenders slash prices to dump foreclosed homes
Lenders slash prices to dump foreclosures, days of multiple offers return
The Associated Press updated 11:18 a.m. MT, Sun., June. 8, 2008
Lenders stung by the housing bust are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, sparking bidding wars in some places that harken back to the market's go-go years and may signal the bottom is near.
The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously. Sales of foreclosures, vacant new homes and other distressed properties now dominate some markets, causing grief for individual homeowners who need to sell for other reasons, like a job in a new city.
Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, said Mark Zandi, chief economist at Moody's Economy.com. The number can be as high as 90 percent in some newly built subdivisions, where loose lending standards and speculation ran rampant, real estate agents say.
By setting prices at extraordinarily low levels, say, $175,000 for a house that sold for $350,000 three years ago, banks can spark multiple offers.
"It's not uncommon to have 10 to 20 offers on one house, and for the house to end up selling for more than its market price," said Erin Attardi, a Sacramento Realtor. The strategy, she said, allows the bank to be selective, picking buyers with solid financing or those able to pay in cash.
Over the past year, as the housing crisis accelerated, the number of properties turned over to bank ownership has more than doubled. As of April, there were more than 660,000 such properties in the U.S., up from 254,000 in April last year, according to real estate information company First American CoreLogic.
And there's a risk this isn't the bottom at all.
Investor demand could be swamped by the foreclosures expected to hit the market over the next year.
A record of almost 3 million American homeowners were at least one month late on their mortgages in the first quarter, the Mortgage Bankers Association said Thursday. And another record of almost 450,000 had entered the final stage of foreclosure.
Wherever the turning point, buyers are finding that the deep discounts on bank-owned homes can be a fabulous opportunity, but also a source of anguish. Sally Zuniga, 29, and her husband have been looking to buy their first home outside Sacramento and have been unsuccessful so far due to the intense competition.
"It's been aggravating, frustrating and emotionally straining," said Zuniga, a media buyer for an advertising agency.
This week, the couple put in an offer for a three-bedroom house with a pool that's listed as a "short sale," where the home is sold for less than the amount owed on the mortgage.
They've given the property owner until July 18 to respond — an indication of the longer period it commonly takes for such arrangements to be worked out. Their offer of $195,000 was $6,000 over the asking price, in an effort to make it stand out from competitors.
Some in the real estate industry see such competition as a sign that the housing market's gloom is lifting.
"It's actually stimulated the market," said Janice Ziesig, owner of Z House Realty Group in Orlando, Fla. "Things are moving now — more so than they were."
In the Orlando area, about a third of bank-owned properties receive more than one offer, Ziesig estimates. However, deals are more likely to fall through for foreclosures, she says, and properties often return to the market.
For would-be sellers who need to move soon, it's a particularly painful situation. In many cases, sellers whose houses are now worth less than their mortgage must bring cash to the closing table to pay off the balance of the loan. They can find renters or postpone their moving plans.
Leslie Jordan pulled her family's six-bedroom house outside Orlando, Fla., off the market last month after listing it for nearly a year. She was willing to sell for $415,000, down from her original asking price of $565,000, but wasn't able to reach a deal.
While most of the foreclosures in Jordan's area are on smaller homes, the overall environment of soaring foreclosures and overbuilding has pushed prices down dramatically.
"The buyers, they just want a deal," said Jordan, who had hoped to move to a less-dense area with better schools. "We just have to wait until things turn around."
For real estate agents, helping banks sell off properties is one of the only flourishing businesses these days. But it's not for everybody.
Agents can easily pay hundreds of dollars a month on upkeep — including utility bills, cleaning and lawn care — and must go through the hassle of getting reimbursed by the bank. They sometimes have to evict homeowners, tenants or squatters. And in many cases, they have to deal with vandalism or theft of everything from copper pipes to appliances and air conditioners.
Jeff Dolfinger, a broker in Poughkeepsie N.Y., who specializes in managing and selling foreclosed properties, estimates that about 90 percent of those homes in his market are being bought by investors.
"To them, this is the best real estate market ever," he said. "They'll wait for this turmoil to end and they'll put the properties right back on the market again"
Inevitably, there are tensions between real estate agents and mortgage companies, particularly when a short sale or foreclosure gets tied up in a bureaucratic tangle.
"The lenders don't work on the weekends," which are the busiest time for house-hunters, said Cindy Jones, associate broker with Re/Max Allegiance in Lakeridge, Va. "If you make on offer on a Thursday, the earliest anybody's going to (examine) it is Monday or Tuesday of the following week,"
A quick way for a lender to dispose of properties is through an auction. However, lenders lose an average of 56 percent of a property's value through auctions, compared with a 40 percent loss for ordinary sales, according to a report last month by Fitch Ratings.
Nevertheless, the report found that the use of auctions has been rising as lenders try to cope with rising inventory.
Some are more hesitant to cut prices. Chris Bowden, vice president of HomeSteps, a division of Freddie Mac that handles foreclosure sales, says being too aggressive on price can affect the value of nearby properties, which sometimes are also owned by Freddie Mac.
"We want to make sure that we are getting back every dollar that we can and preserving values in neighborhoods," Bowden said. "Our goal is to try to get the highest value we can for the property, and yet we've got to remain competitive."
Still, with foreclosures continuing to rise, there may be no better option than to follow the market.
"We're reacting to market conditions very quickly," said Cary Sternberg, who heads IndyMac Bancorp Inc.'s bank-owned properties division. "We're in the business of making loans to people. we're not in the business of owning property."
Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
URL: http://www.msnbc.msn.com/id/25009827/

Economic Highlights for the Week Ending June 6, 2008

2008-06-06T17:30:00.000-07:00

MONDAY, June 2nd
It is widely expected for the Fed to remain on hold at the June 24-25 FOMC meeting. Just how long the Fed will remain on hold is another matter as policymakers try to juggle weak economic conditions with rising inflation. Traders believe there is a 60% chance the Fed will start to unwind policy easing as soon as December. The trajectory of the data between now and then will nail things down more precisely.
Construction spending faltered again in April, based on weakness in the residential sector however, overall spending declines were slightly less than expected. Construction spending fell 0.4% in April compared to an expected 0.6% decline. With nonresidential construction spending more volatile and budget strains on state and local governments affecting public sector spending, overall construction spending is expected to remain weak through this year and the first part of 2009.
The ISM index increased to 49.6% in May from a 48.6% reading in April. The level of the index suggests that manufacturing activity nationwide continued to contract last month but at a slower pace than in previous months. An index reading over the 50% level indicates expansion in the sector. Details in the data showed still weak employment, slightly improved production and higher input prices.
TUESDAY, June 3rd
Fed Chairman Ben Bernanke, in remarks to the International Monetary Conference, said that the Fed is aware of the implications of changes in the value of the dollar on inflation and will work with the Treasury to monitor foreign exchange markets. The Chairman was referring to the 16% drop in the dollar against the euro in the past year and its impact on inflation. Bernanke also signaled that the FOMC is done with policy easing for now and that interest rates are well positioned to promote growth and stabilize prices.
WEDNESDAY, June 4th
The MBA mortgage applications index fell 15.3% to 502.3% for the week ending May 30. Purchase application volume remains soft dropping 5.4% on the week to bring the yearly decline to 23.1%. The refinance index plunged 25.7% last week in response to higher rates. With this decline, refinancing activity is down 14.9% from its year ago level. Application activity for both refis and purchases is trending lower under weak home sales and tougher loan standards.
The ISM non-manufacturing index slipped to 51.7% in May from a level of 52.0% in April. A reading over the key 50% level indicates expansion in the service sector. Construction, government, financial and other service industries grew moderately last month amid rising price pressures and declining employment. Given residential construction weakness and turmoil in the mortgage market, service sector activity is expected to remain soft going forward.
THURSDAY, June 5th
Chain store sales rose 3.0% in May from May of a year ago, on a same-store basis according to the ICSC index. May’s stronger-than expected gain led by sales at wholesale, discount and drug stores. Sales at apparel and department stores declined sharply. Consumers are spending, albeit cautiously as they contend with high gas prices, debt burdens, falling home values and weak job growth.
Jobless claims decreased 18k to 357k for the week ending May 31. The decline could be related to the Memorial Day holiday. The pace of layoffs remains elevated but has stopped accelerating indicating soft labor market conditions.
FRIDAY, June 6th
Payroll employment declined by 49,000 jobs in May compared to an estimated 60,000 drop. This was the fifth consecutive decline in payrolls for a total job loss of 324k since the first of the year. Weakness was broad based with only education, health services, leisure, and government sectors of the economy adding to the payrolls. The unemployment rate jumped to 5.5% in May from 5.0% in April due to a large increase in the workforce combined with sub-par job creation.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12209.81 12638.32 -428.51 or -3.39%
NASDAQ 2474.56 2522.66 -48.10 or -1.91%
WEEK IN ADVANCE
The employment report pushes back the timetable for when the Fed will be able to start raising rates. Inflation remains the wild card if it does not ease under slower economic conditions. The consumer price index due out Friday in the coming week will identify the current level of consumer inflation.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending May 30, 2008

2008-05-31T09:55:00.000-07:00

MONDAY, May 26th
MEMORIAL DAY All Markets Closed
TUESDAY, May 27th
Consumer confidence sank to a 16-year low in May, falling to 57.2% from a reading of 62.8% in April. Consumers' assessments of current and future economic conditions continue to deteriorate sharply under surging inflation expectations. Such low confidence levels along with other burdens consumers are shouldering could severely impact spending thus slowing economic growth even further.
New home sales increased 3.3% in April to a pace of 526,000, better than an expected decline to a rate of 522,000. However, sales in March were revised sharply lower to 509,000 from 526,000 in the first estimate. April's figures will be subject to revision as well because new home sales track the number of signed contracts and do not reflect the number of cancellations, which have been high because of tighter credit and tougher standards for loans. Even with the apparent rebound in April, new home sales remain quite weak. The market is showing some signs of stabilizing though in reduced inventory levels and firmer prices.
The Case-Shiller home price index fell 14.1% in the first quarter from the same quarter one year ago. It was the steepest drop in home prices since the inception of the index in 1988. The largest declines were in the Las Vegas, Miami and Phoenix markets.
WEDNESDAY, May 28th
The MBA mortgage applications index fell 4.6% to 593.3% for the week ending May 23. Total mortgage application volume is down 6.8% from its year ago level. The purchase index edged 0.1% higher as the refinance index tumbled 8.9%. Purchase applications remain 17.4% below its year ago level indicating sluggish home buying demand while refinancing activity continues to be hampered by interest rates.
Durable goods orders fell 0.5% in April compared to expectations for a 2.0% decline. The gain was led by demand for electrical equipment though orders for primary metals, machinery and defense goods also increased strongly. Orders for non-defense capital goods excluding aircraft, a proxy for business investment rose 4.2% last month, signally a pocket of strength in otherwise sluggish economic conditions.
A Fed official hinted, in prepared remarks today that a rate hike may not be far off. Indeed, fed funds futures traders are pricing in a 73% chance of a quarter point bump in December. The economic data in the meantime will help determine the timing of policy reversal.
THURSDAY, May 29th
Growth was a tad better in the first quarter according to the preliminary estimate of GDP. The economy grew at a 0.9% pace in Q1 compared to advance estimate of 0.6% growth. A measure of economy-wide inflation remained unchanged at 2.6% last quarter.
Jobless claims rose 4k to 372k for the week ending May 24. Claims levels are consistent with a high pace of layoffs however they are not accelerating. Also, claims data suggest that job creation remains weak
Mortgage rates drifted higher this week over increasing expectations that the Fed may need to raise rates sooner rather than later to tame inflationary pressures. Also, recent economic data suggests the economy is not as weak as anticipated by the financial markets. 30-year fixed rate mortgages averaged 6.08% this week compared to 5.98% last week according to Freddie Mac's mortgage market survey.
FRIDAY, May 30th
Personal income rose 0.2% in April led strong transfer payments such as rental income. Wage and salary growth actually declined on the month. Consumer spending increased 0.2% last month, as expected, but has declined sharply in the last three months reflecting slower economic conditions. The core PCE price index, a favorite inflation measure for the Fed, rose a mild 0.1% on the month and 2.1% on the year, which is just over the Fed’s implicit target for core inflation.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12638.32 12479.63 +158.69 or +1.27%
NASDAQ 2522.66 2444.67 +77.99 or +3.19%
WEEK IN ADVANCE
With the Fed presumably on hold, the economic data coming in a bit better than expected and inflationary pressure in play interest rates are facing upward pressure in the weeks ahead. The economic story has largely been better but still weak which should keep a lid on rates climbing too far, too fast.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending May 23, 2008

2008-05-24T12:25:00.000-07:00

MONDAY, May 19th
The Fed is expected to hold rates steady until the inflation outlook can be sorted out. Fed funds futures traders are pricing in an 80% probability the Fed will hold the fed funds target at its current level of 2.0% at the June meeting. The hope is that policy stimulus in the pipeline will help restore solid economic growth but in the meantime, slower economic growth will help to curtail inflationary pressures. The Fed will need some time to observe this happening and confirm it through the economic data.
The index of leading economic indicators rose 0.1% in April better than expected. Like a lot of economic data recently, the LEI is signaling that economic activity has stalled, but not collapsed and that recovery may still take a while. The level of the index is consistent with continued sluggish growth over the next six to nine months.
TUESDAY, May 20th
The producer price index increased 0.2% in April less than an expected gain of 0.4% as food and energy costs subsided during the month. Over the last year, producer prices have increased 6.4%, one of its fastest paces in the past 25 years. Excluding food and energy prices, the core PPI jumped 0.4% last month and gained 3.0% over the last year. A temporary reprieve in catapulting food and energy costs brought underlying price pressures to bear from earlier stages of processing. Upward price pressures from food and energy are expected to resume in the months ahead.
WEDNESDAY, May 21st
The MBA mortgage applications index fell 7.8% to 621.6% for the week ending May 16. The purchase index fell 6.9% on the week and remains 19.5% lower than its year ago level. The refinance index tumbled 8.7% last week but is up 2.6% over last year. Mortgage rates have yet to respond to substantial Fed easing. Stubborn rates combined with falling home values, tighter credit and weak economic conditions have crimped loan demand and dried up many refinancing opportunities. It appears the housing market is still searching for a bottom.
The minutes from the April 29-30 FOMC meeting showed that the quarter point cut at that time was a close call and future cuts would be unlikely even if the economic conditions worsened. Policy makers then turned their attention to financial markets and inflation as the primary drivers of policy decisions. Accompanying the release of the meeting minutes was the latest Fed forecast which projected even slower growth and higher inflation and unemployment. Growth for 2008 is expected to be between 0.3% and 1.2% down from 1.2% to 2.0% previously, unemployment was forecast to be between 5.5% and 5.7% up from 5.2% to 5.5% earlier and inflation was projected to rise between 3.1% and 3.4% from 2.1% to 2.4% originally.
WEDNESDAY, May 21st
Long term mortgage rates eased somewhat on a couple of weaker-than-expected economic reports last week. Consumer sentiment dropped to a multi-decade low while industrial output declined sharply. 30-year fixed rate mortgages averaged 5.98% this week compared to 6.01% last week according to Freddie Mac's mortgage market survey. Short term mortgage rates were a bit higher on average related to expectations that Fed is done cutting rates for now.
Jobless claims fell 9k to 365k for the week ending May 17. Initial claims have leveled off in recent weeks indicating a stable, but elevated pace of layoffs. Continuing claims continue to trend higher indicating weak job creation. Jobless claims data suggest another weak employment report for May, due to be released June 6.
FRIDAY, May 23rd
Existing homes sales fell 1.0% in April to an annualized pace of 4.89 million compared to expectations for a larger decline to a rate of 4.85 million according to the National Association of Realtors. Sales declines have slowed recently indicting still weak but stable housing market conditions. Lower prices and low interest rates are stimulating sales increases in some areas, reports the NAR.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12479.63 12986.80 -501.17 or -3.90%
NASDAQ 2444.67 2528.85 -84.18 or -3.32%
WEEK IN ADVANCE
In the week ahead, inflation remains the key to the interest rate outlook. Some of the economic data and Fedspeak will address inflation concerns while the financial markets will continue to battle with rising oil prices and their impact on the economy and inflation.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending May 16, 2008

2008-05-17T12:20:00.000-07:00

MONDAY, May 12th
It looks like the Fed will be on hold for the next few meetings. Fed funds futures traders are pricing in roughly an 85% probability the fed funds rate target will remain unchanged at 2.00% following the June 25 FOMC meeting. With policy currently accommodative, the Fed believes they have addressed growth conditions for now. Inflation remains a concern though and further lowering of rates could exacerbate price pressures.
TUESDAY, May 13th
Retail sales fell 0.2% in April as expected. Weak motor vehicle & parts sales led the decline last month. Sales at gas stations also fell, despite higher prices. Excluding autos, retail sales jumped 0.5% on surprising gains at building supply and electronics and appliance stores. Excluding autos and gas, core retail sales gained 0.6% on the month. Despite the strength in core retail sales, consumer spending has been trending lower and is expected to remain weak going forward.
Import prices jumped 1.8% in April, largely in line with expectations. Petroleum prices once again led the advance though food prices boosted import costs as well. Excluding petroleum, import prices still rose 1.1% on the month showing a transfer of percolating inflationary pressures from abroad to the domestic economy.
The National Association of Realtors reported that the national median house price fell 7.7% in Q1 from the same period one year ago and was down 4.6% from Q4. That was the largest year-over-year drop in home prices since the NAR started tracking them in 1982. The national median sales price now stands at $196,300, the first time below 200k since the onset of the housing bubble 5 years ago.
WEDNESDAY, May 14th
The consumer price index increased 0.2% in April, a bit lower than an expected 0.3% gain. A 0.9% jump in food prices fed the gain as energy prices remained, surprisingly unchanged on the month. Excluding food and energy prices from the index, the core CPI rose just 0.1% to bring the yearly gain to 2.3%. Consumer inflation is somewhat higher than the Fed would like to see however it appears to be easing mildly under weak economic conditions.
The MBA mortgage applications index rose 2.9% to 674.4% for the week ending May 9. The purchase index fell 0.7% on the week and is down 12.4% from one year ago. The refinance index jumped 6.5% on a weekly basis and is up 14.5% its year ago level. Low rates are boosting refinance activity while falling home values are deterring prospective home buyers, thus weighing on purchase application volumes.
THURSDAY, May 15th
The NAHB housing market index fell to 19 in May from a level of 20 in April. Already at a severely depressed level, it was disheartening to observe another drop in sentiment. All three components of the index, ratings of present sales, sales six months from now and buyer traffic moved lower on the month. Builder sentiment remained mired at a low point as falling home values and tougher lending standards continue to deter buyers and curb demand.
Industrial production fell 0.7% in April, more than double expectations for a 0.3% decline. Sharp drops in mining and manufacturing output led to the large decline in overall production. Utility production gained on the month. The amount of capacity used for production fell sharply as well to 79.7% from 80.4% previously. Easing capacity utilization rates indicate some slack in resource usage, which will help to lower inflation.
FRIDAY, May 16th
Housing starts increased 8.2% in April to an annual rate of 1.032 million compared to an expected decline to a pace of 935k. After falling in March to their lowest level since 1991, starts unexpectedly rebounded in April. It is good to see starts over the million mark again; however they remain quite weak. High inventory levels compounded by weak new home sales and low home builder sentiment will keep new construction activity in the cellar for a while longer.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12986.80 12745.88 +240.92 or +1.89%
NASDAQ 2528.85 2445.52 +83.33 or +3.41%
WEEK IN ADVANCE
There are a couple of hurdles in the week ahead on an otherwise light economic calendar. The producer price index on Tuesday is the next major inflation reading. Inflation remains the key to the current on-hold stance for the Fed. Also, existing home sales, due out Friday will relay the latest data from the housing sector.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending May 9, 2008

2008-05-15T10:01:00.000-07:00

MONDAY, May 5th
The ISM non-manufacturing index increased to 52.0% in April from a reading of 49.6% in March. This was the first reading above the key 50% level in four months suggesting expansion in the service industries. A pickup in employment last month is consistent with stronger demand. Nevertheless, service sector activity is trending lower over the long term in part related to the downturn in residential construction and turmoil in mortgage finance industries.
TUESDAY, May 6th
Financial markets expect the Fed to hold off on any other rate adjustments at this time but the question remains “for how long?’ Fed funds futures traders are pricing in just a 15% chance of another rate cut in June. Sentiment is clearly weighted toward no change in rates and for an extended period of time. December futures contracts are priced for the current 2.00% fed funds target rate implying no change in rates for the remainder of this year. Traders are fully pricing in a rate hike to 2.25% in February of next year, of course rate expectations will fluctuate between now and then as new information becomes available.
WEDNESDAY, May 7th
Nonfarm business productivity increased at a strong 2.2% annualized pace in the first quarter, up from 1.8% in Q4. This was well above estimates for a 1.5% rate of growth. Nonfarm unit labor costs rose at a 2.2% annual pace in Q1, slightly less than expected. These data indicate solid productivity growth, despite weaker economic conditions and without associated wage inflation.
Consumer credit increased by $15.3 billion in March, or at a 5.9% annual rate. Revolving credit rose by $6.3 billion as consumers used credit cards to fund consumption. Non-revolving credit shot $9.0 billion higher, which was surprising given anemic auto sales. Expect consumer credit to continue growing at a fairly robust pace, due to sharp declines in mortgage equity withdrawals.
The MBA mortgage applications index jumped 15.6% to 655.4% for the week ending May 2. Despite the gain, total application activity remains 3.7% below last year’s level. The purchase index gained 12.1% on the week but is down 13.0% from one year ago. The refinance index climbed 19.3% this week and is up 7.5% from last year. Lower rates should continue to support application activity going forward.
The pending home sales index dropped 1.0% in March to a level of 83.0, after a reading of 83.8 in February, the NAR reported today. The index remains 20.1% lower than its year ago level. Economists at the NAR forecast flat home sales activity over the next several months with some chance for a pickup in sales activity over the summer, which hinges on the accessibility of more affordable loans.
THURSDAY, May 8th
Chain store sales rose 3.6% in April, much higher than expected, boosted largely by calendar effects related to an early Easter. Wholesale clubs, department, drug and discount stores all posted solid gains last month while sales at furniture and apparel shops declined. Higher gas prices contributed to the sales gains as well. The outlook for spending remains weak going forward with some offset expected to be provided by tax rebate checks currently being sent to consumers.
Jobless claims fell 18k to 365k for the week ending May 3. Despite the decline last week, the level of claims remains elevated which means a large number of layoffs. Moreover, continuing claims have been trending higher over the last two years indicating sluggish job creation and making it difficult for laid off workers to find new jobs.
FRIDAY, May 9th
The international trade deficit narrowed sharply in March while February’s trade gap was less than first reported. The trade deficit dropped to $58.2 billion in March following a $61.7 billion gap in February. The trade picture improved on a $6.1 billion decline in imports related to a weaker domestic economy. Exports also declined on the month, by $2.6 billion, but continue to trend higher due to a weak dollar. The trade gap reduction in March will end up contributing as much as 0.6 percentage points to Q1 GDP growth in the next revision.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12745.88 13058.20 -312.32 or -2.39%
NASDAQ 2445.52 2476.99 -31.47 or -1.27%
WEEK IN ADVANCE
Economists and financial markets will be looking to a host of data releases in the coming week to provide further confirmation that the recession will be short and shallow, with modest inflationary pressures.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending May 2, 2008

2008-05-02T22:22:00.000-07:00

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

Economic Highlights for the Week Ending April 25, 2008

2008-04-27T14:56:00.000-07:00

MONDAY, April 21st
The size of the next rate cut has been pared back amid better than expected economic readings and improved financial market sentiment related to earnings and the belief that the worst of the credit crisis has passed. Fed funds futures traders are fully pricing in a quarter point rate cut at the conclusion of the two-day FOMC meeting. That would target the fed funds rate at 2.0%.
TUEDAY, April 22nd
Existing home sales fell 2.0% in March to an annual rate of 4.93 million units, in line with market expectations. NAR economists state that sales activity, while uneven at times, has remained within a narrow range since last September, indicating stable but still weak conditions. Support will come in the form of more policy measures, continued low rates and fiscal stimulus later in the year to help offset downside risks of a more severe economic downturn and raucous financial market turmoil.
The Fed has used other tactics besides easing monetary policy to address the credit crisis. One of them, the Term Auction Facility or TAF, which makes 28-day credit available to banks, took place today and drew stronger demand than the first TAF indicating the need for liquidity amid still critical credit market conditions. More lending facilities may be created in an effort to lower interbank lending rates and encourage banks to lend to one another.
WEDNESDAY, April 23rd
The MBA mortgage applications index fell 14.2% to 637.6% for the week ending April 18. The purchase index fell 6.4% on the week as refinancings dropped 20.2%. The decline in application volumes was due to tighter credit, and a substantial jump in mortgage rates.
While a quarter point rate cut is widely expected by the FOMC at their meeting next week, analysts and some economists believe that holding steady on rates would accomplish more for the Fed. It would surprise the markets; help establish the Fed’s inflation fighting credibility, could reverse some of the recent gains in commodity prices and bolster the dollar. The argument is that because rates have fallen so low investors have been buying commodities; that combined with much stronger global demand and industrialization has resulted in what many are calling a commodities bubble.
THURSDAY, April 24th
New home sales plunged 8.5% in March to an annualized pace of 526,000, much weaker than an expected pace of 580,000. The sales plunge in March combined with downward revisions in previous months makes the first quarter the worst yet for the housing downturn. Given the high inventory level and weakened demand, declines are expected to continue in the housing sector through this year though, at a gradually diminishing pace.
Jobless claims fell 33k to 342k for the week ending April 19. Even with the weekly drop, the level of claims remains elevated. In 2007, initial claims averaged 322k; thus far in 2008 claims have averaged 353k. Claims and their longer term averages suggest acceleration in the pace of layoffs and a downward trend in the pace of hiring.
Diminished rate cut expectations combined with scattered inflationary pressures have recently raised yields in the bond market which in turn resulted in higher mortgage rates this week. 30-year fixed rate mortgages averaged 6.03% this week compared to 5.88% last week according to Freddie Mac’s mortgage market survey.
FRIDAY, April 25th
Consumer sentiment dropped to 62.6% in April, a 26-year nadir, from 63.2% in mid-April and 69.5% in March. Consumers seem equally anxious about present and future economic circumstances. Sentiment is mired at a level that historically has been associated with recession. Downside risks to consumer attitudes remain in the form falling house prices, high energy prices, sluggish job growth and tighter credit.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12891.86 12849.36 +42.50 or +0.33%
NASDAQ 2422.93 2402.97 +19.96 or 0.83%
WEEK IN ADVANCE
The economic calendar is busy again in the coming week and provides the advance estimate for Q1 GDP as well as the first readings on payrolls, manufacturing and consumer spending starting off the second quarter. Also, the FOMC holds a two-day policy meeting, where a quarter-point rate cut is widely expected. The policy statement is due out Wednesday afternoon. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

MONDAY, April 14th

2008-04-21T16:25:00.001-07:00

MONDAY, April 14th
Retail sales gained 0.2% in March, driven by sales at gas stations, sporting goods stores, restaurants and bars. Weakness was concentrated in home-related product stores such as furniture, building materials and garden supplies. Even with the gain last month, longer term spending trends remain very weak as consumers cope with job losses, falling home values, high energy prices and tighter credit.
TUESDAY, April 15th
The producer price index jumped 1.1% in March, nearly twice consensus estimates, as food and energy prices surged during the month. Excluding food and energy prices, the core PPI rose 0.2% last month as expected. Over the past year the PPI surged 6.9% as core wholesale prices increased 2.8%, near a cyclical high. Looking ahead, inflationary pressures should recede under weak economic conditions.
The NAHB housing market index was unchanged at a level of 20 in April, the same as in March and February. The composition of the index components changed, though, with lower ratings for present single-family home sales while sales six months from now was tracking higher. Foot traffic through model homes increased as well. It may be some time before a recovery is staged but at least for now the index is not moving lower.
WEDNESDAY, April 16th
The consumer price index rose 0.3% in March, matching market expectations. A 1.9% increase in energy prices led the gain last month. Food price increases remained moderate. Over the past year consumer inflation has grown at a 4.0% rate. Excluding food and energy prices the core CPI was up 0.2% on the month and 2.4% on the year. Consumer inflation has eased slightly from the beginning of the year, giving the Fed leeway to adjust monetary policy as necessary.
The MBA mortgage applications index climbed 2.5% to 743.4% for the week ending April 11. All of the gain was a result of a 5.2% increase in refinance applications. Purchase applications declined 0.8% on the week. Refinancing activity is currently being supported by low rates but resurgence in purchase activity will need borrowers to meet higher loan standards and higher lender confidence.
Construction starts for new homes tumbled 11.9% in March to an annualized pace of 947,000. This was the first drop below a million units (at an annual rate) since 1991. Housing starts are down 36.5% over the past year. An outsized 24.6% decline in multifamily starts led the decline last month.
The Fed’s beige book survey indicated that the economy continued to weaken in March and early April. Labor markets, consumer spending, transportation and residential and commercial construction activity have all softened appreciably. Tourism, energy, agriculture and health services were positive contributors to growth. Loan demand decreased under tighter credit standards. Input cost increases were widespread but pass-through of these costs was limited. This report supports another rate cut, either 25 or 50 basis points as the Fed works to lessen the depth of a recession rather than contain the eruption of inflation.
THURSDAY, April 17th
The index of leading economic indicators rose 0.1% in March following five consecutive monthly declines. Weakness emanated from higher layoffs, lower stock prices, weak residential construction and building permits. Strength in the manufacturing components and money supply provided the offset. One monthly gain does not indicate full economic recovery however it can be taken to mean that the downturn may be less severe. The level of the index indicates slow and possibly contracting economic growth over the next six to nine months.
Jobless claims rose 17k to 372k for the week ending April 12. Claims remain elevated, illustrating softer labor market conditions and continued job losses. Expect the employment report for April to show another decline in payrolls.
FRIDAY, April 18th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12849.36 12325.42 +523.94 or +4.25%
NASDAQ 2402.97 2290.24 +112.73 or +4.92%
WEEK IN ADVANCE
With few signs of housing’s recovery evident, new and existing home sales will be of the most interest in the coming week. Along with data flows the Fed will be watching the financial markets before making their move at the end of the month.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

MONDAY, April 14th

2008-04-21T16:25:00.000-07:00

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending April 11, 2008

2008-04-14T20:18:00.000-07:00

MONDAY, April 7th
Consumer credit rose by $5.16 billion to $2.54 trillion in February, according to Federal Reserve data released today. Consumer credit in January was upwardly revised to $10.29 billion from $6.9 billion in the original estimate. February credit growth was led by gains in the revolving credit category as consumers used credit cards to fund consumption. Consumer credit will be worth watching as a spending gauge as consumers contend with slumping housing markets, high energy prices and slow job growth.
TUESDAY, April 8th
The pending home sales index fell to 84.6% in February from a level of 86.2% in January. The index, which tracks contracts signed, was down 1.9% on the month and off 21.4% over the last year. The slight decline in the index in February suggests that there will be little change in the pace of existing home sales over the next few months. The chief economist at NAR said it could be summertime before sales start to improve and later in the year before any sustainable increases.
Deciding on monetary policy was difficult for the FOMC on March 18 due to uncertainties in the economic outlook, financial market stress and somewhat elevated inflation. Committee members were unsure if monetary policy alone would be enough to address contracting growth, house price declines, soft labor markets and financial market turmoil related to credit losses. The vote was 8-2 in favor of a 75 basis point rate cut with members agreeing that more time would be needed to assess the effects of monetary policy easing to date.
WEDNESDAY, April 9th
The MBA mortgage applications index increased 5.4% to 725.6% for the week ending April 4. The purchase index was up 8.1% on the week but remains 7.0% lower than a year ago. The refinance index gained 3.4% on a weekly basis and is 35.2% higher from one year ago. Rates were little changed, remaining quite low in the last week which continued to support application activity.
Easing expectations for a larger rate cut this month have climbed back up as many sources, including the IMF, Bloomberg and several Fed officials continue to forecast very weak economic growth for the U.S. this year. Fed funds futures traders were pricing in a 40% chance the Fed will lower rates by 50 basis points to 1.75% when they meet at the end of the month. Odds were running at about 12% for a half point rate cut just one week ago. It is still widely expected for the Fed to cut at least a quarter point at the next policy meeting.
THURSDAY, April 10th
The international trade deficit widened to $62.3 billion in February from a shortfall of $59.0 billion in January. Imports increased more than exports in February, accounting for the larger deficit. Export growth continues to be supported by the weak dollar. Surprisingly, import gains were driven by non-petroleum goods as petroleum imports actually declined. The larger trade deficit will detract from Q1 GDP.
Jobless claims plunged 53k to 357k for the week ending April 5. Even with the decline, the 4-week moving average was up 3k to 376k, the highest level since the aftermath of Hurricane Katrina. Claims levels remain elevated indicating an upward trend in layoffs combined with a moderate pace of hiring. Labor market conditions remain weak.
Chain store sales fell 0.5% in March, hurt by an early Easter, cold weather and weak economic conditions. An early Easter holiday will shift some sales into April, however, weak economic fundamentals will continue to weigh on consumer spending going forward with tax rebate checks perhaps providing some relief starting in May.
FRIDAY, April 11th
The import price index jumped 2.8% in March pushing the year-over-year gain to 14.8%. The oversized gain reflects the rebound in crude oil prices last month though non-petroleum prices posted a record high increase as well. Imported petroleum prices surged by 9.1% in March and have climbed 60% over the past year. Consumer and producer prices for March, due out next week, will likely show large gains related to higher energy prices.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12325.42 12609.42 -284.00 or -2.25%
NASDAQ 2290.24 2370.98 -80.74 or -3.40%
WEEK IN ADVANCE
A boatload of economic data in the coming week should help solidify the interest rate outlook. Key indicators include retail sales, housing starts, and consumer and producer prices. Also, the Fed’s beige book could provide some insight on their next policy decision.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending April 4, 2008

2008-04-05T11:38:00.000-07:00

MONDAY, March 31st
With some relief in terms of inflationary pressure and continued signs of pervasive weakness, financial markets fully expect the FOMC to continue trimming rates in the near future. Fed funds futures traders are fully pricing in a quarter-point rate cut to 2.0% at the conclusion of the Fed’s two-day meeting, April 29-30. Traders ascribe a 75% chance the rate cut will be a half point.
TUESDAY, April 1st
The ISM manufacturing index rose to 48.6% in March from a reading of 48.3% in February. These data bested expectations for a small decline. However, this is the third reading below the key 50% level in the last four months indicating contraction national manufacturing conditions. Despite the contraction input prices remain stubbornly high. With business investment softening and consumer confidence faltering, demand is expected to be subdued with corresponding weak manufacturing production in the months ahead.
Construction spending fell 0.3% in February as January’s decline was revised to be much smaller. Construction spending has fallen for five straight months due to weakness in the residential sector where expenditures dropped 0.9% in February, the 24th consecutive monthly decline, and remain 18.8% lower over the past year.
WEDNESDAY, April 2nd
Motor vehicle sales fell 1.7% in March to an annualized pace of 15.1 million units. This was the slowest sales pace since October 2005. Auto sales were higher while truck sales dropped because of gas mileage considerations. Vehicle sales are likely to remain weak as house price declines, sluggish job growth, tighter credit and higher gas prices curtail consumer spending, especially for big-ticket items.
The MBA mortgage applications index plunged 28.7% to 688.3% for the week ending March 28. This reversed a substantial portion of last week’s 48.1% surge. Nevertheless, total mortgage application volumes are still 6.0% above their year ago level. The purchase index fell 11.8% on the week and is down a similar 11.6% from one year ago. Refinance applications dropped 38.1% from the previous week but remain 25.6% above their year ago level. Refinance applications accounted for 53.4% of total loan applications, down from 62.0% a week earlier.
Fed Chief Ben Bernanke forecasted flat to slightly contracting growth the first half of this year with the possibility of some improvement sometime in the second half of the year in comments made to the Congressional Joint Economic Committee today. The Chairman also said that monetary and fiscal stimulus that has already taken place should be enough to support modest growth later this year suggesting the Fed may be nearing an end to their rate cutting campaign.
THURSDAY, April 3rd
The ISM non-manufacturing index increased slightly in March to 49.6% from 49.3% in February. This was the third consecutive sub-50% reading indicating mild contraction in service sector activity. Details in the data suggest moderate weakening may continue in the near term, which is consistent with the broader economic outlook.
Jobless claims jumped 38k to 407k for the week ending March 29. The surge in unemployment filings was unexpected, and raises the level of claims to the highest in 2 years since the aftermath of Hurricane Katrina. Jobless claims have been trending higher over the last year and a half indicating increased layoffs and subdued hiring amid weakened labor market conditions.
The economic readings of late while still showing weakness have not been as weak as economists have forecast. Rates drifted slightly higher this week related to better than expected data results. 30-year fixed rate mortgages averaged 5.88% this week compared to 5.85% last week according to Freddie Mac’s mortgage market survey. Economists at Freddie Mac point out though, that recession worries are keeping a lid on any large upward swings in rates right now and that rates remain at historically low levels.
FRIDAY, April 4th
Employers continued to shed jobs in March providing further confirmation of a mild recession currently taking place. Payroll employment shrank by 80,000 last month, more than expected and the biggest decline since March 2003. Moreover, the previous two months were downwardly revised to show a net loss of 67,000 more jobs. The unemployment rate jumped to 5.1% of the work force from 4.8% in February. The third consecutive month of substantial payroll declines will place pressure on Fed to continue cutting rates, perhaps more aggressively than their current outlook would warrant.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12609.42 12216.40 +393.02 or +3.22%
NASDAQ 2370.98 2261.18 +109.80 or +4.85%
WEEK IN ADVANCE
Data in the coming week, which is light and mostly second-tier, takes a back seat to scheduled Fed speeches and the FOMC meeting minutes from March 18 in terms of the interest rate outlook. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending March 28, 2008

2008-03-30T16:24:00.000-07:00

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

Economic Highlights for the Week Ending March 14, 2008

2008-03-20T13:30:00.000-07:00

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

Economic Highlights for the Week Ending March 7, 2008

2008-03-10T14:01:00.000-07:00

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

Economic Highlights for the Week Ending February 29, 2008

2008-03-01T05:24:00.000-07:00

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

Economic Highlights for the Week Ending February 22, 2008

2008-02-26T10:16:00.000-07:00

MONDAY, February 18th
PRESIDENTS DAY All Markets Closed
TUESDAY, February 19th
The NAHB housing market index increased to 20 in February from a record low reading of 19 in January. Home builders rated present, single-family home sales just slightly better, as ratings of sales six months from now, declined. Foot traffic through model homes increased, basically accounting for the overall gain in the index. While the index level is no where near a recovery level, at least it has moved off of its all time low.
With the risks to growth still biased toward weakening, financial markets are expecting another large cut from the Fed next month. Fed funds futures traders are fully pricing in a 50 basis point rate cut when the FOMC meets March 18. That would bring the target for the fed funds rate down to 2.50% from its current level of 3.00%.
WEDNESDAY, February 20th
The consumer price index rose 0.4% in January compared to expectations for a 0.3% gain. Price pressures were broad based, with significant increases in all categories. The CPI has gained 4.4% over the past year. The core CPI, which excludes food and energy costs, increased 0.3% on the month and 2.5% on the year. The above-trend rise in inflation is worrisome to the Fed and could complicate their rate decision in March.
New residential construction starts rebounded slightly in January from a very sharp decline in December, only because of a surge in the highly volatile multifamily category. Housing starts increased 0.8% in January to an annual pace of 1.01 million units, up slightly from a rate of 1.00 million units in December. Expect residential construction activity to remain soft through the first half of the year then hopefully start to respond to rate cuts in the pipeline in the second half of 2008.
The January 29-30 FOMC meeting minutes stressed risks to growth remained even after a series of aggressive rate cuts last month. They also confirmed that there was a great deal of uncertainty in the economic outlook. With regard to financial markets they acknowledged improvement but that strain remained and credit was more restrictive. Inflation data had been disappointing to the Committee, but they hoped that price pressures would ease under sluggish economic conditions. The Fed is likely to continue easing aggressively, 50 basis points at the next meeting, as they try to manage a complicated set of risks. Although economists do not consider a strong economic recovery likely, the FOMC, in that situation could reverse policy easing as aggressively as they implemented it.
THURSDAY, February 21st
The index of leading economic indicators fell 0.1% in January after declining by the same amount in December. This was the fourth consecutive monthly decline in the index which is consistent with very sluggish growth, possibly contracting growth in the next few quarters.
Jobless claims fell 9k to 349k for the week ending February 16. The four-week moving average, which smoothes out weekly fluctuations jumped 11k to 361k, confirming an elevated pace of layoffs and weakened labor market conditions.
Long term fixed mortgage rates shot higher this week as the one-year adjustable rates edged lower. Yields in the bond market have been moving in a similar fashion as traders sort through rate cut expectations, inflation fears, credit market turmoil and contracting economic growth. 30-year fixed rate mortgages averaged 6.04% this week compared to 5.72% last week according to Freddie Mac’s mortgage market survey. The average one-year ARM dropped below the 5.0% level to 4.98%.
FRIDAY, February 22nd
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12381.02 12348.21 +32.81 or +0.27%
NASDAQ 2303.35 2321.80 -18.45 or -0.79%
WEEK IN ADVANCE
It appears the Fed has to cope with the opposing forces of rising inflation pressures and downside risks to economic growth. For now, the latter takes precedence when deciding policy. The data will be watched closely in the meantime for any shifts in bias. Home sales and producer prices in the coming week will provide the latest economic & inflation readings.

Should Buyers Wait for the Market Bottom?

2008-02-18T11:47:00.000-07:00

The housing market will continue its downward spiral, forecasts say, and that means opportunities for buyers. But waiting for the market bottom may not be the smartest strategy. Here are 5 reasons to buy now -- and 5 reasons you may want to wait.
By Melinda Fulmer, MSN Real Estate
5 REASONS TO BUY
1. Prices in the neighborhood you are interested in are relatively stable. Either they are holding their own or increasing, or the pace of decline is slowing significantly. If you have to move and don't like apartments, the small penalty you pay for missing the bottom may not mean much.
2. You plan to stay in the home for more than five years. If you can stick it out that long before selling, economists say you’ll probably ride out any downturn and come out ahead on price.
3. Your rent rivals a mortgage payment. If you can afford to buy, it can give you one bonus that renting can't: the mortgage-interest deduction on your taxes.
4. You've found the right house in the right area for you. The schools are great. You love the area and know it would be hard to find another house like the one you have your eye on. In a better market, you would most likely have much more competition for that home.
5. You've built equity in your house and are moving to a place where homes are cheaper. In your new market, your money will go a lot further.
5 REASONS TO HOLD OFF
1. You've lived in your house less than two years. Chances are you haven't had enough time to accumulate equity in your home. Indeed, you may have negative equity, if you live in many areas such as California, Florida, Arizona or Nevada.
2. Your job security is uncertain. If your company or business is in distress, it's probably better to stay put until the smoke clears.
3. You don't plan to stay in your next house at least five years. While it's not important to buy at the exact bottom of the market, it is important to stay long enough to ride it out completely.
4. You don't have good credit or a decent down payment. Do you have a job and income you can document? As a result of the subprime lending crisis, lenders are much more careful about whom they're giving their money to.
5. You have an existing home to sell in a neighborhood where prices are dropping precipitously or where the number of foreclosures is spiking. In this climate, you're probably better off waiting out the storm. Courtesy of Laurie Marlowe LandAmerica Capital Title

Economic Highlights for the Week Ending February 15, 2008

2008-02-15T17:32:00.000-07:00

MONDAY, February 11th
The possibility of contracting growth in Q1 has financial markets believing that the FOMC will continue to cut rates in an effort to stimulate economic activity. Fed funds futures traders are fully pricing in a 50 basis point rate cut when policymakers meet March 18. That would take the fed funds target rate to 2.50% from 3.00% currently.
TUESDAY, February 12th
The Treasury posted a budget surplus of $17.8 billion in January compared to a $38.2 billion surplus in January a year ago. Fiscal year to date, the government is running a deficit of $87.7 billion vs. a $45.5 billion deficit for the same period last year. After improving in the last few years, the budget deficit is widening once again.
Warren Buffett’s offer to cover $800 billion in municipal bonds guaranteed by several ailing bond insurers sapped buying in the bond market Tuesday. The offer was perceived as a stabilizing force in the muni market and traders unwound some of the safety bid in response. The 10-year note was down 11/32 to 98-21/32 to yield 3.66%.
WEDNESDAY, February 13th
Retail sales increased 0.3% in January, besting expectations for a decline of 0.3%. The surprising gain was led by strong demand for motor vehicles and gasoline. There were some pockets of weakness with building supply, electronic/appliance, sports/hobby and furniture stores posting monthly declines. Excluding cars and gas, core retail sales were unchanged last month. The outlook is for consumer spending to remain weak through the first half of this year as consumers contend with sluggish job growth, higher energy prices and the effects of the housing downturn.
The MBA mortgage applications index fell 2.1% to 1063.5% for the week ending February 8. The purchase index slipped 0.3% on the week as the refinancing index dropped 3.0%. The pullback in mortgage application activity is related to the recent uptick in mortgage rates. Refinance applications accounted for 67.4% of total application volume.
The economic stimulus package became official today with tax rebate checks scheduled to be sent out, starting in May. The timing of the stimulus combined with the Fed’s most recent rate cuts will not necessarily prevent a recession but will help to minimize and shorten one. Economists at Moody’s Economy.com project that the stimulus package and a fed funds rate of 2.5% by mid-year will boost GDP growth by 2.0% in the second half of 2008.
THURSDAY, February 14th
The NAR reported that the national median price of an existing single family home fell to $206,200 in Q4, down 5.8% from the fourth quarter of 2006 when the median price was $219,300. While that is the largest quarterly decline on record the NAR’s chief economist points out that roughly half of the 150 major metro areas tracked in this data series showed rising home prices in the fourth quarter of last year.
Jobless claims fell 9k to 348k for the week ending February 9. The level of claims, unaffected by seasonal or holiday distortions last week, remains on an upward trend, indicating an elevated pace of layoffs.
The international trade deficit on goods and services shrank to $58.8 billion in December from a shortfall of $63.1 billion in November. The improvement in the trade picture is due to increasing exports, related to a weaker dollar while imports declined because of slower economic growth here at home. For all of 2007, the trade deficit totaled $711.6 billion, 6.2% less than in 2006.
FRIDAY, February 15th
Import prices jumped 1.7% in January compared to consensus expectation for a 0.5% increase. A 5.5% advance in petroleum prices led the overall gain last month however there were also some non-fuel price related pressures. Over the past year import prices have increased 13.7% - the highest year-on-year increase in 25 years of record keeping. Elevated import prices have the potential to be passed through to consumer and producer prices as well.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12348.21 12182.13 +166.08 or +1.36%
NASDAQ 2321.80 2304.85 +16.95 or +0.73%
WEEK IN ADVANCE
Data will be monitored closely in the weeks ahead as financial markets, economists and the Fed grapple with the current state of the economy and pin down the outlook. Housing indicators and consumer prices feature prominently on the this week's economic calendar.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending February 8, 2008

2008-02-09T16:55:00.000-07:00

MONDAY, February 4th
The Federal Reserve’s Senior Loan Officer Survey showed weaker demand and tighter lending standards for both residential and commercial mortgages, from nontraditional to prime, in January. A net 52.9% of respondents reported tighter credit standards on prime mortgages, compared to 40.8% in the previous survey and well above the 15% reported in Q207. Additionally, most respondents expect further deterioration in credit quality in 2008.
TUESDAY, February 5th
The ISM non-manufacturing index fell sharply in January to 41.9% from a reading of 54.4% in December. The service sector has long been a stable support to economic growth but the latest data indicate contraction the service industries and are consistent with recession in the overall economy.
The service sector encompasses almost 90% of the economy so today’s steep plunge into receding territory spooked the financial markets and increased rate cut expectations. Fed funds futures were pricing in a 76% probability today that the Fed would cut the fed funds rate by a half point before the next FOMC meeting, March 18. Just yesterday, 80% of bets were placed on the Fed cutting by a quarter-point the next time they meet in March.
WEDNESDAY, February 6th
Productivity grew at a 1.8% rate in the fourth quarter better than an expected rate of 1.0%. The gain in productivity last quarter was a result of strong output but fewer hours worked to achieve that output. Unit labor costs rose just 2.1% last quarter and were up a mild 1.0% over the past year. Stronger productivity without higher labor costs is good news for inflation.
The MBA mortgage applications index gained 3.0% to 1086.6% for the week ending February 1. The purchase index jumped 12% during the week while the refinance index fell 1.0%. Refinancing applications accounted for 69.2% of all mortgage applications. Lower rates continue to drive total mortgage application activity which remains 72.4% above its year ago level.
THURSDAY, February 7th
Chain store sales at stores open at least one year rose just 0.5% in January according to an index compiled by the International Council of Shopping Centers. This was the weakest January on record for the ICSC and follows a downbeat holiday shopping season. Apparel, department and furniture stores posted big declines last month while drug stores and wholesale clubs reported strong gains. With consumer finances under pressure, the outlook for same store sales remains weak.
Consumer credit increased in December by a very modest $4.5 billion after an outsized increase of $17.1 billion in November. It brings the annual rate of growth in consumer credit down to 2.1%. Consumers used both revolving and non-revolving forms of credit modestly in December. Credit usage is expected to slow further as consumers deal with tighter credit, weaker housing and sluggish job growth.
Jobless claims fell 22k to 356k for the week ending February 2. The downshift in initial claims is not surprising given the huge run-up last week. Nevertheless, the level of claims remains elevated indicating acceleration in the pace of layoffs.
The NAR’s pending home sales index fell 1.5% in December to 85.9%. The index has dropped 24.2% from a year ago. Declines in the index suggest further weakening in existing homes sales in the months to come.
FRIDAY, February 8th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12182.13 12743.19 -561.06 or -4.40%
NASDAQ 2304.85 2413.36 -108.51 or -4.49%
WEEK IN ADVANCE
Amid much uncertainty and volatility in the financial markets, market players, economists and analysts will look to the data in the coming weeks for a handle on the economic outlook and monetary policy. Retail sales data in the week ahead stands out among the reports as most critical because two-thirds of all economic activity is based on consumer spending.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending February 1, 2008

2008-02-02T09:45:00.001-07:00

MONDAY, January 28th
Sales of new single-family homes fell 4.7% in December to an annual pace of 604,000 units. Sales were weaker than expected last month and follow a downward revision in November. For all of 2007 new home sales totaled 773,000, down 26.3% from 2006 and their lowest since 1996 when 756,000 new homes were sold.
TUESDAY, January 29th
The S&P/Case-Shiller 10-city and 20-city composite indexes fell 2.2% and 2.1% in November from October. In fact, prices declined in all 20 major metro areas in November. Over the past year the 10-city house price index fell 8.4%, the largest yearly decline since the index began in 1988. The 20-city index dropped 7.7% over the past year. Downward pressure on prices is expected to continue through this year under weak housing market conditions.
WEDNESDAY, January 30th
The advance estimate of GDP indicated that the economy grew at a weak 0.6% pace in the fourth quarter. It was about half of consensus expectations. Over the past year, the economy expanded at a 2.5% rate of growth, its slowest pace since 2002. Weakness was concentrated in residential and inventory investment while consumer and business spending slowed, as did export growth. Economic growth is expected to remain weak and could possibly contract in the first quarter. Economy-wide inflation measured by the GDP price index rose 2.6% in Q4 due to higher energy prices.
The MBA mortgage applications index rose 7.5% to 1054.9% for the week that ended January 25. Total applications remain 67.2% higher than year ago levels. Last week, the purchase index fell 17.7% while the refinance index gained 22.1%. Lower rates continue to support refinancing activity, which accounted for 73% of total applications.
The FOMC backed up last week’s surprise 75 basis point cut with an additional 50 basis point cut at the conclusion of their regularly scheduled policy meeting today. The target for the fed funds rate now stands at 3.00%. The Fed also cut the discount rate by a half-point to 3.50%. The Fed acted decisively and aggressively, easing monetary policy by 1 ¼ points in a little over a week to help stave off a recession, and if not, certainly shorten one.
THURSDAY, January 31st
Personal income rose 0.5% in December as consumer spending increased 0.2%. Incomes grew at a solid rate of 5.8% in 2007 while spending grew at a 5.7% rate – still in line with long term averages. A closely watched inflation gauge contained in this data series, the core PCE price deflator rose 0.2% on the month and 2.2% on the year. The yearly rate remains above the Fed’s preferred target for inflation.
Jobless claims jumped 69k to 375k for the week ending January 26. Volatility in claims data last week, in part, could be holiday related. If claims were to stay at this elevated level for several weeks it would indicate severe deterioration in labor market conditions.
After falling sharply in the past four weeks, fixed mortgage rates rose this week. Mortgage rates were largely following movements in Treasuries yields during the week. 30-year fixed rate mortgages averaged 5.68% this week compared to 5.48% last week according to Freddie Mac’s mortgage market survey. Economists at Freddie Mac point out that despite the bump in rates this week, rates remain historically low. The 30-year fixed rate mortgage averaged 6.34% in the same week last year.
FRIDAY, February 1st
Payroll employment actually fell in January, posting a net loss of 17,000 jobs. This was way below expectations for a 75,000 job gain last month. December’s job gains were revised significantly higher to 82,000 from an initial estimate of 18.000. Still, labor market weakness is apparent with 2007’s job gains only slightly more than half of job growth in 2006. The unemployment rate dipped to 4.9% of the workforce. These data reinforce the Fed’s latest moves and set up for more easing to come.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12743.19 12207.17 +536.02 or +4.39%
NASDAQ 2413.36 2326.20 +87.16 or +3.75%
WEEK IN ADVANCE
After a ton of data and significant policy action in the past two weeks, all economic and Fed activity downshifts in the coming week providing the financial markets time to reflect and regroup

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending February 1, 2008

2008-02-02T09:45:00.000-07:00

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending January 25, 2008

2008-01-26T11:46:00.000-07:00

MONDAY, January 21st
M.L. King, Jr. DayAll Markets Closed
TUESDAY, January 22nd
In response to increasing concerns about a U.S. recession and turmoil in domestic and global financial markets, the Federal Reserve unexpectedly cut the federal funds rate by 75 basis points today. The target for the fed fund rate now stands at 3.50%. The Fed also cut the discount rate by 75 basis points to 4.00%. This was the first three-quarter point rate reduction since 1991 and the first intermeeting cut since September, 2001. The statement released after the policy action explained that the Committee made the move because growth was slowing significantly under tighter credit conditions and the housing downturn had spilled over into softening labor market conditions. The Fed acknowledged that considerable downside risks to growth remain and that they expect inflation to continue to subside this year; however they would monitor pressures closely. This suggests the FOMC will continue to cut rates until economic data and financial market conditions improve appreciably.
WEDNESDAY, January 23rd
The MBA mortgage applications index rose 8.3% to 981.5% for the week that ended January 18. This was the highest index level since April 2004. Total mortgage applications are now 60.6% above their year ago level. Gains were once again led by refinancing applications. The purchase index declined 4.6% on the week while refinancings surged 16.9%. Application activity, especially for refinancing will continue to be supported by low rates, which are expected to drop further from here.
The markets expect more rate cuts next week, even after an outsized, between-meeting rate reduction yesterday. Fed funds futures traders are fully pricing in a half-point rate cut at the conclusion of the FOMC’s regularly scheduled 2-day policy meeting next Wednesday. Odds of another 75 basis point rate cut next week are hovering around 45%.
THURSDAY, January 24th
Existing home sales fell 2.2% in December to an annual pace of 4.89 million units. For all of 2007, existing home sales totaled 5.652 million, down 12.8% from its 2006 level and the lowest annual pace since 2002. After stabilizing somewhat early in Q4, sales have resumed a downward trend entering into this year. Given the weakness in home prices, buyers will probably wait to see an end to the downturn before wading back into the market. Home sales will remain weak in the first half of this year with price declines expected to continue as the drivers of stronger demand come back into balance under lower rates, stable credit conditions and healthy economic activity.
Jobless claims fell 1k to 301k for the week ending January 19. Expectations were for claims to rise to 320k. This is the fourth consecutive week that claims declined which has shored up the labor outlook as mildly positive. These data, combined with a decline in the 4 week average and lower continuing claims indicate a softer labor market but not a recessionary one. Economists caution that claims data is especially volatile this time of year because of the holidays and is subject to revision.
Fixed mortgage rates fell to their lowest level since 2004 this week. 30-year fixed rates averaged 5.48% this week compared to 5.69% last week according to Freddie Mac’s mortgage market survey. The average 30-year fixed rate has fallen almost three quarters of a point since the beginning of the year. Rates are likely to fall further from here which would definitely help homeowners facing resets on their adjustable rate mortgages.
FRIDAY, January 25th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12207.17 12099.30 +107.87 or +0.89%
NASDAQ 2326.20 2340.02 -13.82 or -0.59%
WEEK IN ADVANCE
After this week’s surprise, inter-meeting rate cut and fiscal stimulus package agreement in Washington D.C., next week’s FOMC meeting and economic indicators seem anti-climatic. Nevertheless, the policy decision and statement will be closely monitored while the data will provide the first estimate on Q4 economic growth and the latest readings on new home sales, manufacturing, consumer spending and incomes.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending January 11, 2008

2008-01-12T17:57:00.001-07:00

MONDAY, January 7th
The magnitude of the Fed’s next rate cut came into question following the release of a bleak employment report for December. A quarter point cut was essentially priced in and then the jobs data brought a half-point rate cut into play. Expectations for the larger cut were still modestly increasing Monday with fed funds futures traders pricing in a 70% probability the Fed will cut the fed funds target by 50 basis points to 3.75% at the January 29-30 meeting, up from 66% odds on Friday.
TUESDAY, January 8th
The pending home sales index fell 2.6% in November to 87.6% after an upwardly revised level of 89.9% in October. November’s level remains above readings in August and September indicating stabilization in existing home sales according to economists at the NAR. The economists further project fairly steady existing home sales over the next several months, a gradual rise the second half of this year with additional improvement in 2009. Existing home sales are expected to total 5.66 million in 2007, the fifth highest on record, with a 1.9% drop in the median home price to $217,600.
Consumer credit increased by $15.5 billion in November after a subdued $2.0 billion gain in October. Over the past year consumer credit has grown an average of $10.3 billion a month or at a 5.2% annual rate. The surge in credit usage in November suggests consumers are using credit cards and other types of loans to finance consumption instead of mortgage equity withdrawals.
WEDNESDAY, January 9th
The MBA mortgage applications index surged 32.2% to 706.0% for the week ending January 4. The purchase index was up 14.7% on the week while the refinancing index gained a whopping 53.8%. Holiday related declines in mortgage activity have mostly been reversed with this week’s gains. The steady decrease in mortgage rates recently seems to have finally caught up with application activity, but it is still too early to tell if these gains will be maintained - which would essentially mark an end to last year’s housing market correction.
Economists from several major Wall Street firms and Moody’s Economy.com are saying that the economy could already be in recession based on last week’s employment report that showed a sharp jump in the unemployment rate with little growth. A recession is loosely defined as two back to back quarters where growth contracts. The National Bureau of Economic Research refines the process of determining a recession by looking at more detailed data and announcing the results six months to a year after it happens. Recession or not, growth has slowed significantly enough for the Fed to cut rates aggressively when they meet at the end of this month.
THURSDAY, January 10th
Slower economic growth evidenced by the dismal employment report placed downward pressure on interest rates in the past week. 30-year fixed rate mortgages averaged 5.87% this week compared with 6.07% last week according to Freddie Mac’s mortgage market survey. Economists at Freddie Mac point out that a recent quarter point drop in mortgage rates has boosted in refinance activity, which is expected to continue in the near term.
FRIDAY, January 11th
Import prices were unchanged in December better than an expected gain of 0.1%. A 0.6% drop in petroleum prices helped subdue overall import price gains. Non-petroleum prices rose a modest 0.3% on the month. Flat import prices and a drop in petroleum prices last month follow outsized gains in the previous two months. Petroleum is up over 50% in the last year which has driven a 10.9% rise in total import costs.
The international trade deficit on goods and services widened to $63.1 billion in November from a $57.8 billion trade gap in October. Imports surged in November on higher crude oil prices though consumer goods spiked as well probably in preparation for the holidays. Oil import volumes actually fell. Exports grew modestly on the month supported by strong global economies and a weaker dollar.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12606.30 12800.18 -193.88 or -1.51%
NASDAQ 2439.94 2504.65 -64.71 or -2.58%
WEEK IN ADVANCE
The economic calendar in the coming week is jam-packed with everything from inflation and spending to housing and manufacturing indicators. With the end of the month FOMC meeting fast approaching, economists and market players will be looking to the data to support an aggressive policy action by the Fed.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending January 11, 2008

2008-01-12T17:57:00.000-07:00

Economic Highlights for the Week Ending December 14, 2007

2007-12-17T13:17:00.000-07:00

MONDAY, December 10th
The pending home sale index, a leading indicator of existing home sales that tracks the number of signed contracts in a given month, increased 0.6% in October to 87.2 from a reading of 86.7 in September. It was the second straight monthly gain however the index remains 18.4% below the index level of 106.8 in October last year. The NAR’s chief economist predicts that existing home sales will rise gradually in 2008 over exceptionally low levels in the final months of 2007.
TUESDAY, December 11th
As widely expected, the FOMC cut key, short-term interest rates by 25 basis points at their policy-setting session today. This was the third consecutive cut in the fed funds target which now stands at 4.25%. The Board also approved a 25 basis point decrease to 4.75% in the discount rate. In the policy statement, the Fed cited slower growth related to the housing market correction and increased financial market strains as reasons for easing.
WEDNESDAY, December 12th
Import prices jumped 2.7% in November led by a 9.8% surge in petroleum prices. Over the past year oil prices have soared by 53.0%, pushing overall import prices up 11.4%. Non-petroleum import prices climbed 0.7% on the month and were up 3.0% over the past year. Outside of energy, imported goods inflation remains moderate but is still placing upward pressure on both producer and consumer prices.
The international trade deficit widened to $57.8 billion in October from a downwardly revised deficit of %57.1 billion in September. For the first 10 months of this year, the trade deficit has averaged $58.6 billion compared to a monthly average trade deficit of $64.0 billion in 2006. Robust export growth, related to strong global economies and a weak dollar is responsible for the improvement in the trade picture.
The MBA mortgage applications index rose 2.5% to 811.8% for the week ending December 7. This follows a 22.5% advance in the previous week. The applications index is at its highest level since mid-2005. The purchase index increased 1.7% on the week while the refinance index rose 4.3%. The refinance share of mortgage applications was 59% of the number and 58% of the dollar volume. Falling mortgage interest rates will continue to support application activity going forward.
One day after the Fed eased monetary policy and disappointed financial markets with their policy statement, the Federal Reserve announced a plan to increase liquidity into global money markets. The Fed will lend at $40 billion in two separate auctions this month with the size of two more auction to be determined next month, at rates far lower than discount rate. The discount rate is the rate at which the Fed loans money overnight directly to banks. Other major central banks will hold auctions similar to the Fed’s and be able to make loans in dollars instead of other much stronger currencies. The hope is that it will relieve pressure on interbank lending rates, especially the Libor.
THURSDAY, December 13th
Retail sales jumped 1.2% in November nearly double expectations and helped by colder weather, an early Thanksgiving and sharply higher gasoline prices. Consumers remain quite resilient in the face of the housing correction and higher energy prices. Spending will likely decelerate this quarter from a robust third quarter pace however it will not be excessively weak, much to the relief of financial markets.
The producer price index surged 3.2% in November driven higher almost entirely by energy prices, which rose 14.1%. This is the second highest reading since the index was started in 1973. Excluding food and energy prices from the index, core producer prices gained a 0.4% last month, which was still a bit above trend. Over the past year the PPI was up 7.7%, its highest level in over 25 years, while the core PPI gained just 1.9%, considered by the Fed the safety zone for wholesale inflation.
FRIDAY, December 14th
The consumer price index soared 0.8% in November compared to expectations for a 0.6% increase. Higher energy prices were once again behind the larger than expected gain in headline consumer prices last month. Excluding food and energy prices core consumer inflation rose 0.3% on the month and gained 2.3% on the year. The yearly gain is higher than the Fed would like to see but inflationary pressures should soften in the near term under slower economic growth.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13339.85 13625.58 -285.73 or -2.10%
NASDAQ 2635.74 2706.16 -70.42 or -2.60%
WEEK IN ADVANCE
In the coming week market players will be looking at further developments in the financial services industry; oil prices and other issues that could affect consumer spending and data from the housing sector: homebuilder sentiment and housing starts.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending December 7, 2007

2007-12-07T16:22:00.000-07:00

MONDAY, December 3rd
The ISM manufacturing index came in a 50.8% in November down just slightly from a reading of 50.9% in October. New orders and production maintained well during the month while employment contracted and input prices increased. The level of the index suggests that national factory activity is still growing, albeit at a very slow pace. The weak tone and sluggish growth in the manufacturing sector provide more fodder for a Fed easing when policy makers meet next week.
Motor vehicle sales increased 0.9% in November to an annual rate of 16.2 million units. Auto sales increased 6.7% to 7.47 million while light truck sales declined 4.2% to 8.22 million units. Consumers are probably shopping for more gas efficient cars hence the decline in truck sales.
TUESDAY, December 4th
Extremely low yields in the bond market curtailed demand for Treasuries Tuesday. Treasuries inversely followed stock market action but ended lower on the day before a slew of economic data on Wednesday and the employment report, Friday. In late trading the 10-year note was down 12/32 to 102-28/32 to yield 3.89%.
WEDNESDAY, December 5th
Productivity was revised even higher in Q3 growing at a 6.3% rate up from the first reading of 4.9%. This was its fastest quarterly pace in 4 years. Nevertheless, productivity has been trending lower over the past several years. Unit labor costs were revised sharply lower, to -2.0% from -0.2% originally.
The ISM non-manufacturing index fell 1.7 points to 54.1% in November, less than expectations of a reading of 55.0%. Business activity in the service sectors of the economy expanded at a slow pace last month in part because of the turmoil in housing and mortgage finance industries. Higher energy costs and the housing correction pose downside risks to service sector growth going forward.
The MBA mortgage applications index surged 22.5% to 791.8% for the week that ended November 30. Purchase applications increased 15.2% and refinance applications increased 31.9%. Lower fixed rates are behind the increase in application activity. More rate declines will continue to support mortgage activity in the near term.
THURSDAY, December 6th
Jobless claims fell 15k to 338k for the week that ended December 1. The level of claims remains elevated suggesting some deterioration in labor market conditions. Tomorrow’s employment report should clarify the labor picture and help determine the size of the Fed’s next rate cut.
Stocks climbed another leg higher Thursday as jobless claims decreased and Bush announced his plan to help troubled borrowers. The gist of it is to freeze, for five years, adjustable rates on mortgages due to reset between 2008 and 2010. The mortgage bailout plan was delivered right on the heels of a report detailing a high number of mortgage delinquencies and foreclosures in the third quarter. Homebuilder stocks helped led the gain with the Dow up 174.93 to 13619.89. The NASDAQ gained 42.67 to 2709.03.
Slower consumer spending and income gains for October as well as reports of weaker house price appreciation boosted Treasury prices and lowered yields substantially in the past few weeks and mortgage rates followed with the average 30-year fixed rate falling below the key 6.0% level for the first time since October 2005. 30-year fixed rates averaged 5.96% this week compared to 6.10% last week according to Freddie Mac’s mortgage market survey.
FRIDAY, December 7th
Payroll employment rose by 94k in November, exceeding estimates for a 70k gain. However, job growth continues to trend lower with revisions in the past two months resulting in a net 48k fewer jobs. Jobs were gained in services and retail while job losses occurred in manufacturing, construction and financial services. Average hourly earnings jumped 0.5% last month while the unemployment rate was unchanged at 4.7%. On balance, the mixed report supports a quarter point rate cut by the Fed next week.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13625.58 13371.72 +253.86 or +1.90%
NASDAQ 2706.16 2660.96 +45.20 or +1.70%
WEEK IN ADVANCE
With most signs pointing to year-end weakness, the Fed will likely cut the target fed funds rate by a quarter point to 4.25% when the FOMC meets to decide policy on Tuesday, December 11. Other than that, economists and financial markets will be keen on inflation indicators throughout the remainder of the week
Payroll employment rose by 94k in November, exceeding estimates for a 70k gain. However, job growth continues to trend lower with revisions in the past two months resulting in a net 48k fewer jobs. Jobs were gained in services and retail while job losses occurred in manufacturing, construction and financial services. Average hourly earnings jumped 0.5% last month while the unemployment rate was unchanged at 4.7%. On balance, the mixed report supports a quarter point rate cut by the Fed next week.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending November 30, 2007

2007-12-07T16:13:00.000-07:00

MONDAY, November 26th
Financial markets continue to call for additional easing from the Fed and are almost fully pricing in a quarter point rate cut when the FOMC meets December 11. The economic data becomes all important between now and then and if weaker than expected may be enough to tip the scales in favor of lower rates.
TUESDAY, November 27th
The S&P/Case-Shiller Home Price Indexes, the U.S. National, 10-City Composite and 20-City Composite continued to show steep annual price declines. The quarterly U.S. National Home Price Index was down 1.7% from Q207 and off 4.5% from the third quarter of last year. The quarter/quarter decline was the largest in the index's 21-year history. The 10-metro house price index was down 5.5% year over year while the 20-metro index declined 4.9%. The indexes are highly regarded as an accurate measure of house price changes. Shiller, the chief economist behind the indexes, notes that the housing cycle is very important to the business cycle and that home price movements are an important indicator of the overall economy.
WEDNESDAY, November 28th
Existing home sales fell 1.2% in October to an annual rate of 4.97 million, off slightly from an expected pace of 5.00 million units. Total existing home sales remain down 20.7% from a year ago.
The MBA mortgage applications index fell 4.3% to 652.5% for the week that ended November 23. Purchase applications gained 6.1% for the week while refinancings tumbled 15.3%. Total applications remain 8.9% above their year ago level. Other housing indicators show that the market has not yet bottomed out and save for a sharp drop in rates application activity in the next month is expected to remain slow.
The Fed's round-up of economic activity in the twelve Federal Reserve Banking Districts, called the beige book, showed that the expansion continued in most areas during October and early November but at a slower pace than previously. Housing was the main source of weakness though retail spending was softer too. Businesses outside of housing and the real estate industries remain cautiously optimistic because the spillover effects have been relatively minor thus far. The pace of hiring was slower while wage and other inflationary pressures remained subdued. The tone of the report was decidedly more downbeat than before which financial markets took to mean that the Fed will once again cut rates when they meet December 11.
THURSDAY, November 29th
The preliminary estimate for GDP showed the economy grew at a 4.9% rate in the third quarter up significantly from the 3.9% rate in the advance estimate. Stronger inventory investment and exports were at cause for the strong upward revision.
New home sales rose 1.7% in October to an annual rate of 728k after a sharp downward revision to September data. September new home sales were adjusted from 770k to just 716k. New home sales are now 23.5% below their year ago level.
Jobless claims jumped 23k to 352k for the week that ended November 24. It could be Thanksgiving holiday related volatility but if this level is maintained for several weeks or more it indicates much weaker labor market conditions.
Long term mortgage rates fell again this week as Treasury yields in the bond market fell to multi-year lows. Worries over the subprime fallout on credit markets and housing weakness on the overall economy had investors seeking out the relative safety of government securities in the past few weeks. Stronger Treasury prices always result in a corresponding drop in yields, and mortgage rates followed suit. 30-year fixed rate mortgages averaged 6.10% this week compared to 6.20% last week according to Freddie Mac’s mortgage market survey.
FRIDAY, November 30th
Construction spending decreased 0.8% in October compared to expectations for a more modest decline of 0.3%. Residential construction led the weakness falling by 2.0% last month in its 20th straight monthly decline. Over the past year residential construction spending has fallen 16.2% reflecting the plunge in new housing starts.
Treasury prices were mixed today but gained a record amount over the past month on credit market concerns and a flight to safety bid. Treasuries sold off or gained today as traders absorbed Bernanke's remarks from last night and weak economic data. Expectations for another rate cut solidified on the Fed Chief's guidance with outlook unwinding some safe haven flows. In late trading the 10-year note was down 3/32 to 102-15/32 to yield 3.94%.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13371.72 12980.88 +390.34 or +3.01%
NASDAQ 2660.96 2596.60 +64.36 or +2.48%
WEEK IN ADVANCE
Recent Fed speak combined with weak economic readings have opened the door for a rate cut when the FOMC meets December 11. In the week ahead policymakers will be looking for more evidence of economic slowing in which to bolster their case. The economic data scheduled to be released will probably disappoint as manufacturing activity and November payrolls are expected to be on the weak side. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending November 16, 2007

2007-11-16T16:14:00.000-07:00

MONDAY, November 12th
VETERANS DAY, Observed
Bond Market ClosedStock and Futures Markets Open
TUESDAY, November 13th
The NAR's pending home sales index which tracks the number of signed real estate contracts that have not yet closed, rose to 85.7% in September from a reading of 85.5% in August. However, the index remains 20.4% below its year ago level of 107.6%. The current low level of the index and the steep drop off from last year implies that home sales will remain weak in the fourth quarter. Despite this, NAR's chief economist points out existing home sales will be the fifth highest on record in 2007 with median prices declining by less than 2%.
The government ran a $55.6 billion budget deficit in October compared to a $49.3 billion deficit in October 2006. October is the first month of the government's fiscal year. The budget picture improved in FY2007 with total budget deficit of $163 billion, which is 61% lower than FY2004 when the deficit peaked at $412 billion. As a share of GDP the budget deficit in FY2007 was 1.2% compared to 3.6% in FY2004. The federal deficit is set to widen again this fiscal year due to slower economic growth and weaker corporate tax revenues.
WEDNESDAY, November 14th
Retail sales rose 0.2% in October better than expectations for a 0.1% increase. Regardless, sales growth was weak. Sales at gasoline stations led October's gain. Motor vehicle sales also gained 0.2% on the month. Excluding both motor vehicles and gasoline sales spending rose 0.1%. Spending has been trending lower in recent months and faces downside risks as consumers face the headwinds of a weaker housing market, tighter credit, slower job growth and rising energy costs going forward.
The producer price index rose only 0.1% in October compared to an expected 0.3% gain. Food prices shot up 1.0% but energy costs dipped 0.8%. Excluding food and energy from the index, core producer prices were unchanged last month. Over the past year the PPI increased 6.0% while core prices gained 2.5%. Despite elevated yearly gains, wholesale inflation growth has been slower in recent months leaving some maneuverability for the Fed next month.
The MBA mortgage applications index jumped 5.5% to 707.3% for the week ending November 9. The purchase index climbed 4.8% last week as the refinance index increased 6.4%. Mortgage demand has increased in 5 of the last 6 weeks and remains 9.0% above last year's level.
THURSDAY, November 15th
The consumer price index rose 0.3% in October, matching expectations. A 1.4% gain in energy prices led the gain last month. Over the past year consumer inflation has risen 3.5%. Excluding the volatile food and energy components from the index, core consumer prices rose 0.2% on the month and were up 2.1% on the year, very tame and well within the Fed's comfort zone for inflation.
Jobless claims jumped 20k to 339k for the week ending November 10. Initial jobless claims are now at the upper end of the 300k to 340k range that has been in place since the second half of 2006. The elevated level of claims is consistent with weaker job creation over the past few months though the labor market in total is only modestly weaker than it was in 2006.
FRIDAY, November 16th
Industrial production fell 0.5% in October as output declined in all three major industry groups. Manufacturing fell 0.4%, mining dropped 0.6% while utilities plunged 1.6%. Broad based weakness led to lower resource usage. The amount of capacity utilized for output last month fell to 81.7% from 82.2% in September.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13176.79 13042.74 +134.05 or +1.03%
NASDAQ 2637.24 2627.94 +9.30 or +0.35%
WEEK IN ADVANCE
The holiday shortened week yields the latest readings on homebuilders' sentiment and the pace of new construction starts. With inflationary pressures under control at the moment, it will be the severity of economic weakness that will be the deciding factor on the Fed’s next move. Further weakness is expected from housing sector indicators; the question is how deeply it will impact the broader economy. We are already seeing evidence of spillover.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending November 9, 2007

2007-11-09T17:55:00.000-07:00

MONDAY, November 5th
The ISM non-manufacturing index rose to 55.8% in October from a reading of 54.8% in September. The gain shows some resiliency in the expansion taking place in the service industries which includes financial services, home construction and government sectors of the economy. Despite this though, service sector activity has been trending modestly lower over the past several years.
TUESDAY, November 6th
The Federal Reserve’s senior loan officer survey, covering the three month period ending in October, confirmed that tighter credit conditions exist not just for subprime borrowers but for prime borrowers as well. Because of this demand has been curtailed. 45% of banks reported weaker demand for non-traditional mortgages, while 51% reported a drop in demand for prime loans; for subprime loans, 50% of banks reported a weaker demand. Credit is harder to obtain across most loan types including residential and commercial mortgages, commercial and industrial loans and non-credit card consumer loans.
WEDNESDAY, November 7th
The MBA mortgage applications index fell 1.6% to 670.6% for the week ending November 2. The purchase index was unchanged from last week while the refinance index declined 3.2%. Mortgage activity fell slightly this week after 4 weeks of increases. Application volumes were little changed in the past week because mortgage rates did not change appreciably. Mortgage demand would be stimulated by a drop in rates.
Productivity grew at a 4.9% rate in the third quarter after gaining 2.2% in Q2. Stronger economic growth increased output in Q3 while the number of hours worked eased. While productivity surged, unit labor costs retreated, falling 0.2% quarter over quarter. Nevertheless, labor costs remain elevated rising a sharp 4.3% over the past year.
Consumer credit rose by a modest $3.7 billion in September. Revolving credit led the overall gain because the non-revolving credit category remained unchanged. With cash-out refinancing on the decline, consumers are using credit cards to fund consumption.
THURSDAY, November 8th
Treasury prices gained as yield fell Thursday after Chairman Bernanke in testimony to Congress today said that the Fed expects economic growth to slow noticeably in the fourth quarter from a strong pace in the third. He also warned that the housing downturn could intensify amid tighter credit conditions and that further sharp increase in oil prices remain a risk to growth and inflation. Rate cut expectations increased to a near certainty with fed funds futures traders pricing in a 90% probability the Fed will lower the target fed funds rate to 4.25% next month. The 10-year note was up 7/32 to 99-23/32 to yield 4.28%.
Long term mortgage rates were little changed this week while adjustable rates fell following the Fed's decision to cut rates last week. 30-year fixed rate mortgages averaged 6.24% this week compared to 6.26% last week according to Freddie Mac's mortgage market survey. 1-year ARMs averaged 5.50% this week compared to 5.57% last week.
Chain store sales rose just 1.6% in October from October one year ago. Unseasonably warm weather in many parts of the country affected sales results while the state of consumer finances and credit also played a role. Weak chain store sales last month provide little momentum to kick off the all important holiday shopping season.
FRIDAY, November 9th
Import prices jumped 1.8% in October due to sharply higher petroleum prices, which surged 6.9%. Non-petroleum import prices rose 0.5% on the month and are up 3.2% on the year. Total imports gained 9.6% over the past year. Import prices are trending higher, moderately so excluding energy costs, and could place upward pressure on overall inflation.
The international trade deficit narrowed to $56.5 billion from a downwardly revised gap of $56.8 billion in August. Booming exports, related to strength in the global economy and a weakening dollar, are responsible for the improvement in the trade deficit and will boost growth estimates for Q3 GDP.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13042.74 13595.10 -552.36 or -4.06%
NASDAQ 2627.94 2810.48 -182.54 or -6.49%
WEEK IN ADVANCE
The economic calendar is chock full of data in the coming week. Economists and financial markets will get the latest numbers on inflation, consumer spending and output to help shape the outlook.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending November 2, 2007

2007-11-03T13:03:00.000-07:00

Monday, October 29th
Fed funds futures traders are fully pricing in a quarter point rate cut at the conclusion of the FOMC's two day meeting this week. With October's rate cut in the bag, markets are turning their attention to the next policy setting session in December. Odds are roughly 50/50 the Fed will cut again to 4.25% by year's end. The Fed's policy statement Wednesday should help to firm the interest rate outlook.
Tuesday, October 30th
Consumer confidence fell to 96.5% in October to its lowest level since October 2005. It seems surging oil prices, weak housing markets, tighter credit and sluggish job growth are weighing on consumer attitudes. Improvement in these issues should help to moderate declines and restore confidence going forward.
The S&P/Case-Shiller 10-metro monthly house price index fell by 5.0% in August, its fastest downward pace in more than 16 years. The 20-metro index dropped by 4.4%, showing that the decline is broad based and that lack of credit is affecting housing demand. Markets such as Tampa, Miami, San Diego, Las Vegas and Phoenix, markets that thrived in the boom days, are now the ones depreciating most rapidly.
Wednesday, October 31st
The MBA mortgage applications index rose 3.8% to 681.7% for the week ending October 26. Purchase applications fell 0.7% while refinance applications rose 9.2%. A drop in rates boosted refi activity while purchasing activity was flat as potential home buyers remain sidelined, waiting for a signal home prices have stabilized.
GDP grew at a 3.9% pace in Q3 lifted by strong consumer spending and net exports. The major weakness in Q3 economic growth was residential investment which took a full point off of growth. Economy-wide inflation eased to a rate of 0.8% from a 2.6% pace in Q2.
Construction spending increased 0.3% in September led by strong non-residential building and public projects. Residential construction spending fell 1.4% on the month reflecting the plunge in housing starts. Economists expect roughly a 10% decline in residential construction this year, then a modest gain in the beleaguered sector in 2008.
The FOMC trimmed the fed funds rate by 25 bps to 4.50% and the discount rate by the same amount to 5.0% following their policy setting meeting the last two days. The largely expected rate cut was tempered with language cautioning financial markets not presume that the FOMC is in the midst of a long, sustained rate-cutting cycle. The Fed indicated that growth and inflation risks are roughly balanced going forward. The statement also asserted that policy action to date should help shield the broader economy from adverse effects of the housing downturn and help with goals of moderate growth and price stability over the longer term.
Thursday, November 1st
The ISM manufacturing index slid to 50.9% in its fourth straight monthly decline. The index level indicates that the factory sector is still expanding, albeit very slowly. If weakness persists it could detract from Q4 GDP.
Personal income rose 0.4% in September as consumer spending gained 0.3%. Both were in line with expectations. A closely watched inflation gauge contained in this data series, the core PCE price deflator rose 0.2% on the month and was up 1.8% on the year, well within the Fed's comfort zone for inflation.
Mortgage rates declined to their lowest level in six months this week on continued concerns of weaker economic growth and further declines in the housing market. 30-year fixed rate mortgages averaged 6.26% this week compared to 6.33% last week according to Freddie Mac's mortgage market survey.
Friday, November 2nd
Payroll employment increased by 166,000 in October, double what economists were expecting. Service sector job creation was especially strong. The unemployment rate was unchanged at 4.7%. The report eases concerns of a housing induced slowdown in the broader economy and makes further rate cuts unlikely in the near term.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13595.10 13806.70 -211.60 or -1.53%
NASDAQ 2810.48 2804.19 +6.30 or +0.22%
WEEK IN ADVANCE
The Fed's policy statement and subsequent data this week went a long way toward establishing solid economic performance and future policy decisions. Based on the economic calendar, oil prices and inflation will likely move to the forefront in the coming week as the Fed and financial markets continue to assess the risks to the economy.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending October 26, 2007

2007-10-30T10:05:00.000-07:00

MONDAY, October 22nd
A new week and a new attitude, as markets are now nearly fully pricing in another Fed rate cut in October. The assigned probability of about 96% is up from 33% early last week that the target fed funds rate will drop by 25 basis points to 4.50%. The fed funds contract for December is trading at a price that assumes the Fed will reduce interest rates below 4.50% by year's end.
TUESDAY, October 23rd
Strong earnings today gave traders cause for exuberance. As predicted, Apple shares easily topped estimates to climb 67%, while telephone giant AT&T increased third-quarter profit by 41 percent, borne upward by record wireless revenue and acquisition savings. On the home front, reports that mortgage lending biggie Countrywide Financial Corp. may change terms on $16 billion of adjustable-rate mortgages before the end of 2008 gave hope to borrowers facing possible foreclosure. The Dow rose 109.26 to finish at 13676.23, while the NASDAQ reached 2799.26 for a gain of 45.33.
WEDNESDAY, October 24th
The MBA mortgage applications index was unchanged for week ending October 19. A decrease of 3.1% in purchase applications was offset by a 4.0% gain in refinance applications. All eyes are upon the Fed as it prepares to meet the last of October, fueling expectations that another rate cut could change the subprime picture.
The NAR reported that existing home sales fell 8.0% last month to an annualized pace of 5.04 million units. Home sales are counted when the transaction closes so these data reflect sales initiated in August, amidst the peak of the mortgage market turmoil. September's decline, the largest so far in the current housing correction, drops the sales pace to the lowest in nearly 10 years. While further declines are expected in housing activity this year and next, on the upside, existing home sales are currently the fifth highest on record and mortgage rates remain low and stable. NAR senior economist points out problems in the mortgage market have eased in recent weeks. Conforming loans are abundantly available, pricing has improved on jumbo loans and FHA loans will help to replace subprime mortgages.
THURSDAY, October 25th
New home sales gained 4.8% in September to a seasonally adjusted annual rate of 770,000. August new home sales were revised sharply lower to an annual rate of 735,000 from the original estimate of 795,000. Despite September's rebound, sales remain very weak, down 23.3% from their year ago level.
New orders for durable goods tumbled 1.7% in September, well below an expected gain of 1.5%. A 38.7% plunge in defense orders led the weakness last month though other categories declined as well. Details in the report suggest that business investment in capital goods continues to expand but at a slower pace. Manufacturing momentum has slowed heading into the fourth quarter mainly affected by weakness in transportation orders.
Initial claims for unemployment insurance fell 8k to 331k for the week that ended October 20. Despite the drop, the level of jobless claims remains elevated suggesting a weaker pace of hiring related to widespread layoffs in the home building and mortgage lending industries.
Mortgage rates fell as the weaker than expected economic data this week pointed to slower economic growth ahead. 30 year fixed rate mortgages averaged 6.33% this week compared to 6.40% last week according to Freddie Mac's mortgage market survey.
FRIDAY, October 26th
Consumer sentiment dropped further in its final reading for October, falling to 80.9% from 83.4% in September and 82.0% mid-month. A lower expectations index score related to weaker housing, slower job growth and high oil prices led the overall decline in consumer attitudes.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13806.70 13522.02 +284.68 or +2.11%
NASDAQ 2804.19 2725.16 +79.03 or +2.90%
WEEK IN ADVANCE
The two-day FOMC meeting with the statement due out Wednesday afternoon will dominate market action and thus the direction of interest rates in the coming week. The Fed is widely expected to cut rates by 25 basis points which should help stabilize but not entirely alleviate weakness in current housing market conditions. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending October 19, 2007

2007-10-20T10:55:00.000-07:00

MONDAY, October 15th
Rate cut expectations have shifted due to a recent raft of strong indicators. Current implications are that the Fed will remain on hold at the October 30-31 meeting. Fed funds futures traders are pricing in a 70% probability the fed funds target will remain unchanged, up from a 40% chance in early October and 10% odds in early September. However, markets are expecting one more rate cut by the end of 2007.
The Creditforecast.com Quarterly Household Credit Report showed further deterioration in credit quality as borrowing moderated in Q3. Evidence that only a portion of consumers are affected by credit problems is the fact that the Equifax risk score national average fell 0.9 points in Q3 to 698.6, virtually unchanged from last year.
TUESDAY, October 16th
Industrial Production rose 0.1% in September, while the 0.2% increase in August was scaled back to unchanged. The data indicate that manufacturing and business equipment production rose at a healthy pace in the third quarter with moderate momentum heading into Q4.
The NAHB October Housing Index, a measure of homebuilder optimism, was down 2 points to 18, a cumulative drop of 18 points since March and the lowest rating since the index was inaugurated. The index is down in every component and at its regional lowest in the western United States. Builders, faced with tightening credit, a surfeit of inventory and anemic sales, will put off starts in the coming months. Residential investment is expected to subtract from GDP growth through the first half of 2008.
WEDNESDAY, October 17th
The Consumer Price Index rose 0.3% in September, higher than an expected gain of 0.2%. Consumer inflation is up 2.8% over the past year. Excluding the often volatile food and energy categories from the index, core consumer prices gained 0.2% on the month, in line with expectations and 2.1% on the year. With inflation in check, future Fed policy actions will lean more toward how economic growth is impacted by the housing market and credit conditions.
New residential construction put in place in September plummeted 10.2% to an annualized pace of 1.19 million. Lower than expected Housing Starts were led by a 34% decrease in the multifamily sector. Single family starts fell 1.7%.
The MBA Mortgage Applications Index rose 0.7% to 656.3% for the week that ended October 12. Total applications are 12.0% above their year ago level. The purchase index gained 2.1% on the week while refinancing applications dropped 1.1%. Application activity will likely remain range bound until the Fed meets at the end of the month.
The Fed's round up of activity in the twelve Federal Reserve Banking Districts known as the beige book showed the economy continued to expand in September and early October, but that the pace of growth moderated in many areas. The anecdotal evidence in this survey proffered little to clarify future monetary policy. Economists and financial markets remain spilt about the Fed’s next rate move.
THURSDAY, October 18th
Mortgage rates were flat to slightly higher this week as the financial markets tried to decipher the Fed's next move amid a mixed bag of economic indicators. 30-year fixed rate mortgages averaged 6.40% this week the same as last week according to Freddie Mac's mortgage market survey.
Jobless Claims jumped 28k to 337k for the week that ended October 13. The surge in initial claims indicates softer labor market conditions with an increased pace of layoffs. Hiring has also been weak. October payrolls are likely to come in under 100k when reported on the first Friday in November.
FRIDAY, October 19th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13522.02 14081.05 -559.03 or -3.97%
NASDAQ 2725.16 2800.12 -74.96 or -2.67%
WEEK IN ADVANCE
Housing indicators dominate the economic calendar in the coming week with exiting home sales on Wednesday and new home sales due out Thursday. The Fed believes the housing sector and subsequent credit woes remain some of the central risks to the economy. Further weakness in home sales would tip the scales in favor of another rate cut.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending October 12, 2007

2007-10-12T17:10:00.000-07:00

MONDAY, October 8th
Better than expected job growth in September and an upside surprise in the revision to August payrolls had the markets aggressively scaling back future rate cut expectations. Fed funds futures traders are pricing in roughly a 50/50% chance the FOMC will remain on hold at the end of this month when they meet. While policy adjustments in October remain a coin toss, traders are pricing in a high probability of a quarter point rate cut at the December session.
TUESDAY, October 9th
The September 18 FOMC meeting minutes showed that the Fed voted unanimously to cut rates by a half point. The aggressive action was based on more evidence of an extremely weak housing sector and the Committee's increasing confidence that inflation no longer poses a significant threat to the economy. Policy makers were also concerned about the economic impact of tighter credit conditions and financial market turmoil. The minutes provided little direction in the way of the timing or size of future rate moves.
WEDNESDAY, October 10th
The MBA mortgage applications index rose 2.4% to 652.0% for the week that ended October 5. The purchase index increased 2.1% on the week while the refinance index rose 2.7%. Refinancing accounted for 46% of total applications. Application volumes in the last few weeks remain in a narrow range as many in the market for home financing and refinancing wait to see if further rate cuts by the Fed will help to lower mortgage rates.
THURSDAY , October 11th
Import prices jumped 1.0% in September, in line with expectations. A 5.4% increase in petroleum prices was responsible for the gain in overall import prices last month. Risk remains that surging petroleum prices could pass through to other goods and services. For now though, import price increases remain moderate.
The international trade deficit on goods and services fell 2.4% in August to $57.6 billion from a downwardly revised shortfall of $59.0 billion in July. The improvement in the trade deficit came from stronger exports while imports fell off slightly. Exports are booming because of stronger global economies and the weakening dollar.
Jobless claims fell 12k to 308k for the week that ended October 6, despite widespread layoffs in the home building and lending industries. This indicates hiring in other sectors but job creation remains below trend and is expected to remain soft in the months ahead.
Mortgage rates edged higher this week as the employment figures released last Friday reduced rate cut expectations at the next FOMC meeting in October. 30-year fixed rate mortgages averaged 6.40% this week compared with 6.37% last week according to Freddie Mac's mortgage market survey.
FRIDAY, October 12th
Retail sales rose 0.6% in September better than an expected 0.2% gain. Gasoline and motor vehicle sales were the strongest contributors to total retail sales last month. Excluding motor vehicles, core retail sales increased a strong 0.4%. Household spending is stronger this quarter over last quarter indicating a positive boost to Q3 GDP.
The producer price index surged 1.1% in September much higher than an expected 0.4% increase. Food prices jumped 1.5% while energy prices soared 4.1%. Over the past year the PPI has gained 4.4%. Excluding food and energy from the index the core PPI rose just 0.1% last month and 2.0% over the last year.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 14081.05 14066.01 +15.04 or +0.11%
NASDAQ 2800.12 2780.32 +19.80 or +0.71%
WEEK IN ADVANCE
Data watch is still on for the Fed's upcoming policy decision at the end of the month. The beige book on Wednesday will help to document the Fed's most recent outlook while other indicators of interest include consumer prices and housing starts. So far the data has lessened odds of a rate cut to just 34%. Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending October 5, 2007

2007-10-06T09:17:00.000-07:00

MONDAY, October 1st
Rate cut expectations remained unchanged since last week however they are leaning toward two more rate cuts this year, at the October and December meetings. Fed funds futures traders are pricing in a 74% chance of a quarter point rate cut at the end of this month and 54% odds of another one December 11.
The ISM manufacturing index fell to 52.0% in September compared to expectations for a slightly smaller decline to 52.5%. This is the third straight monthly decline in the index leaving it at a level that is consistent with only modest growth in the manufacturing sector.
TUESDAY, October 2nd
September motor vehicle sales dropped slightly from August to an annual rate of 16.2 million units. Car sales improved while light truck sales dipped slightly. However indications point to sales for the year falling to their lowest pace since 1998. There is downward pressure on vehicle sales due to eroding credit quality and a paucity of available home equity that could be used for new vehicle purchases.
The NAR’s pending home sales index fell to 85.5 in August, a decline of 6.5% from July and down 21.5% from a year ago. The index tracks the number of signed contracts that have not yet closed and is considered a leading indicator of existing home sales. Housing demand is expected to remain weak under deteriorating credit conditions and tighter lending standards.
WEDNESDAY, October 3rd
The ISM non-manufacturing index fell a point to 54.8% in September, matching expectations. Service industry employment gained last month, surprising given that construction, mortgage and financial services are included in the sector, while prices accelerated. The index level is consistent with moderate expansion in the service sector, though on a trend basis, growth is mildly slower.
The MBA mortgage applications index fell 2.7% to 636.7%. The purchase index slipped 1.8% on the week as the refinance index dropped 3.8%. On the whole, mortgage application volumes remain little changed from their year ago level. Those seeking home financing / refinancing may be waiting for lower rates to kick in before submitting an application. As rates move lower expect the mortgage applications to increase.
THURSDAY, October 4th
After rising for three straight weeks, long term mortgage rates eased slightly this week as credit woes and the housing market correction weakened the economic outlook. 30-year fixed rate mortgages averaged 6.37% this week compared to 6.42% last week according to Freddie Mac's mortgage market survey.
Jobless claims rose 16k to 317k for the week ending September 29. Initial claims have averaged 318k a week so far in 2007 compared to 313k a week in 2006. Below trend job growth is expected to continue in the months ahead.
FRIDAY, October 5th
Payroll employment jumped 110k in September, a bit better than expected. Moreover, the 4k decline in August was upwardly revised to show a gain of 89k jobs. Even with the measurable improvement in the last two months, job creation continues to trend lower. Payrolls are being added at roughly half of last year's pace, related to but not entirely due to the housing market correction and financial market turmoil. The unemployment rate edged higher last month to 4.7% of the workforce, also a reflection of a slower pace of job creation.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 14066.01 13895.63 +170.38 or +1.23%
NASDAQ 2780.32 2701.50 +78.82 or +2.92%
WEEK IN ADVANCE
September payrolls and revisions to August job tallies bring some intrigue to the next FOMC rate adjustment. A rate cut at the end of this month is not a done deal. Economic data between now and the end of the month will continue to shape the interest rate outlook. The economic calendar is back loaded in the coming week with retail sales and producer prices on Friday the main market movers.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending September 28, 2007

2007-10-01T17:05:00.000-07:00

MONDAY, September 24th
The FOMC policy statement last week indicated an easing bias going forward as the Fed works to avoid a sharp downturn in the economy. Fed funds futures traders are pricing in a 72% chance of a quarter point rate cut at the next meeting at the end of October and 55% odds of another rate cut in December. Housing and inflation reports due out this week could affect the interest rate outlook. If the numbers are particularly dismal and are related to recent credit market woes, then it could increase rate cut expectations from here.
TUESDAY, September 25th
Existing home sales decreased by 4.3% in August from the previous month, resulting in a year-over-year decline of 13%. Sales are at their slowest pace since 2002, with condo sales plummeting at a faster rate than single-family homes. The slump increased the supply of homes available to 10 months, an inventory level that rivals the housing downturn in the early 90s. The median existing house price is on par with year ago levels but data may be slightly misleading because of a change in the mix of homes sold.
According to the S&P/Case-Shiller Monthly home price index, the 10-metro house price index decreased 4.5% year-to-year in July while the 20-metro index dropped 3.9%. The highly regarded report tracks repeat sales of the same houses over time. It also captures non-conforming loans, those over $417,000, and includes high-priced homes and expensive coastal areas. The number of optimistic survey responses is the lowest for any period of time in the 22 years of the survey.
WEDNESDAY, September 26th
The MBA mortgage applications index fell 2.8% to 654.2 for the week that ended September 21. The purchase index fell 7.3% on the week while refinance applications increased 3.3%. The slight uptick in mortgage rates last week dampened purchase activity with many buyers possibly holding off until the Fed rate cuts pass through to longer term rates. Refinancing is holding up because of the high number of mortgagors encountering resets.
THURSDAY, September 27th
New home sales declined 8.3% in August to an annual rate of 795k, much lower than an expected rate of 830k. This was the lowest level of new home sales since June 2000. Over the past year sales have tumbled 21.2% and are now 42.8% below their July 2005 peak.
Jobless claims fell 15k to 298k in the week that ended September 22. Claims, which have moved into a new lower range over the past several weeks, suggest improved labor market conditions. Payroll employment figures due out next Friday should reflect a moderate pace of hiring in September as opposed to the net contraction in August jobs.
Long term mortgage rates turned higher in the past week as long term yields in the bond market moved higher. The Fed rate cut thus far has lowered shorter dated instruments. 30-year fixed rate mortgages averaged 6.42% this week compared to 6.34% last week according to Freddie Mac's mortgage market survey. One year ARMs decreased to 5.60% from 5.65% in the previous week.
FRIDAY, September 28th
Personal income rose 0.3% in August slightly below expectations of a 0.4% increase. Consumer spending gained 0.6% on the month, up from 0.4% in the prior month and above expectations. Over the past year incomes have grown 6.8% while spending gained 5.7%. A closely watched inflation gauge in this data series, the core PCE deflator, rose a mild 0.1% for the month and 1.8% for the year, well within the Fed's comfort zone for inflation.
Construction spending rose 0.2% in August better than expectations for a decline of 0.2%. A huge 2.3% rise in non-residential construction spending carried the overall gain during August. Spending was quite robust for commercial, office, health care and other types of buildings. Residential construction expenditures remained weak, falling 1.5% during the month.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13895.63 13378.87 +516.78 or +3.86%
NASDAQ 2701.50 2576.69 +124.81 or +4.84%

WEEK IN ADVANCE
The tumultuous third quarter has wrapped up for financial markets but end of quarter economic data will come in over the next month. In the coming week data flows are light but significant with the ISM manufacturing survey, Monday and the employment report due out Friday.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Week In Advance

2007-09-23T19:00:00.000-07:00

Home sales data dominates the calendar in the coming week. Weak results are expected for a month or two, until the Fed's rate cuts kick in to help turn housing market conditions around.

Economic Highlights for the Week Ending September 21, 2007

2007-09-22T15:15:00.000-07:00

Monday, September 17th
Stocks closed lower in choppy trading Monday, ahead of the FOMC meeting slated for Tuesday. The size of the expected rate cut in the fed funds target and subsequent lowering of the discount rate are still quite divergent. Stocks bounced around throughout the session on a weak regional manufacturing survey, higher oil prices and dismissal of Microsoft's appeal in a European antitrust case. The Dow dropped 39.10 to 13403.42. The NASDAQ was down 20.52 to 2581.66.
Tuesday, September 18th
The producer price index, a measure of wholesale inflation, tumbled 1.4% in August as energy prices tanked 6.6% during the month. Gasoline, natural gas, heating oil and diesel fuel costs all fell, but have subsequently shot upward. Core prices, excluding fuel and food costs, rose 0.2% last month and are up 2.2% over the past year.
The NAHB housing market index fell 2 points to a level of 20 in September. This was the lowest index reading since the beginning of 1991. Homebuilders continue to be pessimistic, with weakness centered on futures sales forecasts. Present single family home sales were rated modestly lower while foot traffic through model homes was unchanged from August. Weakness is likely to persist in housing conditions in the near term due to huge inventories. However, the Association said that they expect homes sales to return to an upward path in Q2 of next year.
The FOMC at its policy meeting today acted decisively to lower the target for the fed funds rate to 4.75%, a cut of 50 basis points. They also cut the discount rate by 50 basis points to 5.25%. The financial markets were expecting a quarter point easing but were very pleased with the deeper, half point cut. This was the first policy adjustment by the Fed after nine straight meetings without a change. The Committee cited slower economic growth and potential downside risk to the economy going forward due to financial and credit market turmoil. Policymakers will continue to monitor the situation carefully and act as needed to sustain economic growth and price stability.
Wednesday, September 19th
The consumer price index fell 0.1% in August led by a 3.2% drop in energy prices. The CPI gained 1.9% over the past twelve months. Excluding food and energy, core consumer prices increased 0.2% on the month and 2.1% on the year. The headline CPI could spike in the next month or two as higher oil prices are integrated into the index. Core consumer prices have been slowly retreating over the last 11 months as the pace of economic growth has slowed.
Housing starts fell 2.6% in August to an annual rate of 1.33 million, slightly lower than an expected rate of 1.36 million. Starts in August hit their lowest level since June 1995. Housing starts have tumbled 19.1% over the past year and are now off 41.9% from their peak level achieved in January 2006. Weakness in overall starts was once again led by a 7.1% plunge in single family construction starts last month.
The MBA mortgage applications index rose 2.4% to 673.2% for the week ending September 14. Both purchase and refinance applications increased last week. Application volumes have remained in a narrow range most of this year and are little changed now, after the onset of credit market disruptions. Lower rates will help to support mortgage activity going forward.
Thursday, September 20th
The index of leading economic indicators fell 0.6% in August from an upwardly revised gain of 0.7% in July. Most of the index components fell except for money supply, which received a boost from the Fed who increased liquidity in the banking system in August to counter problems in credit markets. Though volatile, the index is trending only slightly lower, a harbinger of continued sluggish economic growth.
Jobless claims fell 9k to 311k for the week that ended September 15 despite widespread layoffs in the home building and mortgage lending industries. Even with the weekly drop in claims, softer hiring conditions are expected to continue going forward.
Long term mortgage rates edged slightly higher this week but remain at lower levels not seen since May. 30-year fixed rate mortgages averaged 6.34% this week compared to 6.31% last week according to Freddie Mac’s mortgage market survey.
Friday, September 21st
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13820.19 13442.52 +377.67 or +2.81%
NASDAQ 2671.22 2602.18 +69.04 or +2.65%

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

The Federal Open Market Committee

2007-09-18T11:34:00.000-07:00

WASHINGTON (MarketWatch) - The Federal Open Market Committee cut its benchmark federal funds rate by a half percentage point to 4.75%. In an effort to ease the credit crunch, the Federal Reserve also reduced its discount rate in lockstep to 5.25%. This is the first cut in the federal funds rate since June 2003. In a statement, the FOMC said the action "was necessary to forestall some of the adverse effects on the broad economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time." The Fed said that some inflation risks remain. It said the credit crunch could hurt the economy.

Copyright © 2007 MarketWatch, Inc. All rights reserved.

Week In Advance

2007-09-17T22:35:00.000-07:00

The FOMC meeting takes center stage next week. While a rate cut is most certainly in the offing, there has been ongoing conjecture about how much the Fed will ease – a quarter or a half point. Regardless of the size of the policy adjustment, there will likely be more rate cuts to follow this one, later this year.

Economic Highlights for the Week Ending September 14, 2007

2007-09-16T15:50:00.000-07:00

Monday, September 10th
The downside surprise in the number of August payrolls boosted expectations of an aggressive Fed rate cut later this month when the FOMC meets. Fed funds futures traders are pricing in an 80% probability the FOMC will lower the target fed funds rate by 50 basis points with a quarter point cut a virtual certainty, according to the markets.
Consumer credit increased by $7.4 billion in July less than an expected $9.0 billion gain. Over the past year, consumer credit has grown at a 4.8% rate, although it has been accelerating in recent months. Stronger growth in the revolving credit category led the gain. Non-revolving debt balances rose modestly. The latest consumer credit data does not yet reflect the tightening of credit standards caused by credit market turmoil. Credit is still rising broadly in line with disposable income.
Tuesday, September 11th
Exports rose the most in three years, accounting for an unanticipated narrowing of the U.S. trade deficit in July to $59.2 billion from a revised $59.4 billion in June. American manufacturers shipped more machines, airplanes and automobiles overseas. The improvement reflects relatively stronger growth in exports though imports also rose.
Wednesday, September 12th
The MBA mortgage applications index gained 5.5% to 657.4% for the week that ended September 7. The recent drop in mortgage rates has provided an opportunity for buying and refinancing. Both types of applications increased in the last week. Total applications remain 12.5% above year ago levels. Continued downward pressure on rates going forward could be a boon to the beleaguered mortgage market.
Thursday, September 13th
Mortgage rates plunged in the last week as rate cut expectations increased after the dismal report on August payrolls. 30-year fixed rate mortgages averaged 6.31% this week compared to 6.46% last week according to Freddie Mac's mortgage market survey. Economists at Freddie Mac note that sharply lower rates could help borrowers who are facing resets to refinance.
Jobless claims rose 4k to 319k for the week ending September 8, slightly lower than expected perhaps as a result of the Labor Day holiday and shortened work week. While layoffs remain contained, the pace of hiring has slowed resulting in weak net job creation.
Friday, September 14th
Retail sales rose 0.3% in August after a 0.5% gain in July. A tad weaker than expected, August retail sales were underpinned by strong auto sales. Excluding autos, retail sales fell 0.4% last month. Despite some weakness in August, spending remains above its Q2 averages which suggests a small boost to 3Q GDP.
Industrial production rose 0.2% in August, less than expected and based on weak manufacturing and mining output. A surge in utilities usage prevented a decline in total production. Capacity usage for output remained elevated but unchanged at 82.2%.
Import prices fell 0.3% in August due to a temporary drop in petroleum prices, which fell 1.3% on the month but have spiked sharply since then. Outside of the energy complex, import prices are still trending modestly higher but are unlikely to put significant pressure on consumer and producer prices for the same period.
Consumer sentiment rose to 83.8% in early September from a reading of 83.4% in August. Ratings of current conditions were about on par with the previous month while consumer expectations rose modestly. Sentiment levels appear to have stabilized for the moment at a lackluster level, which may be good given recent financial, housing and credit market turmoil. The final reading on sentiment will be released in two weeks.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13442.52 13113.38 +339.14 or +2.51%
NASDAQ 2602.18 2565.70 +36.48 or +1.42%

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Econimic Week in Advance

2007-09-08T11:58:00.000-07:00

Jobs data this week made a rate cut a virtual certainty and most probably a necessity at the next FOMC meeting. The question is now; will it be an incremental 25 basis point cut or an aggressive 50 basis point cut? The Fed will be watching financial developments and other data up to the meeting date, Sept. 18, to determine their next policy move.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending September 7, 2007

2007-09-07T15:03:00.000-07:00

MONDAY, September 3rd
LABOR DAY
All Markets Closed

TUESDAY, September 4th
The ISM index fell to 52.9% in August as demand waned for furniture, automobiles and computers after borrowing costs spiked. The level of the index shows continued expansion in the manufacturing sector but at a slower pace than in Q2. Manufacturing activity faces downside risks going forward if business investment falters.
Homebuilders are pulling back in an effort to reduce the abundance of unsold residential properties even as companies continue to add offices and factories. Construction spending decreased 0.4% in July, which is 2.0% lower than a year ago. Battered by a 1.4% decline in residential construction, private construction numbers decreased 0.7%, while public construction increased by 0.7%
WEDNESDAY, September 5th
The NAR's pending home sales index dropped 12.2% in July, in its sharpest decrease since September 2001 when it fell 16.1% from its year earlier level. The index tracks the number of signed real estate contracts and is considered a leading indicator of existing home sales. The sharp downturn in July is expected to be followed by another decline in August because of major mortgage market disruptions this summer.
The MBA mortgage applications index rose 1.3% to 622.9% for the week that ended August 31. Both purchase and refinancing indexes gained on the week. The overall index remains only modestly below its level during the first half of July before credit market troubles began. Despite subsequent volatility related to credit woes, the current level of mortgage applications remains 10% above its year ago level.
The Fed's survey of economic activity in the twelve Federal Reserve Banking Districts known as the beige book showed that economic activity continued to expand in most regions although at a slower pace in a few. Most Banks reported tighter lending standards for residential mortgages which has impacted housing activity. Outside of real estate, financial and credit market turmoil has had limited effect on the overall economy. The report signals still solid economic conditions which is not exactly a sure-fire catalyst for a rate cut September 18. Even so, it is likely the FOMC will cut rates when they meet in two weeks.
THURSDAY, September 6th
The ISM non-manufacturing index was 55.8% in August, unchanged from its July reading. Stronger than expected service industry activity last month was surprising since home construction, mortgage finance and financial services are part of the sector. Service sector activity continued to grow on a monthly basis, although there has been some slowing on a trend basis since mid-2004.
Productivity was upwardly revised to a rate of 2.6% in Q2 from 1.8% in the preliminary estimate. Unit labor costs were downwardly adjusted to 1.4% from the original print of 2.1%. Despite the improvement last quarter, productivity has trended lower over the last several years while unit labor costs continue to trend higher.
Jobless claims fell 19k to 318k for the week that ended September 1. The first drop in claims numbers in the past seven weeks puts the level of claims back near their year-to-date average, which is only slightly higher than its 2006 average. Nevertheless, these data suggest that August payrolls will likely be on the soft side amid somewhat sluggish labor market conditions.
FRIDAY, September 7th
Payrolls declined by 4k in August compared to expectations for a 100k gain. Moreover, revisions in the previous two months resulted in another net loss of 81k jobs. Weakness was led by steep losses in manufacturing and construction jobs. The unemployment rate however, remained unchanged at 4.6%. The housing correction is indeed impacting the broader economy. The downside risks to the economy going forward provide enough impetus for the Fed to cut rates when they meet September 18.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13113.38 13357.74 -244.36 or -1.83%
NASDAQ 2565.70 2596.36 -30.66 or -1.18%
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending August 31, 2007

2007-09-01T22:50:00.000-07:00

MONDAY, August 27th
Existing home sales slipped 0.2% in July to an annual rate of 5.75 million units, compared to an expected rate of 5.70 million. This was the slowest pace of home sales since November 2002. Existing home sales remain down 9.0% on the year.
Financial markets are maintaining their expectations for a Fed rate cut in September. Fed funds futures traders are fully pricing in a 25 basis point rate cut in the target fed funds rate at the next FOMC meeting. A rate cut however is not a done deal. It’s interesting to note that the effective fed funds rate has been between 4.5% and 5.0% since August 10, when the Fed increased liquidity in the banking system to help calm credit market fears. The question is, will the Fed wait for the effective rate to move higher before formalizing a cut in the target?
TUESDAY, August 28th
The consumer confidence index fell to 105 in August from 1119 in July. Consumers' ratings of both the present situation and expectations for the future dropped sharply this month. Confidence levels were impacted mainly by recent financial market turmoil and sluggish labor market conditions. Downside risks remain as consumers cope with high debt burdens, rising gas prices, tighter credit and softer home prices.
WEDNESDAY, August 29th
The MBA mortgage applications index fell 4.0% to 615.2% for the week that ended August 24. Despite turmoil in the mortgage markets, application volume remains 10.5% higher than its year ago level. Both purchase and refinance applications dropped in the last week. Mortgage application activity retreated sharply in the last two weeks which is more consistent with the downturn in housing market conditions.
When credit conditions tighten, more home buyers are rejected which leads to larger application volumes when buyers refile. This has created an upward slant to the MBA mortgage applications index. Also, the index is more heavily weighted to conventional, fixed-rate mortgages. Indeed, subprime, Alt-A and jumbo mortgage applications have dropped almost 40% in the middle two weeks of August, which has not drastically impacted the overall index.
THURSDAY, August 30th
Long term mortgage rates continued to slide this week but short term mortgage rates increased sharply as the mortgage market continues to mirror the volatility in bond market yields. 30-year fixed rate mortgages averaged 6.45% this week compared to 6.52% last week and 6.44% a year ago according to Freddie Mac's mortgage market survey. Rates on one-year adjustable rate mortgages increased about a quarter of a percent.
Jobless claims jumped 9k to 334k for the week that ended August 25. Claims are maintaining in a new higher range that is consistent with some loosening in labor market conditions. The level of claims suggests that payroll employment for August could be weak.
FRIDAY, August 31st
Housing and the mortgage industry were the main topics in speeches made by President Bush and Fed Chairman Ben Bernanke today. The Fed Chief, in remarks to an annual symposium in Jackson Hole today, said that current conditions in mortgage finance and the housing sector will be watched closely for the impact on the broader economy and that the Fed is prepared to take action if necessary. Any developments between now and the next FOMC meeting on September 18 can affect monetary policy. Shortly after the Fed Chairman’s speech, the President outlined a plan designed to help potentially hundreds of thousands of subprime borrowers avoid foreclosure. Working with the FHA, more refinancing options, lower down payments, higher loan limits and additional tax benefits were among some of the proposed administrative and legislative initiatives. The proposed changes could help many distressed homeowners keep their homes but will likely take several months to enact.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending August 24th, 2007

2007-08-24T16:11:00.000-07:00

Monday, August 20th
Rate cut expectations have increased substantially given the Fed's most recent response to an impending credit crunch. Last week, the Fed cut the discount rate by 50 basis points stating that downside risks to economic growth have heightened. The Fed’s tightening bias was essentially reversed to an easing bias given the weaker outlook for economic growth. Fed funds futures traders are fully pricing in a 25 basis point rate cut when the FOMC meets September 18 with a high probability of one more rate cut by the end of the year. Financial market reaction to the Fed’s latest moves will help determine if more easing is necessary.
Tuesday, August 21st
A speech today by Richmond Fed President Lacker dampened expectations of interest rate cuts at the Fed's September meeting. He argued that "financial market volatility, in and of itself, does not require a change in the target federal funds rate." Lacker stated further that financial market troubles only warrant a change in interest rates if it alters the outlook for inflation or growth.
Wednesday, August 22nd
The MBA mortgage applications index fell 5.5% to 641.1% for the week that ended August 17. After two weeks of gains, purchase applications decreased 5.0% while refinance applications dropped 6.4%. Even with the declines, the level of the index suggests healthy application activity; however, with the housing market still searching for the bottom, application activity may reflect shifting financial modalities rather than serving as a leading indicator of housing market activity.
Thursday, August 23rd
Mortgage rates dropped this week amid an ongoing rally in the bond market as investors continue to flee riskier investments affected by the subprime fallout. 30-year fixed rate mortgages averaged 6.52% this week compared to 6.62% last week according to Freddie Mac’s mortgage market survey. Rates are expected to remain under pressure as rate cut expectations continue to grow.
Jobless claims fell by 2k to 322k for the week that ended August 18. The decline, the first in four weeks, was smaller than expected. Jobless claims are on a slightly rising trend indicating a slower pace of hiring. But labor conditions still remain relatively healthy.
Stocks tumbled Thursday in a knee jerk reaction to comments by Countrywide’s Chief Executive, who projected an economic recession based on the housing sector slump negatively affecting consumer spending. For the most part though, the economy remains on solid footing. News that Bank of America invested $2 billion in the nation’s largest lender boosted their beleaguered shares and helped rouse the major indexes back to near even on the day. The Dow was down a fraction to 13235.88. The NASDAQ fell 11.10 to 2541.70.
Friday, August 24th
New home sales gained unexpectedly in July in a hopeful sign of some stabilization in the housing sector. New home sales rose 2.8% last month to an annual rate of 870k and were the strongest in the West where they rose 22.4%.
New orders for durable goods rose 5.9% in July led by demand for motor vehicles and civilian aircraft. Strength was broad based across most all categories. Excluding the transportation sector, durable goods orders still rose a strong 3.7%. Core capital goods orders and shipments, often used as a proxy for business investment, rebounded strongly last month which should boost third quarter growth. Unfilled orders were also up sharply boding well for hard goods production going forward.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13378.87 13079.08 +299.79 or +2.29%
NASDAQ 2576.69 2505.03 +71.66 or +2.86%
WEEK IN ADVANCE
More housing data on tap in the coming week with the NAR's existing home sales report. July sales will probably maintain around current levels before taking a leg lower when tighter lending standards and higher borrowing costs will show up in the data. The week's calendar rounds out with consumer confidence, personal income and the second revision to Q2 GDP

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending August 17th, 2007

2007-08-17T19:55:00.000-07:00

Monday, August 13th
Moves by foreign and domestic central banks to increase liquidity last week in the face of credit market distress increased the odds of a fed rate cut substantially. Fed funds futures traders are pricing in a 56% chance for a rate cut at the next meeting in September to ensure that the flow of credit does not dry up. Markets are looking for a second rate cut as well by the end of the year.
Retail sales rose 0.3% in July after tumbling in June as consumers spent in department stores, restaurants and on apparel and accessories. Consumers cut spending on gasoline and cars however, because excluding motor vehicle sales, retail sales posted a stronger gain of 0.4%. The July levels of consumer spending are well above their Q2 averages which will help to drive solid economic growth in Q3.
Tuesday, August 14th
The producer price index rose 0.6% in July and showed that prices across all stages of processing were up more than anticipated. As expected, core prices -less food and energy – rose 0.1%. Producer prices are up 4% in the past year, while core prices are up 2.3%, marking the biggest gain in nearly two years.
The international trade deficit narrowed to $58.1 billion in June, while the May deficit was revised down slightly to $59.2 billion. Three major factors influence the trade deficit: energy prices, strong global economic growth and a weakening dollar. Elevated oil prices are due to distortions in oil supply and geopolitical risk. The current price, although lower than the record highs in 2006, is high compared to historic averages.
Wednesday, August 15th
The consumer price index rose 0.1% in July in line with estimates and related to a reprieve in energy price gains. Excluding food and energy prices from the index, core consumer prices rose 0.2% last month to bring the annualized gain to 2.2%, still a bit higher than the Fed would like to see but definitely lower than a cyclical high of 2.9% reached in September 2006. Easing inflationary pressures give the Fed room to move should they decide to cut rates sometime this year.
The MBA mortgage applications index rose 3.4% to 678.7% for the week that ended August 10. Both purchase and refinance indexes increased last week. Application activity overall remains 20% higher than its year ago level. Mortgage rates have declined somewhat in recent weeks and may account for the recent surge in application activity; however it could be related to multiple applications being filed rather than an increase in sales or refinance activity.
The NAHB housing market index fell 2 points in August to a level of 22. This is a new cyclical low and the second lowest reading on record since the index began in 1985. Builders rated present single family sales lower while projecting lower sales six months from now. Foot traffic through model homes also fell to its lowest level ever. Tighter lending standards, higher mortgage rates and rising defaults continue to pressure new home sales with builders unable to work off high inventory levels. Economists say that the bottom in the housing correction has yet to be reached and project that recovery in the sector could be as far off as the middle of next year.
Thursday, August 16th
Housing starts tumbled 6.1% in July to a rate of 1.38 million. New construction starts have slowed 20.9% over the last year under faltering sales and tighter credit. Both single family and multifamily starts declined last month. Building permits which are often used as a proxy for future new starts activity fell 2.8% to 1.37 million. Sinking permit issuance, dour home builder sentiment, bloated inventories, weakened demand and tighter credit all point toward further contraction in the home building business. Housing's contribution to economic growth will be substantially negative again in Q3 and probably Q4 as well.
Mortgage rates edged higher in the past week as Treasury prices settled down after a huge run-up related to credit market woes and equity decline. 30-year fixed rate mortgages averaged 6.62% this week compared to 6.59% last week according to Freddie Mac’s mortgage market survey. Economists at Freddie Mac stated today that problems in the non-prime sector have not yet affected the prime conforming market.
Friday, August 17th
The Fed cut the discount rate, the rate at which the Fed loans money to banks, by 50 basis points today in an effort to bring some order to recent gyrations in the financial markets. The Fed also said that downside risks to economic growth have heightened and that they are prepared to take further action if necessary.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending August 10, 2007

2007-08-11T11:41:00.000-07:00

Monday, August 6th
Rate cut expectation have soared for future Fed meetings based on credit market concerns and the fallout from the subprime sector. Fed funds futures traders are pricing in a 92% chance the Fed will cut the target rate by 25 basis points to 5.0% when they meet October 31 compared with 14% odds just two weeks ago.
Tuesday, August 7th
The FOMC held rates steady today, leaving the target for the fed funds rate at 5.25%. This was the ninth straight meeting without a change in rates. Before that, the Fed bumped rates 17 times in a row moving the target from 1.0% to its current level of 5.25%. Non-action on monetary policy was widely expected. However there were changes in the policy statement language released after the meeting. First, the Fed acknowledged financial market volatility referring to recent capital market gyrations, the widening of credit spreads and tightening of credit standards. Secondly, the Committee expects continued moderate economic expansion but added that it will be supported by employment growth and a robust global economy. Finally, the Fed set the stage a balanced risk bias by saying their predominant concern remains inflation, but that downside risks to growth have increased somewhat. As always they wrapped up by saying that future policy adjustments will depend on incoming economic data.
Productivity grew at a 1.8% rate in Q2, compared to 0.7% in Q1. In the last five years productivity increased an average 2.1% per year, but has slowed in the past year to a paltry gain of 0.6%. Unit labor costs accelerated at a 2.1% rate in Q2, higher than an expected gain of 1.6%.
Consumer credit outstanding increased in June by $13.2 billion to$ 2.459 trillion, more than twice what the market expected. By historical standards, growth in revolving and non-revolving credit remained robust while advancing 8.4% and 5.3% respectively, over the month.
Wednesday, August 8th
The MBA mortgage applications index jumped 8.1% to 656.5% for the week that ended August 3. The purchase index shot up 7.4% to 447.4%, while the refinance index surged 9.1% to 1881.1%, its highest level since mid May. The gain in application activity this week could be a result of the recent downward pressure on rates but a rebound in the housing sector is not expected anytime soon.
The NAR lowered housing sales forecasts for the sixth straight month but said that price declines will be less severe. The Realtor group said they expect existing home sales to total 6.04 million in 2007, down from 6.22 million units predicted last month. The forecasted pace is still above June's rate of 5.75 million. The median price for an existing home is forecast to fall 1.2% to $219,300 this year slightly less than the 1.4% drop estimated a month ago.
Thursday, August 9th
Jobless claims rose 7k to 316k for the week that ended August 4. The four week moving average was up 2k in the last week and continuing claims increased 39k in the prior week. Initial claims rose in the last two weeks but remain in a relatively narrow and tight range. The gradual increase over the last couple of weeks though, is consistent with a reduced pace of hiring.
Lenders lowered mortgage interest rates this week amid softer job creation in July and an uptick in the unemployment rate. 30-year fixed rate mortgages averaged 6.59% this week compared to 6.68% last week according to Freddie Mac's mortgage market survey. Separately, Freddie Mac reported that cash out refinancing totaled $76.7 billion in the second quarter, $24.5 billion less than in the same quarter a year ago. Tougher credit standards and slumping house price appreciation likely resulted in the decline.
Treasury prices surged Thursday as subprime and credit market woes substantially increased the flight to quality bid in the bond market. News of the ECB loaning almost 95 billion euros to banks to avoid a cash crunch and France cutting off access to three funds exposed to U.S. credit markets boosted inflows. Rate cut expectations shot higher due to credit market turmoil and related issues, with fed funds futures traders pricing in nearly a 100% chance of a cut in September. The benchmark 10-year note was up 21/32 to 99-23/32 to yield 4.77%.
Friday, August 10th
Import prices jumped 1.5% in July compared to expectations for a 1.0% increase. A 7.0% surge in petroleum prices was at cause again for pushing overall import prices higher last month. Non-petroleum import prices gained just 0.2% in July. There is a risk that sharply higher import prices related to higher energy costs would be passed through to other goods and services.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Week in Advance

2007-08-06T12:35:00.000-07:00

The FOMC meeting in the coming week is the highlight on an otherwise light economic calendar. Financial markets will be parsing the language in the policy statement as usual for indications on the interest rate and economic outlook. No significant changes are expected either in the fed funds target rate or in the post-meeting statement.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending August 3, 2007

2007-08-03T16:52:00.000-07:00

Monday, July 30th

Bargain hunters were out Monday snapping up shares after last week's severe sell off. Investors, rotating back into stocks, showed interest in financials, homebuilders and retailers. Merger activity provided some lift but some deals stalled due to the credit crunch. Stocks rallied in the afternoon to end higher on the day. The Dow was up 92.84 to 13358.31. The NASDAQ gained 21.04 to 2583.28.
Tuesday, July 31st
Personal income rose 0.4% in June, less than an expected 0.5% gain. Consumer spending increased only 0.1% during the month due to soft retail and motor vehicle sales. A closely watched inflation gauge contained in this data series, the core PCE price index, gained just 0.1% on the month and 1.9% on the year. The annual gain in the price index is within the Fed's preferred range for inflation.
The consumer confidence index shot up 7.3 points in July to 112.6%. This is the highest confidence reading since August 2001. Ratings of both the present situation and expectations for the future increased substantially. Surprising given higher gas prices, modest job creation and stagnant house price appreciation.The monthly surge in confidence is welcome; however downside risks remain in the near term.
The employment cost index rose 0.9% in Q2 as benefit costs surged and wage gains fell mildly from the first quarter. For the year ending in June total compensation increased 3.3% up from a 3.0% gain in Q1.
Construction spending fell 0.3% in June compared to expectations for a 0.2% increase. This was the first decline in the past five months. Residential construction weakness continues to weigh on overall spending. In June, public construction and the nonresidential category provided little offset. There is little indication that residential weakness will abate soon.
Wednesday, August 1st
The ISM manufacturing index fell 2.2 points in July to 53.8%. Expectations were for a reading of 55.5%. Manufacturers kept the lid on inventories, which fell for the twelfth consecutive month. Because of the correlation to GDP growth, if these data maintain through September, it would indicate slower growth in Q3 than experienced in Q2.
Vehicle sales slipped in July, to a pace of 15.5 million units. The figures point to weakening credit quality, restrained employment trends and ascending fuel prices as probable causes for softness in sales.
The MBA mortgage applications index fell 0.3% to 607.1% for the week ending July 27. Despite a seven week decline, mortgage applications were 15.1% above a year ago.
Thursday, August 2nd
Sharply lower yields in the bond market placed downward pressure on mortgage interest rates this week however long term mortgage rates only edged down slightly. Bond yields have been tumbling lately as the subprime fallout drove investors into safer Treasury securities. 30-year fixed rate mortgages averaged 6.68% this week compared to 6.69% last week according to Freddie Mac's mortgage market survey.
Jobless claims rose 4k to 307k for the week ending July 28. Initial claims have settled into a relatively low and narrow range implying on-trend payroll creation and fairly tight labor market conditions.
Friday, August 3rd
Payroll employment increased 92k in July, less than an anticipated gain of 130k. Moreover, the prior two months were revised lower for 8k net fewer jobs. In July, strong service sector job growth was partially offset by job losses in government, manufacturing, and construction industries. Hourly earning rose 0.3%, in line with expectations while unemployment edged 0.1% higher to a 4.6% rate. These data point to a gradual softening of labor market conditions without significant wage pressures. Lack of inflation warnings and mild growth will keep the Fed on hold in the foreseeable future.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Week in Advance

2007-07-30T07:50:00.000-07:00

A busy economic calendar will help to clarify economic performance after the Q2 rebound. The indicators are light on housing but heavy on other sectors of the economy, mainly manufacturing and labor. Signs of solid economic activity could help quell the volatility in the stock market and put a floor under Treasury yields.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending July 27, 2007

2007-07-28T08:33:00.000-07:00

Monday, July 23rd
Based on solid economic indicators excluding the housing sector, fed funds futures traders expect key short term rates to stay at 5.25% when the Fed meets in August. Traders are pricing in a 90% chance that the Fed will remain on hold at the October 30 meeting, up from 85% last week. In the second half of this year, mortgage equity withdrawal declines and slower consumption growth could keep the economy below its long-term potential of slightly below 3%.
Tuesday, July 24th
National mortgage lender leader Countrywide Financial revealed that more good credit borrowers are lagging on loan payments, and a housing market recovery may not start until 2009 because of housing prices declines not seen in decades. Countrywide's stark assessment signaled a change in how housing executives are publically describing the market. The comments initiated a steep stock market sell-off today, the most volatile in a year.
Wednesday, July 25th
Existing home sales fell 3.8% in June to an annual pace of 5.75 million, shy of an expected 5.87 million pace. Rising mortgage rates combined with tightening lending standards are quashing demand for homes. Inventories declined but at the weakened sales pace, the month's supply of homes for sale remained unchanged at 8.8. Median prices rose slightly for the first time in 11 months gaining 0.3% over the past year to $230,100. Credit market distress and a still high level of inventories mean that the correction in the housing market will continue.
The Fed's survey of economic conditions in the twelve Federal Reserve Banking Districts known as the beige book was mostly positive with most areas reporting moderate activity in June and early July. Gains in manufacturing and commercial real estate were offset by the drag from residential housing. Demand for loans also weakened. Consumer spending was modest with some districts reporting mixed results while labor markets remained strong. Cost pressures were evident across the board with almost every single region reporting higher oil and gas prices. Survey results showing a steady economy and contained inflation means the Fed will remain on hold when they meet next month and possibly through the remainder of this year.
Thursday, July 26th
New home sales plunged 6.6% in June to an annual rate of 834k. Expectations were centered on an annual rate of 900k. Over the past year sales have declined 22.3% and are 40% lower than their July 2005 peak. Regionally, home sales plunged in the Northeast, Midwest and West but climbed higher in the South. Inventories were unchanged last month but because of the reduced sales pace the month's supply rose to 7.8 from 7.4 in May. Home prices were mixed with median prices down 2.2% to $237,900 and average prices climbing 3.7% to $316,200. The housing market is still searching for the trough. New home sales are expected to decline going forward as builders work off high inventory levels under weakened demand.
Bleak housing market demand and credit market risks placed downward pressure on rates this week. Housing demand is being stymied by tighter lending standards and a 40 basis point jump in average 30-year fixed rates in June. Rates eased this week though with 30-year fixed rate mortgages averaging 6.69% this week compared to 6.73% last week according to Freddie Mac's mortgage market survey.
Friday, July 27th
Economic growth rebounded in the second quarter as GDP grew at a 3.4% annual rate, compared to an anemic pace of 0.6% in the first quarter. Less of a drag from housing, robust inventory building and stronger exports all contributed to the revived growth rate. Consumer spending however, slowed sharply. An economy wide inflation gauge slowed to 2.7% last quarter from 4.2% in Q1.

America's best jobs in the hottest markets

2007-07-25T10:06:00.000-07:00

I came across this article and wanted to share it with you. CNN Money Magazine identified Phoenix as #5 nationally in forecasting 2 yr job growth

America's best jobs in the hottest marketsThe great American hiring boom is slowing down--but as labor cools with the rest of the economy, a few choice regions will stay red-hot. You just have to know where to look.By Paul Kaihla, Business 2.0 Magazine senior writer - CNN Money Magazine

Phoenix ranks #5
2-year job-growth forecast: 5.6%
Metropolitan-area population: 4.0 million
Who's hiring now: ASU, Banner Health, suburban schools
Hottest jobs: Senior software developer ($84,800), IT project manager ($78,600), semiconductor process engineer ($78,000), physician's assistant ($76,200), construction project manager ($74,000)
In each of the past three years, the Phoenix area has created about 95,000 new jobs, many of them fueled by an unprecedented construction boom. This year's number is pegged at about 60,000--a major drop-off, to be sure, but still enough in the context of the national slowdown to place Phoenix solidly in the top 10. Low income taxes and sunny weather are still attracting a steady stream of newcomers, primarily from the Northeast and Midwest; 114,000 are expected this year, continuing to stoke demand for new roads, schools, and health-care facilities. So while Phoenix's homebuilding sector will likely be down about 40 percent in 2007, employment linked to long-term infrastructure projects will stay hot. Still, Phoenix remains largely a mom-and-pop economy, with small business expected to drive most of the job expansion.

Economic Highlights for the Upcomming Week July 27, 2007

2007-07-23T15:09:00.000-07:00

The financial markets will be keen on new and existing home sales data in the coming week for the latest reading on the state of the housing market. Also important to the outlook and the direction of interest rates is the advance estimate of second quarter GDP due out on Friday.

Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 8.25% 8.25%
Fed Discount 6.25% 6.25% 6.25%
Fed Funds 5.25% 5.24% 5.25%
11th District COF 4.293% 4.358% 3.884%
10-Year Note 4.96% 4.77% 5.07%
30-Year Treasury Bond 5.06% 4.86% 5.11%
30-Yr Fixed (FHLMC) 6.73% 6.23% 6.80%
15-Yr Fixed (FHLMC) 6.38% 5.98% 6.41%
1-Yr Adj (FHLMC) 5.72% 5.51% 5.80%
6-Mo Libor (FNMA) 5.3817% 5.3651% 5.6382%

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending July 20, 2007

2007-07-23T08:11:00.000-07:00

Monday, July 16th
Fears of subprime repercussions on the broader economy increased the possibility of a fed rate cut by year end. Consumer spending, a primary driver of economic activity, has also faltered on weaker housing markets. While no rate change is expected at the next two meetings in August and September, a slight 15% chance of a rate cut is being priced in for the October meeting up from no chance a few weeks ago.
Tuesday, July 17th
The producer price index fell 0.2% in June following an oversized 0.9% gain in May. The unexpected decrease was related to falling food and energy prices. Gasoline prices fell 3.9% last month. Excluding food and energy from the index, core producer price rose 0.3% on the month and rose 1.8% on the year, still within the Fed’s target zone for inflation.
Industrial production rose 0.5% in June on a robust 0.6% gain in manufacturing output. Utilities and mining output also gained 0.3% and 0.5% respectively. Stronger output pushed capacity utilization higher to 81.7% from 81.4% in May. These data confirm a strong second quarter rebound with tighter resource utilization.
The NAHB housing market index sank to 24 in July from a level of 28 in June. Home builders rate present single family sales and sales six months from now much lower while foot traffic through model homes decreased. Such a low level of home builder sentiment portends weaker new home construction and sales in the months ahead.
The Federal Reserve in conjunction with state authorities announced a plan today to regulate subprime mortgage lenders by conducting compliance reviews to uncover possible abuses in subprime lending practices. Regulators will analyze underwriting standards and cross reference them against consumer protection laws and take enforcement actions where necessary. The pilot program, targeting about a dozen lenders will begin in the fourth quarter of this year.
Wednesday, July 18th
The consumer price index increased 0.2% in June on a 0.5% decline in energy prices. Excluding food and energy from the index, core consumer prices rose 0.2% on the month to bring the yearly gain to 2.2%. The annual gain in the core rate is still out of the Fed’s comfort zone but it has receded somewhat in the past few months.
Housing starts increased 2.3% to 1.467 million in June. Single family starts declined 0.2% to 1.151 million while multifamily starts surged 12.9% to 281,000. Permit issuance, often used as a proxy for future building activity, fell 7.5% to 1.406 million. New construction activity is expected to decline further in coming months as the housing market continues its search for the bottom.
The MBA mortgage applications index fell 0.9% to 631.6% for the week that ended July 13. The purchase index slipped 1.6% while the refi index gained 4.9%. Application activity remains healthy but its direct correlation to actual sales and refinancing appears to be tenuous during this housing market correction.
Thursday, July 19th
Mortgage rates were little changed this week on contained inflation expectations. Both core consumer and producer price gains over the last year were moderate. Chairman Bernanke indicated in testimony this week that the Fed expects inflation to continue to moderate further from here. 30-year fixed rate mortgages averaged 6.73% this week, the same as last week according to Freddie Mac's mortgage market survey.
Jobless claims fell 8k to 301k for the week that ended July 14. The low level of claims suggests healthy labor market conditions but with a slightly weaker pace of hiring this year compared to 2006 trends.

Economic Highlights for the Week Ending April 13, 2007

2007-04-16T09:54:00.000-07:00

Monday, April 9th
The economy created 180,000 new jobs in March according to Labor market data released last Friday. The stronger than expected gain last month followed upward revisions in the prior two months for a net job gain of 32,000. Average hourly earnings increase 0.3% on a monthly basis and are up 4.0% over the past year. The unemployment rate dropped to 4.4% from 4.5% in February. Such low joblessness could result in upward wage pressures going forward.
Tuesday, April 10th
Money magazine reported that option ARMs, no-doc and other exotic loans still have a market despite the recent subprime sector drubbing. Brokers are still finding banks willing to lend to borrowers with average credit scores who want riskier mortgages. Nearly 40% of loans made in 2006 fell into the subprime or Alt-A category.
Wednesday, April 11th
The FOMC minutes from the March 20/21 meeting provided more detail on the Fed's economic and interest rate outlook and policy stance. The Fed said that inflation remained uncomfortably high with risks biased to the upside while downside risks to growth remained because of sluggish business investment. Policymakers changed the policy statement language so as to increase policy response flexibility because of increased risks to both inflation and growth. However; in the minutes they indicated that rate increases may prove necessary.
The National Association of Realtors projects that existing home sales will fall 2.2% in 2007 to 6.34 million while new home sales will drop 14.2% to 904,000. Previous forecasts called for a 0.9% decline in existing home sales and a 10.4% decline in new home sales. Slower sales will weigh on appreciation rates. The median existing home sales prices is expected to decline 0.7% this year to $220,300 while median new home prices are expected to increase 0.4% to $246,200.
The MBA mortgage applications index fell 0.4% to 646.6% for the week that ended April 6. In a hopeful sign for the spring selling season, purchase applications increased 2.7% during the week. The refinance index tumbled 4.0% last week under higher mortgage interest rates.
Thursday, April 12th
Import prices jumped 1.7% in March due to a 9.0% surge in petroleum prices. Excluding petroleum, import prices rose just 0.3%. Over the past year import prices have increased 2.8% while petroleum prices increased 2.4%. Outside of the energy complex, imported goods inflation remains moderate.
Chain store sales surged 5.9% in March from March one year ago according to the International Council of Shopping Centers. Most retail segments posted strong results with the exception of furniture store sales which fell 13.5%. An early Easter shifted holiday sales to March; consequently, sales are expected tumble in April. Jobless claims increased 19k to 342k for the week that ended April 7.
The outsized gain last week was related to seasonal effects of the Easter holiday. Looking ahead, volatility in claims is expected to continue amid increased construction job layoffs and slower economic conditions.
Lenders raised mortgage rates last week as yields in the bond market moved higher on data showing stronger than expected payroll gains in March. 30-year fixed rate mortgages averaged 6.22% this week compared to 6.17% last week according to Freddie Mac's mortgage market survey.
Friday, April 13th
The producer price index shot up 1.0% in March led by higher food and energy costs. Food prices increased 1.4% while energy costs jumped 3.6% over the last month. Overall producer prices have increased 3.1% over the past year. Excluding food and energy prices from the index, the core PPI was unchanged in March and rose a mild 1.6% over the past year.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12612.13 12560.20 +51.93 or +0.41%
NASDAQ 2491.94 2471.34 +20.60 or +0.83%

Economic Highlights for the Week Ending April 6, 2007

2007-04-09T10:13:00.000-07:00

Monday, April 2nd
The ISM manufacturing index fell to 50.9% in March from 52.3% in February. The level of the index portrays sluggish activity as manufacturers continue to work through an inventory correction cycle.
The economic data ran the gamut last week from weaker new home sales to stronger incomes and spending to robust, regional manufacturing activity. Also the Fed Chairman reiterated the need for vigilance against inflation and flexibility in monetary policy response. Interest rate expectations were little changed amid mixed economic data and Bernanke's remarks last week. Fed funds futures traders are expecting no change in the fed funds rate for the next three meetings in May, June and August. Traders have priced in roughly a 60% chance of a rate cut in September and fully priced in a cut at the October meeting.
Tuesday, April 3rd
The NAR reported that its pending home sales index rose to 109.3% in February from 108.5% in January. The index represents the number of signed contracts in February and is considered a leading indicator of existing home sales. The unexpected gain in the index should result in fairly stable demand for exiting homes in the next month or two.
Motor vehicle sales fell to a seasonally adjusted annual pace of 16.3 million units in March, down from a pace of 16.6 million in February. Weak fleet sales weighed on domestic auto manufacturers sales results last month while Toyota's sales increased 12%. Also, car sales rose modestly while truck sales declined as consumers shopped for more fuel efficient models.
Wednesday, April 4th
The ISM non-manufacturing index fell to 52.4% in March from 54.3% in February. Expectations were for a mild gain. Business activity in the service sector has slowed sharply in the last year or so but continues to expand modestly. This is in part related to the housing market correction. Weakness is expected in service sector growth going forward as the overall economy continues to slow.
Factory orders rose 1.0% in February after a 5.7% decline in January. A downward revision to durable goods orders led to the slower than expected increase in factory activity in February. The factory sector continues to pare down inventories under weakened demand. Manufacturing weakness will continue to detract from economic growth in Q1, possibly more so than in Q4.
The MBA mortgage applications index fell 3.2% to 649.5% for the week that ended March 30. Both purchase and refinancing activity decreased on the week but refinancing activity was up 27.9% from year ago levels. The purchase index was 8.1% below its year ago level. The decline in mortgage application activity indicates weaker housing fundamentals. The housing market is expected to weaken further this year before mounting any significant rebound.
Thursday, April 5th
Mortgage rates edged higher last week but gains were limited as the financial markets weighed the most recent economic data. The data remains mixed and the outlook for interest rates, the housing market and the economy is unclear. 30-year fixed rate mortgages averaged 6.17% this week compared to 6.16% last week according to Freddie Mac's mortgage market survey.
Jobless claims increased 11,000 to 321,000 for the week that ended March 31. Despite the gain, the four week moving average which smoothes out weekly volatility, continues to trend lower. Higher claims suggest additional layoffs last week however, the level of jobless claims remains relatively low indicating still tight labor market conditions.
Friday, April 6th

GOOD FRIDAY
Equity Markets Closed

Economic Highlights for the Week Ending March 30, 2007

2007-04-04T10:27:00.000-07:00

Monday, March 26th
New home sales fell 3.9% in February to an annual rate of 848,000 after plunging 15.8% in January. Weaker sales and rising inventories indicate that the housing market remains mired in its correction. Looking forward, expect continued weakness as builders sell off excess inventories amid slower demand and tighter credit standards.
Tuesday, March 27th
The leading measure of U.S. home prices showed year over year declines for the first time in 11 years. The S&P Case/Shiller (CSI) house price index covering 10 metro areas fell 0.7% in January from a year earlier while the index of 20 major metros was down 0.2%. The growth rate of the 10 metro composite index is at its lowest level since 1994.
The consumer confidence index fell to 107.2% in March from 111.2% in February. Waning consumer optimism was related to the recent jump in gas prices. Consumers indicated their confidence in current conditions but downgraded their expectations for the future.
Wednesday, March 28th
In testimony to the Joint Economic Committee today Fed Chairman Ben Bernanke said that the Fed continues to see higher inflation as the predominate risk to the economy but that downside risks to growth have increased on housing market weakness and softer business spending. The Chairman indicated the change of language in the last policy statement reflected these uncertainties and injected more flexibility into policy decisions. Bernanke believes the subprime situation will remain contained and that for now, steady monetary policy is the correct path to take for the economy.
The MBA mortgage applications index slipped 0.2% to 671.0% for the week that ended March 23. Purchase activity increased marginally last week while refinancing activity decreased. Nevertheless, refinancing applications were 41.0% above their year ago level.
Thursday, March 29th
Growth was slightly stronger in the fourth quarter compared to previous estimates. GDP grew at an annualized pace of 2.5% in Q4, up from 2.2% in the preliminary estimate. Inventory investment was not as weak as estimated and net exports were stronger. Even with the upward adjustment, growth remains slow mainly due to the housing market correction which shaved a full percentage point from growth during the period.
Mortgage rates were little changed again this week as slower growth indicators offset higher inflation readings. 30-year fixed rate mortgages averaged 6.16% this week, the same as last week according to Freddie Mac's mortgage market survey.
Jobless claims fell 10k to 308k for the week that ended March 24. Lower jobless claims over the last several weeks indicate improvement in labor market conditions. However, improvements may be short lived as auto manufacturing and residential construction weakness will lead to more layoffs down the road.
Friday, March 30th
Personal income increased 0.6% in February while consumer spending expanded 0.6%. Both income and spending gains were higher than expected last month. Inflation accelerated in February. The core rate of inflation tracked in this data series grew 0.3% in February and was up 2.4% over the last year, still above the Fed’s comfort zone of 2.0%.
Construction spending increased 0.3% in February compared to expectations for a 0.5% decline. Strength in nonresidential and public construction spending led the gain in February but was not enough to offset residential construction weakness. Looking ahead, residential construction will continue to be a drag on quarterly economic growth through the first half of this year.

2006-12-15T16:31:00.000-07:00

Monday, December 11th
Stronger than expected payroll gains in November prompted the financial markets to pullback on rate cut expectations for next year. Fed funds futures traders are pricing in a very slim chance of a rate cut following the FOMC meeting at the end of January and odds of just 24% for an easing in March, down from about 70% earlier last week.
Tuesday, December 12th
The FOMC opted to hold monetary policy steady today, as widely expected, leaving the target for the fed funds rate unchanged at 5.25%. This is the fourth straight meeting the Fed has remained on hold. In the policy statement the committee acknowledged that recent economic data have been mixed and that the correction in the housing market has been substantial. Policymakers believe though, that the economy will continue to expand at a moderate pace going forward. The Fed said they still see elevated core inflationary pressures but that reduced energy prices, low inflation expectations, and previous tightening should help to contain inflation over time. As risks do remain, the FOMC stated that they would raise rates again if incoming data deemed it necessary.
Wednesday, December 13th
Retail sales surged 1.0% in November led by strong demand for electronics and appliances, building materials, gasoline and autos. Excluding the large and often volatile auto and gas segments, retail sales still gained 0.9%. A strong start to the holiday shopping season should provide a lift to Q4 economic growth as well.
The MBA mortgage applications index jumped 11.4% to 721.2% for the week that ended December 8. Purchase activity was up 8.7% on the week while refinancing application volumes soared 15.8%. Purchase apps remain 3.0% below their year ago levels but refinancing applications are up an astounding 59.8% primarily due to homeowners converting their adjustable rate mortgages and locking in fixed rates.
Refinancing activity is up but surprisingly not all ARM holders want to convert into a fixed rate mortgage. According to CNN Money, some people are considering interest only and payment option loans instead because they may not be able to afford a higher, fixed rate. While those types of financing may be good in some circumstances, mortgage professionals say there is a window of opportunity now because of a recent dip in average fixed rates. One-year ARMs currently average 5.43% while 30-year fixed rates are averaging just 6.11% according to Freddie Mac's mortgage market survey.
Thursday, December 14th
Import prices rose 0.2% in November despite another drop in petroleum prices, which fell 1.6% on the month. Crude oil prices have risen since the data was collected and will result in higher import prices in December.
Mortgage rates edged slightly higher this week on recent economic reports for November showing stronger job creation and retail sales. 30-year fixed rate mortgages averaged 6.12% this week compared to 6.11% last week according to Freddie Mac's mortgage market survey. Historically low mortgage rates last week pushed mortgage application volumes to their highest levels this year.
Jobless claims tumbled 20k to 304k for the week that ended December 9. Initial claims have regained their previous low level which suggests relatively tight labor market conditions with moderate monthly payroll gains. Jobless claims have averaged 312k a week this year compared to 332k a week in 2005.
Friday, December 15th
Consumer prices were unchanged in November, less than estimates for a 0.2% gain. A 0.2% decline in energy costs helped to stabilize overall prices last month. The CPI has gained 2.0% over the past year. Excluding food and energy from the index core consumer inflation was also unchanged in November. Over the past year, the core rate has run at a 2.6% pace. Certainly with inflation well contained the Fed will not be compelled to raise rates, as alluded to in the last policy statement.
Industrial production increased 0.2% in November, slightly better than expected. Gains in manufacturing output offset declines in mining and utilities. Capacity utilization rates remained unchanged last month at 81.8%. Despite the gain last month, industrial activity continues to slow along with usage rates. Slower resource utilization will help to ease pricing pressures going forward.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12445.52 12307.49 +138.03 or +1.12%
NASDAQ 2457.20 2437.36 +19.84 or +0.81%
WEEK IN ADVANCE
The inflation outlook is improving as we head into 2007 which potentially means continued low interest rates. This week's economic calendar provides more data on the inflation front as well as home building, manufacturing and consumer attitudes.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending December 8, 2006

2006-12-11T10:13:00.000-07:00

Monday, December 4th
The NAR's pending home sales index fell 1.7% in October after a 1.1% drop in September. The index measures the number of signed contracts and is considered a leading indicator of existing home sales. Recent index declines suggest that after rebounding in October, existing home sales will be softer in November and December.
Weaker than expected economic conditions heading into the fourth quarter combined with other signals such as a weaker dollar and reduction in the yield curve inversion have increased rate cut expectations. While the Fed is expected to remain on hold when they meet next week chances have increased to 25% for a rate cut at the end of January with fed funds futures traders pricing in roughly a 70% chance of easing following the conclusion of the March meeting.
Tuesday, December 5th
The ISM non-manufacturing index increased to 58.9% in November from 57.1% in October. Expectations were for a small decline to a reading of 56.0%. The level of the index suggests that the service producing sectors of the economy are expanding nicely and are expected to extend gains through the holiday season. Some deceleration in activity is expected post-holidays.
Productivity was upwardly revised to show a 0.2% rate of growth in the third quarter rather than a flat reading in the preliminary estimate. Even with the revision, growth in productivity was slower than expected. Also, longer term growth is down as well with productivity gaining just 1.4% over the past year compared to an average yearly gain of 3.1% since 2000. Inflation news was good as unit labor costs were downwardly revised to 2.3% in Q3 vs. 3.8% originally.
Wednesday, December 6th
The MBA mortgage applications index jumped 8.1% to 647.6% for the week that ended December 1. The purchase index was up 4.9% on the week while the refinance index surged 13.9%. The gain in the purchase index reflects more stable home buying activity while the gain in the refinance index is mostly attributable to homeowners converting their adjustable rate mortgages and locking in fixed rates.
Thursday, December 7th
Consumer credit declined $1.2 billion in October and is growing at a 4.2% rate over the past year. The decline was led by the non-revolving credit category which fell by $4.2 billion due to softer vehicle sales during the month. Revolving credit outstanding increased $2.9 billion in October. Cash out refinancing activity has limited consumer credit growth. Strong refinancing activity has been driven lately by homeowners, facing resets on their adjustable rate mortgages are looking to lock in fixed rates.
Jobless claims tumbled 34k to 324k for the week that ended December 2. This week's decline almost totally reverses last week's gain. Claims data tends to be volatile during the holidays and severe winter weather. Nevertheless, the level of claims is consistent with fairly tight labor market conditions and modest monthly payroll gains.
Mortgage rates slipped again this week on continued signs of slowing in the housing market and weakness in the manufacturing sector. 30-year fixed rate mortgages averaged 6.11% this week compared to 6.14% last week according to Freddie Mac's mortgage market survey. Economists at Freddie Mac project that the correction in the housing market is about two-thirds of the way through and with conditions stabilizing around mid-2007.
Friday, December 8th
The economy created 132,000 new jobs in November, higher than expectations for a gain of 110,000. Moreover, revisions in the prior two months resulted in a net 42,000 more jobs. Average hourly earnings rose 0.2% on the month, less than expected, while the average workweek remained unchanged at 33.9 hours. The unemployment rate climbed 0.1% to 4.5% of the workforce. Labor market strength was apparent but not so robust as to rekindle rate hike fears.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12307.49 12194.13 +113.36 or +0.93%
NASDAQ 2437.36 2413.21 +24.15 or +1.00%
WEEK IN ADVANCE
Unanimous expectations for steady monetary policy at the FOMC meeting Tuesday will put most of the attention on the statement following the meeting, as usual. Other data this week including retail sales, the consumer price index and industrial production will garner their share of attention as well and help to refine the economic and interest rate outlook going forward.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending December 1, 2006

2006-12-03T13:51:00.000-07:00

Monday, November 27th
The economic calendar yields a ton of data this week with housing sales figures and manufacturing performance highlighting.
Tuesday, November 28th
New orders for durable goods plunged 8.3% in October, after gaining 8.7% in September. The outsized decline was led by a huge drop in orders for civilian aircraft, though other categories of durable manufacturing were also weaker.
Consumer confidence fell to 102.9% in November from 105.1% in October. Slippage in attitudes and risks to confidence going forward are related to gasoline price movements and tight labor market conditions.
Existing home sales increased 0.5% in October to an annual rate of 6.24 million, better than an expected rate of 6.14 million. Despite the modest bounce last month home re-sales have been trending lower since peaking in summer of 2005 than a year ago and 14.2% below the record high set in June of last year.
Wednesday, November 29th
GDP grew at a 2.2% rate in Q3, up from 1.6% in the advance estimate. Stronger business and government spending and higher net exports led to the upward revision however, consumer spending and residential investment were weaker than first thought. Economy-wide inflation remained unchanged at an annualized rate of 1.8%.
New home sales tumbled in October as builders try to correct large inventories by slowing new construction. Sales of new homes fell 3.1% last month to an annual rate of 1.00 million units. Over the past year new home sales have declined 25.4%.
The MBA mortgage applications index fell 3.9% to 599.0% for the week that ended November 24. The purchase index rose 1.3% and has been over the 400% level for the past four weeks, suggesting some stabilization in home purchase activity. The refinance index plunged 9.6% on the week but remains 17.9% higher than a year ago indicating still strong refi activity related to homeowners locking in fixed rates.
The Fed's beige book, compiled in preparation for the December 13 FOMC meeting was surprisingly upbeat today with signs of softness reported in just housing and auto manufacturing. Other than those sectors, economic conditions were largely positive during the October to mid-November period. Based on this report and other data the Fed is widely expected to hold rates steady when they meet this month.
Thursday, November 30th
Personal income rose 0.4% in October, led by a 0.6% increase in wages and salaries. Consumer spending remained weak, up 0.2% on the month and just 5.0% on the year. A closely watched inflation gauge in this data series, the core PCE deflator gained 0.2% in October and 2.4% over the past year. The annual gain has receded recently but still remains somewhat elevated.
Mortgage rates dropped for the fifth time as 30-year fixed rates fell to 6.14% this week compared to 6.18% last week according to Freddie Mac's mortgage market survey. The 30-year fixed averaged 6.12% as of January 26 and was 6.26% one year ago. Economists at Freddie Mac note that lower rates combined with some softening in home prices should keep home purchase activity healthy going forward.
Friday, December 1st
The ISM manufacturing index fell to 49.5% in November from a reading of 51.2% in October. New orders, production, and employment were all below 50%. Also, the price index rose on higher energy costs. An index reading below 50% indicates contraction in the manufacturing sector and the economy. Historically, when the ISM index dips below the key 50% level, the Fed starts to cut interest rates.
Construction spending fell 1.0% in October, weaker than an expected decline of 0.4%. Weakness was concentrated in the private sector, more specifically the residential component. Declines in residential construction spending have been accelerating recently and will continue to subtract heavily from fourth quarter GDP.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12194.13 12342.56 -148.43 or -1.20%
NASDAQ 2413.21 2445.86 -32.65 or -1.33%

WEEK IN ADVANCE
The employment report Friday is the most important indicator on an otherwise light economic calendar this week. Payrolls take on added significance given recent, weaker data readings. While the Fed is widely expected to remain on hold this month, rate cut expectations are increasing for the first quarter of next year.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending November 17, 2006

2006-11-17T17:40:00.000-07:00

Monday, November 13th

Rate cut expectations have been tabled until later next year. A busy economic calendar will help refine the outlook this week starting with the producer price index and retail sales data tomorrow.
Tuesday, November 14th
Retail sales fell 0.2% in October better than an expected 0.4% decline. September sales were downwardly revised to show a decline of 0.8%. Weakness was led by a 6.0% drop in gasoline sales attributable to price declines in the past two months. The slowing housing market is also weighing on retail sales with declines in the categories of furniture/home furnishings and building materials/garden supplies.
The producer price index fell 1.6% in October, much more than expected as energy costs tumbled 5.0%. Excluding food and energy prices, the core PPI fell 0.9%, its steepest drop in more than 13 years, because of a sharp plunge in motor vehicle prices. Wholesale inflation has fallen 1.5% over the past year while the core rate gained just 0.7%, well within the range the Fed deems acceptable.
The NAR predicts the housing slowdown to continue into next year. NAR chief economist David Lereah forecasts a 12% drop in housing starts to a rate of 1.63 million for 2007. Housing starts will likely fall 11% this year. New home sales are expected to fall 8.7% next year to 975,000 after dropping 17% this year. Existing home sales will probably fall 0.6% to 6.43 million next year after falling 8.6% this year. Median prices for existing homes are projected to rise 1.7% in 2007 while new home prices are expected to gain 1.3%.
Wednesday, November 15th
The MBA mortgage applications index rose 4.3% to 647.5% for the week that ended November 10. The purchase index rose 2.7% last week while the refinance index jumped 6.5%. Refinancing volume is 18.8% above its year ago level mainly due to homeowners converting their adjustable rate mortgages and locking in relatively low, fixed rates.
Thursday, November 16th
Consumer inflation fell for the second straight month because of energy price declines. The consumer price index fell 0.5% in October, deeper than an expected decline of 0.3% as energy prices tumbled 7.0%. The CPI has gained a modest 1.3% over the past year while energy prices fell 11.2%. Excluding food and energy from the index, the core CPI gained 0.1% on the month and 2.7% in the last year, improved somewhat but still elevated.
The NAHB housing market index increased 2 points in November to a level of 33. Its second straight monthly increase follows eight months of sharp declines. Homebuilders are feeling a bit better and rated present sales and sales six month from now higher while the traffic through model home increased. Nevertheless the level of the index remains low buts its improvement could point to more stable housing market conditions in coming months.
Mortgage rates fell this past week in tandem with a strong bond market rally that lowered yields significantly. Bond market gains were made on signs of slower economic growth containing inflation. 30-year fixed rate mortgages averaged 6.24% this week compared to 6.33% last week according to Freddie Mac's mortgage market survey. The decline in mortgage rates combined with slightly improved homebuilder sentiment and strong mortgage application activity all point to an upcoming moderation in housing market slowdown.
Friday, November 17th
New residential construction starts in October fell to their lowest level since July of 2000 despite tentative signs of stabilizing housing market conditions. Housing starts plunged 14.6% last month to a rate of 1.49 million. Expectations were centered on a more modest decline to a rate of 1.68 million. The steep decline in housing starts last month will likely detract from third quarter and possibly fourth quarter economic growth. Near term downside risks aside, the abrupt slowing in new starts will help to reduce large inventories of new homes more rapidly resulting in a rebound in residential investment sooner rather than later.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12342.56 12108.43 +234.13 or +1.93%
NASDAQ 2445.86 2389.72 +56.14 or +2.35%

WEEK IN ADVANCE
A quiet holiday shortened week will provide little fodder to digest with regards to the interest rate and economic outlook. Data releases pick up in the post holiday week with one more FOMC meeting left in mid-December, as the financial markets head into year's end.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending November 10, 2006

2006-11-13T08:26:00.000-07:00

Monday, November 6th
The interest rate outlook ran the gamut last week with weak data at the start increasing rate cut expectations substantially and the employment report Friday replacing that with an on hold scenario through the first quarter of 2007. Fed funds futures traders are fully pricing in a stable fed fund target rate of 5.25% through January and less than 20% odds of a rate cut at the March FOMC meeting.
Tuesday, November 7th
Two major homebuilders, Toll Brothers and Beazer Homes reported order declines of more than 50% in their latest fiscal quarters. Both builders continued to struggle with high inventories, slower demand for new homes, sharply higher cancellation rates and steep discounting. More evidence of slowing housing market conditions and its impact on the broader economy will continue to place downward pressure on rates.
Consumer credit outstanding fell $1.2 billion in September driven primarily by a $4.1 billion decline in non-revolving credit, which is comprised mostly of car loans. Revolving credit or credit cards increased $2.9 billion during the month. Cash-out refinancing boosted by a drop in rates over the summer, continues to limit consumer credit balances. As the housing market slows in coming months, consumers may again turn to revolving credit usage to support spending.
Wednesday, November 8th
The MBA mortgage applications index jumped 8.8% to 620.9% for the week that ended November 3. The purchase index surged 7.1% on a recent drop in mortgage interest rates. The refinance index surged 11.0% as homeowners moved to lock in fixed mortgage rates. Purchase application volumes remain 13.6% below year ago levels but refinancing activity is actually up 5.5% over last year.
Thursday, November 9th
Import prices tumbled 2.0% for the second straight month in October, more than double estimates. The outsized decline last month was again led by falling petroleum prices which were down 8.3% in October after a 9.7% decrease in September. Excluding petroleum, import prices still fell 0.6% on the month. Import price declines bode well for upcoming consumer and producer price reports.
The international trade deficit on goods and services fell 6.8% in September to $64.3 billion from a record high of $68.96 billion in August. The improvement in the trade gap was due to less expensive crude and lower import oil volumes during the month. Lower energy prices should help limit the growth in the trade deficit in coming months. A narrower than expected trade gap in September will likely result in an upward revision to third quarter GDP growth.
Consumer sentiment fell 1.3 points to 92.3% in its preliminary reading for November. The slight drop in sentiment followed sharp gains in the prior two months which arrested the downward trend in sentiment that had been in place over the last two years. It appears that as gasoline prices have stabilized so have consumer attitudes. The final reading for November sentiment will be released in two weeks.
Jobless claims fell 20k to 308k for the week ending November 4. Lower than expected unemployment filings last week indicate relatively tight labor market conditions and stable, if moderate pace of hiring.
Mortgage rates drifted higher this week on evidence of underlying strength in recently released economic data. 30-year fixed rate mortgages averaged 6.33% this week compared to 6.31% last week according to Freddie Mac’s mortgage market survey. Slow economic growth in the current quarter has kept a lid on interest rate gains. Economists at Freddie Mac expect fourth quarter growth to rebound moderately although the increase is expected to come from sectors of the economy other than housing.
Friday, November 10th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12108.43 11986.04 +122.39 or +1.02%
NASDAQ 2389.72 2330.79 +58.93 or +2.53%
WEEK IN ADVANCE
A full economic calendar next week yields the latest data on inflation, consumer spending, manufacturing and new home construction starts. Data results will be weighed against current outlook for economic slowing and possible rate cuts next year.

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending November 3, 2006

2006-11-05T14:51:00.000-07:00

Monday, October 30th
Personal income rose 0.5% in September, better than expected, led by a healthy 0.5% gain in wages and salaries. Personal consumption increased just 0.1% last month but gained 5.5% year-over-year which is in line with longer term averages. A closely watched inflation gauge contained in this data series the core PCE deflator gained 0.2% on the month and 2.4% on the year, which is higher than the 1-2% range the Fed would like to see.
Tuesday, October 31st
Consumer confidence fell a half a point to 105.4% in October from a revised reading of 105.9% in September. The weaker than expected reading was due to lower ratings of current conditions and the job market. Consumer expectations gained modestly. Confidence levels are expected to remain range bound in the near term with downside risk associated with slower job growth and housing market declines.
More weak economic readings today increased rate cut expectations for March of next year. While fed funds futures traders expect no change in rates through the FOMC meeting in late January, odds of a rate cut in the fed funds target to 5.0% at the March meeting are currently being priced in at 73%.
Wednesday, November 1st
The ISM manufacturing index fell to 51.2% in October from 52.9% in September. Manufacturing activity has slowed considerably over the past six months or so. New orders and production fell which does not bode well for future activity. Prices dropped off during the month alleviating inflation concerns. It looks as though the Fed's forecasts of slowing economic conditions containing inflation are on the mark and will open up the possibility of a rate cut sooner rather than later.
Motor vehicle sales fell 2.8% in October to an annual rate of 16.2 million, roughly in line with expectations. The pace of vehicle sales remains anemic. Production schedules will be cut again in Q4 as automakers contend with rising inventories and weak earnings. Weak auto sales and production are likely to detract from Q4 GDP growth.
Construction spending fell 0.3% in September, lower than expected. The decline was led by a 1.1% drop in residential construction. Total construction expenditures are 2.9% higher than a year ago while residential construction is down 6.9% during the same period.
The MBA mortgage applications index fell 3.0% to 570.8% for the week that ended October 27. The purchase index was down 1.8% on the week while refinancing applications declined 4.5%. After falling sharply between mid 2005 and mid 2006, application activity appears to have stabilized in the last three months, suggesting the sharp downturn in housing activity could subside in the months ahead.
The pending home sales index fell 1.1% in September after increasing 4.7% in August. The index tracks signed sales contracts and is considered a leading indicator of existing home sales. Despite recent volatility, the index has improved in the last two months due to lower rates and softer home prices. Improved fundamentals will continue to support home turnover at current levels in the coming months.
Thursday, November 2nd
Productivity was flat in the third quarter compared to expectations for a 1.2% gain. Over the past year, productivity has increased just 1.3% decelerating sharply in recent quarters. Unit labor costs increased 3.8% on the quarter, higher than expected but downshifted from 5.4% growth in the second quarter.
Friday, November 3rd
Payrolls increased by just 92k in October, missing estimates for a 130k gain. However, upward revisions in the previous two months resulted in a net increase of 139k additional jobs. Even with the revisions, job growth is trending lower in the past year. Hourly earning rose 0.4% on the month, higher than expected. The yearly gain of 3.9% in hourly earnings is also on the high side. The unemployment rate dropped to 4.4% of the workforce which indicates fairly tight labor market conditions.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11986.04 12090.26 -104.22 or -0.86%
NASDAQ 2330.79 2350.62 -19.83 or -0.84%

WEEK IN ADVANCE
Rate cuts are off the table based on data showing underlying economic strength with increasing inflationary pressures. The financial markets will likely adopt a 'wait and see' mode in the coming

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending October 27, 2006

2006-10-28T09:41:00.000-07:00

Monday, October 23rd
Financial markets are speculating the Fed could sound an inflation alarm that could require further rate increases. After pricing in, at the highpoint September 25, a 46% chance of a rate cut for early next year, fed fund futures traders are now pricing in 18% odds of a rate hike.
Tuesday, October 24th
A $20 billion, 2-year note auction was met with strong demand today. The notes were awarded a high yield of 4.894% and received a 2.91 bid-to-cover ratio compared to 2.77 last month. Indirect bidders which include foreign central banks accounted for 31% of the accepted bids today. Treasuries drifted slightly higher in trading Tuesday as the bond market awaited additional Fed guidance tomorrow. In late trading the 10-year note was up 3/32 to 100-13/32 to yield 4.82%.
Wednesday, October 25th
Existing home sales, which includes single-family, town homes, condominiums and co-ops fell 1.9% in September to an annual rate of 6.18 million. Consensus estimates were for a smaller decline to a rate of 6.26 million. Over the last year, home re-sales have declined 14.2%. While it looks as though the market has bottomed, the risks to the outlook remain to the downside. Affordability issues, overcome in the past by low interest rates and creative financing, as well as spent-up demand may continue to impede home sales going forward.
The MBA mortgage applications index rose 0.5% to 588.6% for the week that ended October 20. Purchase application activity slipped 0.6% while refinancing volume rose 1.8%. Mortgage rates have climbed higher in the past few weeks and are slowing the pace of application activity. However, the current level of the MBA index suggests some stabilization in housing market conditions.
The FOMC kept the target for the fed funds rate stable at 5.25% as widely expected today. This was the third straight meeting policy makers remained on hold to further evaluate the impact of the previous 17 rate hikes and other factors influencing the economic outlook. The much anticipated policy statement showed a few minor changes in the language. The Fed first acknowledged the slowing pace of economic growth this year, attributable in part to cooling in housing sector. The economy is expected to continue expanding at a moderate pace. Inflation risks do remain, but seem likely to moderate over time on lower energy prices and previous policy adjustments. The Committee left the door open for additional firming if necessary based on the evolution of economic data on growth and inflation. Economists and analysts agree that from all indications the Fed will remain on hold for an extended period of time.
Thursday, October 26th
New home sales jumped 5.3% in September to an annual rate of 1.075 million. This was the second month in a row that new home sales increased, however both were related to sharp downward revisions in previous months. Even with the increases, new home sales are trending lower and remain 14.2% below sales levels seen last year.
Durable goods orders surged 7.8% in September compared to an expected increase of 1.4%. Demand for big ticket items was led by orders for civilian aircraft last month. Excluding the transportation component, durable goods gained 0.1%. Despite the volatility and some softness in the third quarter, manufacturing activity is poised to pick up in the fourth quarter based on the strength of new orders.
Friday, October 27th
Economic growth in the third quarter fell to its slowest pace in three years weakened primarily by a sharp decline in residential investment. 3Q GDP grew at a 1.6% annual pace compared to 2.6% growth in Q2. Residential investment plunged 17.4% during the quarter which shaved 1.1 points off of total GDP growth. Net exports and inventories also detracted from growth. Positive contributors were consumer spending and business investment. The price index contained in this data series fell to 1.8% in Q3 from 3.3% in Q2.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12090.26 12002.37 +87.89 or +0.73%
NASDAQ 2350.62 2342.30 +8.32 or +0.35%
WEEK IN ADVANCE
The economic calendar is jam-packed next week with indicators from all corners of the economy. So far the Fed's projections of slowing economic growth due to a cooling housing sector helping to control inflationary pressures, are playing out and data in the coming week will be weighed against that scenario.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 7.75% 6.75%
Fed Discount 6.25% 5.75% 4.75%
Fed Funds 5.25% 4.74% 3.76%
11th District COF 4.277% 3.604% 2.870%
10-Year Note 4.67% 5.07% 4.55%
30-Year Treasury Bond 4.79% 5.15% 4.77%
30-Yr Fixed (FHLMC) 6.40% 6.58% 6.15%
15-Yr Fixed (FHLMC) 6.10% 6.21% 5.69%
1-Yr Adj (FHLMC) 5.60% 5.68% 4.91%
6-Mo Libor (FNMA) 5.3704% 5.1196% 4.2154%
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Real Estate Outlook: Buyers Take Note

2006-10-25T11:30:00.000-07:00

One of the country's top housing economists has come out with a new forecast and timeline for the market over the coming months - and it's got some great insights for anybody interested in real estate.
Dr. David Seiders, chief economist for the National Association of Home Builders, says that housing starts are now down by about 20 percent from levels a year ago - but that should be no surprise.
After all, he says, after years of record housing production, the market had to cool off, "We are in the midst of an inevitable adjustment following boom years when housing market activity soared to unsustainable levels. The market that emerges from the current correction will display good balance between supply and demand, and move to a sustainable trend based on solid underlying fundamentals."
How soon might the turnaround begin? Well, nobody can answer that for certain, but based on his research, Dr. Seiders believes that the end of the down cycle may only be a matter of months away - sometime next spring is a real possibility in many areas.
In the meantime, Dr. Seiders sees an upside for consumers: If you've done your homework on your local market - and you know what's sitting unsold at what price and on what size lot - this may be a very opportune time to get off the sidelines and start making offers.
One important reason why: Dr. Seiders points out that the vast majority of local markets around the country have solid underlying economic fundamentals: Housing may be soft, but - jobs are growing. Household incomes are moving up - and inflation is under control.
Unlike some earlier cyclical downturns, such as the early 1990s recession years, the correction this time around is likely to be relatively brief and not so deep - as long as mortgage rates stay where they are, about a point above historic lows. Corrections could be deeper and longer in those markets where prices got most out of sync with local incomes, but even the majority of those metropolitan areas on the West and East coasts have relatively strong employment bases this time around.
Which raises a very basic question in my mind: When just about every economist in the country is telling us that - we're in a buyer's market, but that the down cycle may not last all that long - isn't this a smart time to be actively involved in real estate, searching for deals?
Written by Kenneth Harney

Real Estate Outlook: Buyers Take Note

2006-10-25T11:26:00.000-07:00

Economic Highlights for the Week Ending October 20, 2006

2006-10-23T08:16:00.000-07:00

Monday, October 16th
The slowing in the housing market will be watched closely in coming weeks for its broader impact on the economy. The biggest impact could come from the lessening of the wealth effect whereby consumer spending increases along with strong price appreciation and equity extraction. Also, housing related job losses for the most part have yet to show up in labor statistics. Economists expect the housing slowdown to subtract up to 1.0% from GDP in the last half of this year.
Tuesday, October 17th
Producer prices fell 1.3% in September, steeper than an expected 0.7% decline. The drop was predicated on an 8.4% tumble in energy prices during the month. Excluding food and energy from the index core producer prices rose 0.6% based primarily on higher vehicle prices. Over the past year, core producer prices increased at a modest 1.3%, about half of the core rate seen just one year ago.
Industrial production fell 0.6% in September compared to expectations for a 0.1% decline. Weakness was concentrated in utilities output which plunged 4.4% on the month. Manufacturing output fell just 0.3% while mining production gained 0.7%. Capacity utilization fell to 81.9% last month from 82.5% in August which helps to alleviate tight resource usage and possible inflationary pressures.
The NAHB housing market index gained a point to 31 in October in its first increase in a year. Nevertheless, the level of the index remains quite low signaling poor assessments of the housing market by major homebuilders. New home construction is expected to continue slowing until housing affordability improves.
Wednesday, October 18th
The consumer price index fell 0.5% in September based on a 7.2% drop in energy prices. Energy prices have now declined 4.5% over the past year which has dropped the yearly gain in consumer prices to 2.1%. Excluding food and energy, core consumer prices rose 0.2% on the month and are now up 2.9% on the year which is higher than the Fed's comfort zone. Even so, the Fed will hold rates steady when they meet next week. Slower economic conditions will work to ease inflationary pressures going forward.
New residential construction starts rebounded in September. Housing starts jumped 5.9% last month to a seasonally adjusted annual rate of 1.772 million units. Expectations were centered on a mild decline and a rate of 1.64 million. Even with recent gains, housing starts are 21.8% lower than their peak reached in January.
The MBA mortgage applications index fell 2.2% to 585.8% for the week that ended October 13. Rates moved higher last week resulting in a 5.3% drop in refinancing applications. Purchase apps edged 0.4% higher on the week. Mortgage demand appears to be leveling off as mortgage rates stabilize in the mid-6% range.
Thursday, October 19th
Mortgage rates were little changed this week ahead of the FOMC meeting next week where the Fed is largely expected to hold rates steady. The policy statement following the meeting could help to clarify the economic and interest rate outlook. 30-year fixed rate mortgages averaged 6.36% this week compared to 6.37% last week according to Freddie Mac’s mortgage market survey.
Jobless claims fell 10k to 299k for the week that ended October 14. The unexpected and sizable drop in the number applying for unemployment insurance suggests resiliency in labor market conditions. The level of claims suggests payroll gains for October could be stronger than in recent months.
Friday, October 20th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12002.37 11960.51 +41.86 or +0.35%
NASDAQ 2342.30 2357.29 -14.99 or -0.64%
WEEK IN ADVANCE
A rate cut is essentially off the table with the Fed expected to sit on its hands at least through the first quarter of 2007 based on recent economic data that shows underlying economic strength and still elevated levels of core inflation. Data watch continues though with new and existing home sales highlighting on the economic calendar in the coming week. Also, we will get the first print on third quarter economic growth with the advance estimate of GDP data Friday.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 7.75% 6.75%
Fed Discount 6.25% 5.75% 4.75%
Fed Funds 5.25% 4.77% 3.76%
11th District COF 4.277% 3.604% 2.870%
10-Year Note 4.78% 5.02% 4.46%
30-Year Treasury Bond 4.90% 5.10% 4.65%
30-Yr Fixed (FHLMC) 6.36% 6.53% 6.10%
15-Yr Fixed (FHLMC) 6.06% 6.17% 5.65%
1-Yr Adj (FHLMC) 5.57% 5.63% 4.89%
6-Mo Libor (FNMA) 5.3704% 5.1196% 5.2154%
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Real Estate Market Downturn Nearing End

2006-10-19T07:55:00.000-07:00

When will the housing market reverse gears and start moving upward again? That question is on everyone's mind, from nervous sellers to wary buyers, from anxious realty professionals to eager builders and developers.
No one knows for sure, of course. But Irvine, Calif., real estate consultant John Burns suggests the turnaround may come sooner rather than later, at least in some high-profile markets. In fact, the economist says some places could see a reversal of fortune by next year.
Burns sees a stable housing market as three-legged stool, he told his clients in a recent newsletter. One leg is demand, represented by the number of would-be buyers. Another is supply, or the number of active sellers. And the third is investment, which he defines as a mixture of affordability, consumer confidence and speculative activity.
Currently, he pointed out, the demand leg is the only one of the three that is on solid footing. Indeed, the underlying demographics "support healthy demand for many years to come," he wrote, explaining there is a real need for some two million new units alone each and every year for the next ten.
"Demand is our primary hope for avoiding a crash landing," Burns says.
While some naysayers argue that housing prices are free-falling towards a crash landing, Burns isn't in that camp. Prices may be falling, he points out, but at least most consumers aren't worried about losing their jobs. Indeed, the number of new jobs continues to rise every month, albeit at a slower pace, and the unemployment rate remains exceptionally low.
The supply leg, meanwhile, will probably take a while to correct itself, but certainly within the next 12 to 48 months, depending on the market, according to Burns.
Currently, the number of unsold homes under construction is at an all-time high, as is the number of unsold existing homes. And Burns says the situation will need time to correct itself over time -- less time in submarkets close to job centers and more in outlying areas where most people commute long distances.
The increase in unsold listings was this cycle's early warning indicator, the economist points out. And a decline will be the sign that the market is rebalancing itself. "The supply problem will be resolved when the market returns to 2.5 months of supply in the resale market, and only a few standing units of inventory in a typical new home subdivision," he says.
As Burns sees it, the correction "could take years" in outlying areas. In built-out markets such as San Diego, over-supply is "likely to correct earlier" than in sprawling markets like Phoenix. But economic growth will "play a huge role as well," and help many markets recover sooner.
Burns also notes that home builders have already corrected for their share of the over-supply. During the boom years, builders overbuilt the market on a national basis by about 15 percent, he wrote. Last year's construction pace was at about 2.3 million units, but the rate has already slowed to 1.8 million, which is less than the 1.9 million to 2.1 million units a year that are needed to satisfy the demographics of the housing market.
The housing economist told his clients to worry more about the location and price of the oversupply than the overall number itself. The Nation's Capital is one example where location and price matter more. In the Washington metro area, a healthy ratio of 2.2 jobs were created for every new housing start. Unfortunately, most of the development is occurring outside the market's main employment centers.
And D.C. is not alone. In Phoenix, the largest number of resale houses on the market are on the outskirts of town, which is exactly where home builders are most active. And construction in Tampa, Orlando and Sacramento, to name just a few places, is most active far away from where the jobs are.
According to Burns, the investment leg of the stool is the wild card. Demand is strong, just not at current prices, he says. "Affordability is an issue in the major markets, but not everywhere."
On the other hand, consumer confidence is strong. In fact, it hasn't been an issue, at least not like it has been in previous down cycles, largely because most folks are secure in their jobs, the housing consultant says.
But speculators remain a bugaboo. At the height of the market, Burns says, "an unprecedented level of investors created 40 percent more sales activity" than should normally have been created. Now, we have to wait and see how they will react. Will they hold until the market turns more favorable, or will they panic and sell at any price just to be over and done with it?
As in politics, all housing markets are local. But if you are watching the national numbers, Burns concludes that 5.6 million total sales -- both new and used -- is indicative of a normal level of demand.
In June 2005, the annual rate reached 8.5 million. But it has already slowed to 7.3 million. Unfortunately, he believes the market will need to over-correct to below the 5.6 million benchmark because of affordability problems and the huge number of investors before it can right itself and begin heading north again. Written by Lew Sichelman

Economists Beginning to Challenge Media's Negative Drumbeat on Housing

2006-10-16T17:52:00.000-07:00

Is it a housing bust or a media-driven panic? Mike Moran, chief economist for Wall Street's Daiwa Securities America, Inc., says he's surprised that virtually nobody has challenged the constant drumbeat of negative headlines and TV news warnings of imminent crashes and home price meltdowns.
"It's really been way out of line with reality," says Moran, whose firm specializes in the bond market. When a 1.7 percent decline in the median home price nationwide sparks headlines about the "housing bust," that is "just pure sensationalism about what is going on here," he said in an interview.
The housing market "is going through a correction that's badly needed" after five years of record sales and price appreciation. "The key issue is whether it is orderly or disorderly" -- and it's clearly the former. Yet the financial press and TV news programs are "portraying it as a catastrophe."
Moran got indirect support for that view from other economists, including the Mortgage Bankers Association of America's chief economist, Doug Duncan, who said "the rhetoric is just way overwrought" -- the sky is not falling in the real estate and mortgage sectors.
To the contrary, even the Federal Reserve's vice chairman believes the current correction will not be dramatic or even that long-lived, and that the housing slowdown will not have dire side effects on other parts of the economy.
In a speech that went virtually unreported by major media, vice chairman Donald L. Kohn told New York analysts that the "rebalancing" of prices to better fit current demand that is underway in many metropolitan markets is a normal, cyclical event -- not an incipient disaster. In fact, it may even be a healthy and necessary part of the cycle: "The reported declines in new home prices in a number of areas should help facilitate the rebalancing of supply and demand" -- ie, lower prices should help gradually expand the number of serious buyers looking for houses.
Thanks to strong underlying demographic factors -- new household formations and population growth -- the current down phase may be relatively short-lived, Kohn suggested. New housing "starts may be closer to their (low point) than to their peak." If one takes mid-summer 2005 as the peak of the multi-year housing boom, Kohn appeared to suggest that the low point of the cycle -- and the beginning of the eventual turnaround -- could be just over the horizon.
The latest pending home sale index from the National Association of Realtors, which showed a surprising 4.3 percent jump in the number of sales in the contract stage, but not yet closed, supports that conclusion.
Kohn also noted that other economic conditions today do not point to a deep housing price recession or bust. For example, long-term mortgage interest rates are about a point above their historic lows, the Fed itself has stopped raising short-term rates, gas prices are falling, and the unemployment rate just dropped to 4.6 percent.
The current "situation stands in sharp contrast to some past downturns in the housing market" -- in the early 1980s especially -- "that followed actions b the Federal Reserve to tighten credit conditions significantly."
"Continuing growth in real incomes should underpin the demand for housing," said Kohn, "and as home prices stop rising, help to erode affordability constraints."
How come you're reading about the Fed vice chairman's moderately upbeat speech in Realty Times rather than watching it on the evening news or reading about it in your newspaper?
Good question.

Written by Kenneth R. Harney

Economic Highlights for the Week Ending October 13, 2006

2006-10-16T10:09:00.000-07:00

Monday, October 9th
COLUMBUS DAYBanking Holiday
Tuesday, October 10th
Rate cut expectations moved lower after the release of the employment report. Upward revisions to job gains and a decrease in the unemployment rate overshadowed what was a weak looking headline figure. Yesterday, fed funds futures traders were pricing in just a 20% chance the Fed would ease rates at the end of January, which means there is a strong likelihood the Fed will remain on hold through this year and in January, pushing a potential rate cut to second quarter or later.
Wednesday, October 11th
September 20 FOMC meeting minutes indicated that the Fed remained quite concerned about inflation but believed that slower economic conditions and previous rate hikes would work to keep it contained, lessening the risk of holding the target for the fed funds rate steady at 5.25%. Most of the economic slowing was attributed cooling in the housing market which is expected to abate sometime next year.
The MBA mortgage applications index fell 5.5% to 599.1% for the week that ended October 6. Purchase applications decreased 5.3% on the week while refinancing volume fell 5.8%. Declines this week follow sizable gains last week. Mortgage application volumes are leveling off as mortgage rates stabilize.
Thursday, October 12th
Jobless claims rose 4k to 308k for the week that ended October 7. The low level of claims suggests a subdued pace of layoffs and a relatively tight labor market. Job gains however should remain modest.
The international trade deficit increased $1.9 billion in August to a record $69.9 billion, compared to expectations for a small decline. The deficit widened on high oil prices and strong domestic demand for foreign made goods and services. After remaining fairly stable the first half of the year the trade gap has deteriorated sharply in the last two months due to expensive oil imports. Recent oil price declines should stem some of the deterioration in the trade deficit in coming months.
The Fed's beige book showed that the economy continued to grow in late August and September despite widespread cooling in the housing market. The latest survey of the Fed's twelve banking districts was compiled in preparation for the October 24-25 FOMC meeting. Economic expansion in most areas was moderate or mixed but housing slowed in all areas resulting in slower sales, rising inventories and softer prices. Pricing pressures did not accelerate. The survey is consistent with near potential economic growth, contained inflation and steady monetary policy. The Fed is expected to remain on hold through the remainder of this year and possibly through the first half of next year.
Lenders raised mortgage rates this week on higher bond yields generated by the minutes of the last FOMC meeting where policy makers expressed concern over inflation. 30-year fixed rate mortgages averaged 6.37% this week compared to 6.30% last week according to Freddie Mac's mortgage market survey.
Friday, October 13th
Retail sales fell 0.4% in September less than an expected gain of 0.2%. Weakness stemmed from a 9.3% plunge in gasoline sales related to lower prices at the pump. Excluding gasoline, retail sales rose 0.6% reflecting generally healthy spending in most other categories. Apart from the volatility in gasoline sales, consumer spending remains strong and will contribute positively to third quarter GDP growth.
Import prices plummeted 2.1% in September based on a 10.3% drop in petroleum prices. Crude oil prices have retracted most of the gains seen in the last year. Over the last twelve months, imported petroleum prices are up just 2.9% compared to 30 and 40 percent gains in 2004 and 2005. Recent decline in oil prices are expected to produce more tame inflation reading next week when the CPI and PPI are released.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11960.51 11850.21 +110.30 or +0.93%
NASDAQ 2357.29 2299.99 +57.30 or +2.49%
WEEK IN ADVANCE
Financial markets may have been getting ahead of themselves in anticipation of imminent easing. Indeed, Fed speak and FOMC meeting minutes from last week quashed rate cut possibilities and instead focused on inflation. Consumer and producer price data in the coming week will clarify inflation against the backdrop of lower oil prices.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 7.75% 6.75%
Fed Discount 6.25% 5.75% .75%
Fed Funds 5.25% 4.76% 3.68%
11th District COF 4.277% 3.604% 2.870%
10-Year Note 4.81% 4.98% 4.45%
30-Year Treasury Bond 4.94% 5.05% 4.48%
30-Yr Fixed (FHLMC) 6.37% 6.49% 6.03%
15-Yr Fixed (FHLMC) 6.06% 6.14% 5.62%
1-Yr Adj (FHLMC) 5.56% 5.61% 4.85%
6-Mo Libor (FNMA) 5.3704% 5.1196% 4.2154%

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending October 6, 2006

2006-10-07T08:02:00.000-07:00

Monday, October 2nd
Financial markets are not expecting any adjustments, either up or down, in monetary policy for the remainder of the year. Fed funds futures traders fully expect the Fed to remain on hold through this year. Currently, traders are pricing in about a 25% chance the Fed could lower rates at the FOMC meeting at the end of January 2007 but time and the data will tell.
The ISM manufacturing index fell to 52.9% in September from a reading of 54.5% in August. The bigger than expected drop in the index shows slowing in national manufacturing conditions with employment and price declines on the month. New orders remained steady which indicates stability in the sector with solid production in coming months.
The NAR's pending home sales index rebounded in August, gaining 4.3% to 110.1 from a level of 105.6 in July. The jump in the index bodes well for existing homes sales. Home buyers are likely responding to falling mortgage rates and somewhat softer home prices. Hence, we should see existing home sales stabilize at current solid levels.
Construction spending increased 0.3% in August, better than expected. Strength was derived from a 3.4% jump non-residential expenditures while residential investment fell 1.5% on the month.
Tuesday, October 3rd
Motor vehicle sales rose 3.5% in September to an annual rate of 16.6 million units. Lower gasoline prices probably stimulated auto purchases. While the rebound in September will boost monthly retail sales, a flat trend in vehicle sales has created excess inventories which will detract from next quarter production levels, reducing Q4 GDP growth.
Wednesday, October 4th
The ISM non-manufacturing index tumbled 4.1 points to 52.9% in September. Last month's reading was much lower than expected but is still consistent with expansion in the service sector albeit at a much slower pace. Despite the weak headline number, index components were generally stronger with gains in new orders, order backlogs and employment suggesting a pick up in activity next month.
The MBA mortgage applications index jumped 11.9% to 633.9% for the week that ended September 29. Lower mortgage rates over the past two months brought the volume of both purchase and refi application up significantly this week. The purchase index gained 7.6% while refinancing activity soared 17.5% as borrowers converted from adjustable to fixed rate mortgages.
Thursday, October 5th
Jobless claims fell 17k to 302k for the week that ended September 30. The drop in claims is unexpected and inconsistent with other data that suggests slower job growth. Expectations are for the level of claims to climb higher on housing related job losses.
Mortgage rates were lower but little changed this week on expectations the Fed will remain on hold for the remainder of this year. 30-year fixed rate mortgages averaged 6.30% this week compared to 6.31% last week according to Freddie Mac's mortgage market survey. Economists at Freddie Mac note that lower rates recently are providing an opportunity for homeowners to refinance their ARMs before they reset to higher rates in the future.
Friday, October 6th
Payroll employment increased just 51k in September much less than an expected gain of 120k. However, the prior two months were upwardly revised for a net increase of 62k jobs. September weakness was offset by higher job gains in the preceding months to keep payrolls in line with the current trend of modest growth. Average hourly earnings increased 0.2% for a year over year gain of 4.0% while the unemployment rate fell to 4.6% of the workforce.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11850.21 11679.07 +171.14 or +1.46%
NASDAQ 2299.99 2258.43 +41.56 or +1.84%
WEEK IN ADVANCE
Mixed employment data today did little to set a clear course for the economy and interest rates. Data watch will intensify as financial markets decipher the outlook. In the coming week, retail sales, due out on Friday, highlight. Also, the Fed minutes from September will be of interest as will the beige book compiled in preparation for the October 24 FOMC meeting.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 7.75% 6.75%
Fed Discount 6.25% 5.75% 4.75%
Fed Funds 5.25% 4.88% 3.85%
11th District COF 4.277% 3.604% 2.870%
10-Year Note 4.69% 4.89% 4.37%
30-Year Treasury Bond 4.84% 4.94% 4.56%
30-Yr Fixed (FHLMC) 6.30% 6.43% 5.98%
15-Yr Fixed (FHLMC) 5.98% 6.10% 5.54%
1-Yr Adj (FHLMC) 5.46% 5.57% 4.77%
6-Mo Libor (FNMA) 5.3704% 5.1196% 4.2154%
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco

Economic Highlights for the Week Ending September 29, 2006

2006-09-30T09:18:00.000-07:00

Monday, September 25th
Existing home sales fell last month but not as quickly as economists and analysts expected. True, home sales have declined in 10 of the last 12 months however they remain quite strong with this year projected to land somewhere near the third highest on record. For August, existing home sales fell 0.5% to an annualized pace of 6.30 million.
The Fed's work may be done, that is work related to tightening monetary policy. Fed funds futures traders are actually pricing in small odds of a rate cut perhaps as early as next year.
Tuesday, September 26th
Consumers are feeling a little bit better this month probably due to falling gas prices. The consumer confidence index gained 4.3 points in September to 104.5%, better than expected. Consumers rated both the present situation and expectations for the future higher. Going forward, economists anticipate confidence levels to remain range bound with the weakening housing market the primary downside risk.
Wednesday, September 27th
New orders for durable goods defined as big ticket items meant to last three years or more fell 0.5% in August, compared to expectations for a 0.5% increase. Moreover the previous month's decline was revised sharply lower. August weakness was led by a large drop in civilian aircraft, computers and electronic equipment. Excluding the volatile transportation sector however, durable goods orders continue to trend modestly higher.
New home sales rebounded in August gaining 4.1% to an annual rate of 1.050 million, in line with estimates. The bounce was related to sharp downward revisions in the previous three months making August sales tallies seem stronger. New home sales peaked in July of last year and have been trending lower since. Over the past year new home sales have declined 17.4%.
The MBA mortgage applications index fell 4.9% to 566.5% for the week that ended September 22. Both purchase and refinancing activity declined last week. Mortgage activity is expected to stabilize in coming weeks related to steadier rates.
Thursday, September 28th
Second quarter GDP was downwardly revised to a 2.6% annual rate from the 2.9% in the preliminary estimate. This was the final revision for GDP and the weaker pace of growth is consistent with higher interest rates. Economy wide inflation remained unchanged in the final revision at 3.3%.
Jobless claims fell 6k to 316k for the week that ended September 23. Claims have been range bound in the last year and remain at a level that is consistent with fewer layoffs but not much hiring. Payroll growth for September is expected to be moderate again when data is released a week from Friday.
Mortgage rates fell again this week as rate cut expectations increased on incoming economic data. 30-year fixed rate mortgages averaged 6.31% this week compared to 6.40% last week according to Freddie Mac's mortgage market survey. Economists at Freddie Mac note that lower mortgage rates and moderate house price declines should lead to greater housing affordability.
Friday, September 29th
Personal income rose 0.3% in August, matching expectations. Incomes growth gained 9.4% over the past year boosted by a strong 7.7% annual gain in wages and salaries. Consumer spending gained just 0.1% last month due to retreating auto sales. Spending is 6.0% higher year over year. A closely watched inflation gauge the core PCE deflator was up 0.2% on the month and 2.5% on the year.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11679.07 11508.10 +170.97 or +1.48%
NASDAQ 2258.43 2218.93 +39.50 or +1.78%

WEEK IN ADVANCE
Rate cut expectations increased significantly this week. Incoming data need to be on the weak side for rate cuts to materialize early next year. Friday's employment report figures prominently on the calendar.

Economic Highlights for the Week Ending September 22, 2006

2006-09-22T15:19:00.000-07:00

Monday, September 18th
The NAHB housing market index fell to 30 in September from 33 in August. The index is 53% below year ago levels and has dropped to its lowest point since early 1991. All three components of the index, current sales of single family homes, sales six months from now and foot traffic through model homes continued to decline. Homebuilders' outlook has decidedly turned pessimistic which will continue to impact residential investment and new construction starts going forward.
Tuesday, September 19th
The producer price index rose just 0.1% in August compared to an expected gain of 0.2%. Slower energy price growth led to the smaller gain in wholesale prices. Over the past year energy prices have increased 13.1% adding 1.1 percentage points to an annual 3.6% gain in the PPI. Excluding food and energy, core consumer prices fell 0.4% led by tumbling auto prices. Computer prices also fell. Core producer prices are up 0.9% in the last twelve months.
New residential construction activity tumbled last month as widely telegraphed by a bevy of other housing market indicators. Housing starts fell 6.0% in August to a seasonally adjusted annual rate of 1.665 million, less than the anticipated rate of 1.75 million. Moreover, July starts were revised lower to 1.77 million. Total housing starts are off 20% from their year ago pace and declines appear to be accelerating.
Wednesday, September 20th
The FOMC opted not to raise key short term interest rates again today, leaving the target for the fed funds rate at 5.25%. It was widely expected that the Fed would hold rates steady. The Fed paused in their tightening campaign that began in June 2004 for the first time at the last policy setting meeting in August. The post-meeting policy statement was quite similar to the one released in August. In it, policy makers did acknowledge that "some inflation risks remain" but that a continued moderation in economic growth and cooling in the housing market should help ease inflationary pressures over time. The Fed also cited the recent drop in energy prices and previous rate hikes as factors helping to contain inflationary pressures. The FOMC left the door open for additional firming of monetary policy if incoming data and the evolution of the outlook for both inflation and growth deem it necessary.
The MBA mortgage application index rose 2.0% to 595.8% for the week that ended September 15. Retreating mortgage rates in the last eight weeks has boosted interim application activity. Refinancing applications surged 9.5% on the week as many homeowners moved to convert their adjustable rate mortgages to fixed rates. The purchase index slid 3.0% which corroborates continued slowing in housing market conditions.
Thursday, September 21st
Jobless claims rose 7k to 318k for the week that ended September 16. The level of claims was higher than expected last week however, the four week moving average which smoothes out weekly fluctuations was unchanged at 315,000. The current level of jobless claims indicates a relatively low number of layoffs and moderate hiring.
The Philadelphia Fed survey fell 18.9 points in September to a level of -0.4%. The negative index reading signals worse conditions in the Mid Atlantic manufacturing sector this month compared to last month. Other regional manufacturing surveys for this month have shown continued expansion. Based on these surveys, the ISM index of national manufacturing activity is expected to solid growth but at a slower pace.
Mortgage rates slid again for the eighth time in nine weeks on economic data that shows slowing economic and housing market conditions and alleviation of sharp price gains. 30-year fixed rate mortgages averaged 6.40% this week compared to 6.43% last week according to Freddie Mac's mortgage market survey. Economists at Freddie Mac expect mortgage rates to remain low going forward as a slower economy keeps inflation in check.

Friday, September 22nd
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11508.10 11560.77 -52.67 or -0.45%
NASDAQ 2218.93 2235.59 -16.66 or -0.74%

WEEK IN ADVANCE
This week wraps up a busy month on the economic and interest rate fronts. While the outlook has come into clearer view the extent to which the economy is slowing and how that will effect policy going forward remains to be seen. The cooling housing market plays a central role in the outlook which places emphasis upcoming home sales data.

Economic Highlights for the Week Ending September 15, 2006

2006-09-15T16:13:00.000-07:00

Monday, September 11th
The probability of another Fed rate hike by the end of this year is about 15%. The economic calendar is busy this week with prints on retail sales, import prices, consumer prices and industrial output.
Tuesday, September 12th
The international trade deficit on goods and services widened to $68.0 billion in July from a gap of $64.8 billion in June. The outsized July trade deficit was due to increased imports while exports fell. Both the petroleum and non-petroleum trade balances continued to deteriorate. Falling oil prices in August and September should improve the trade picture somewhat going forward.
The Wall Street Journal reported today that rising inventories of homes available for sale will continue to exert downward pressure on home prices in some parts of the country. Home sales have declined in the past year most notably in areas that have seen the largest price gains in the preceding five years like CA, FL, AZ, MA, and Washington, DC. Analysts and even NAR economists believe we will see price declines for the nation as a whole possibly in the next few months. Price declines, the extent of which remains to be seen, will eventually lead to increased demand and stronger sales.
The Treasury's $8.0 billion, 10-year note auction was met with strong demand today. The notes were awarded a high yield 4.81% lower than an expected yield of 4.82% and received a 2.91 bid-to-cover ratio, much higher than 2.23 in the previous auction. Treasuries rose and prices fell in response to the strong auction results with the 10-year note up 7/32 to 100-25/32 to yield 4.76%.
Wednesday, September 13th
The Treasury budget deficit widened to $64.6 billion in August compared to a deficit of $51.3 billion in August one year ago. For the first 11 months of this fiscal year the cumulative budget deficit totaled $304.3 billion compared to $354.1 billion for the same period last year. The vast improvement in the budget deficit is due to large revenue gains this year although outlays continue to rise sharply.
The MBA mortgage applications index rose 3.2% to 584.2% for the week that ended September 8. Recent easing of mortgage rates has produced a short term gain in application volumes in the last several weeks. However, over the long term application activity has been trending lower and remains 23.2% below its year ago level.
Thursday, September 14th
Retail sales rose 0.2% in August following a 1.4% increase in July. A surprising 0.4% gain in motor vehicle sales contributed to better than expected results last month. Excluding autos, retail sales were up 0.2% in August. Sales increased in most categories except for gasoline and furniture and home furnishings. Consumer spending growth remains healthy and is expected to accelerate in coming months related to recent energy cost declines.
Import prices jumped 0.8% in August, on a 2.3% gain in petroleum prices. Over the past year petroleum prices have increased 24.3% which accounts for 3.9 percentage points of import prices 6.6% annual gain. Export prices climbed 0.4% and are up 5.2% over the past year.
Mortgage rates eased for the seventh time in eight weeks. 30-year fixed rate mortgage averaged 6.43% this week compared to 6.47% last week according to Freddie Mac's mortgage market survey. Mortgage rates are expected to drift in a fairly narrow range as long as inflation remains contained and the Fed holds steady on rates.
Friday, September 15th
The consumer price index rose 0.2% in August, in line with expectations. Energy prices were up 0.3% on the month and have gained 15.0% over the past year. Energy price gains have added 1.1 points to the 3.8% annual increase in the CPI. Excluding food and energy the core CPI gained 0.2% on the month and is up 2.8% on the year. The annual gain is higher than the Fed would like to see however it will not deter them from standing pat on rates next week.

Economic Highlights for the Week Ending September 8, 2006

2006-09-08T15:34:00.000-07:00

Monday, September 4th
LABOR DAYAll Markets Closed
Tuesday, September 5th
Motor vehicle sales tumbled 16.5% in August to a 16.1 million unit annual rate. Vehicle sales are down 4.6% over the past year in part related to spent-up demand, higher gas prices and slower job gains. Weak sales are also likely to further reduce production schedules, which could impact economic growth in coming quarters.
The OFHEO house price index rose at an annual rate of 4.8% in Q2, the slowest pace since Q499. The index is based on repeat purchases and includes only conforming loans under a certain dollar amount and refinancing appraisals which can impart an upward bias.
The chances of a Fed rate hike later this month are next to nil and expectations for a bump by the end of the year have fallen to roughly 16%, down from 35% one week ago.
Wednesday, September 6th
The ISM non-manufacturing index jumped to 57.0% in August, better than consensus estimates for a reading of 55.0%. The level of the index indicates continued expansion in service sector activity and is consistent with GDP growth of around 3.5%.
Productivity grew at a 1.6% rate in the second quarter upwardly revised from 1.1% in the preliminary estimate. Productivity growth remains solid although it has slowed over the last two years. As a result of higher hourly compensation, unit labor costs were revised much higher in Q2 to 4.9% from the initial 4.2%. Moreover, unit labor costs were upwardly revised in Q1 to 9.0% from 2.5% originally. Sharply higher unit labor costs could bring a Fed rate hike back into play.
The MBA mortgage applications index rose 1.8% to 566.3% for the week that ended September 1. Slowly retreating mortgage rates in the last few weeks have temporarily boosted application activity. Even so, applications continue to trend lower and remain down 26.6% from their year ago level.
The Fed's survey of economic conditions in their twelve banking districts, known as the beige book, showed continued expansion in most areas in late July and August, however the pace of expansion moderated from the previous report. Consumer spending slowed especially for big ticket items like motor vehicles. Construction activity was mixed; labor markets and hiring were steady but with some spot labor shortages depending on industry and/or occupation. Wages and prices were somewhat elevated. Despite rising inflationary pressures, expectations are for the Fed to hold steady on rates this month.
Thursday, September 7th
NAR economists downwardly revised their forecasts for 2006 as the housing market works its was through inventory and price imbalances. Existing home sales are expected to fall 7.6% this year to an annual rate of 6.54 million. Six months ago, sales were projected to decline 5.7% to 6.67 million. Median prices are expected to increase 2.8% to $225,900 while 30-year fixed rates are likely to rise to 6.7% in Q4.
Mortgage rates crept higher this week on higher wage inflation reported yesterday. 30-year fixed rate mortgages averaged 6.47% this week compared to 6.44% last week according to Freddie Mac's mortgage market survey. Mortgage rates are expected to fluctuate between 6.5% and 7.0% this year as new economic data is released.
Jobless claims fell 9k to 310k for the week that ended September 2. While the level of claims suggests a low number of layoffs it does not necessarily suggest strong hiring. Indeed, job growth has been modest in the last several months averaging around 125k.
Friday, September 8th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 1392.11 11464.15 -72.04 or 0.62%
NASDAQ 2165.79 2193.16 -27.37 or -1.24%

WEEK IN ADVANCE
Inflation remains the major concern with regards to monetary policy. The Fed is hoping that slower economic growth will help to ease inflationary pressures. It seems that a pause in tightening is baked into the cake for this month. Beyond this month the data will dictate if and when the Fed hikes again. Look for import prices and consumer prices late in week for the latest inflation readings.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25 7.50 6.50
Fed Discount 6.25 5.50 4.50
Fed Funds 5.25 4.51 3.51
11th District COF 4.177 3.347 2.757
10-Year Note 4.76 4.74 4.13
30-Year Treasury Bond 4.91 4.72 4.40
30-Yr Fixed (FHLMC) 6.47 6.37 5.71
15-Yr Fixed (FHLMC) 6.16 6.00 5.30
1-Yr Adj (FHLMC) 5.63 5.45 4.45
6-Mo Libor (FNMA) 5.4501 4.9907 4.0817

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Upward pressure on interest rates Downward pressure on interest rates No pressure to change interest rates News worthy

Economic Highlights for the Week Ending September 1, 2006

2006-09-04T13:51:00.000-07:00

Monday, August 28th
Fed funds futures traders are pricing about a 16% chance the Fed will tighten September 20 and roughly a 35% chance policy makers will raise the fed funds rate to 5.50% by the end of the year. A busy data week lies ahead with significant releases on manufacturing, payrolls, and revised Q2 GDP that could change the interest rate outlook.
Tuesday, August 29th
The consumer confidence index tumbled 7.4 points in July to a level of 99.6%, the largest decline since Hurricane Katrina. Expectations were for a more modest decline to a level of 102.5%. The present situation index plunged 10.8 points to its lowest level of the year as the expectations index, down 5.1 points, continued to trend lower. The sharp decline in confidence is a reflection of higher oil prices, softening labor and housing markets and ongoing turmoil in the Middle East.
The minutes to the August 8 FOMC meeting revealed that a pause in tightening was a close call but ultimately, the Fed did not want over tighten. Policy makers felt that more firming could be needed but they wanted to hold rates steady in order to better assess the effects the last 17 rate hikes were having on the economy and inflation.
Wednesday, August 30th
GDP was upwardly revised to an annual rate of 2.9% in the second quarter from the original estimate of 2.5%. Business and consumer spending were better than first thought while residential investment fell at a faster pace than in the earlier reading. Economy-wide inflation was unchanged at 3.3%. The economy has grown at a solid 3.6% rate over the last four quarters.
The MBA mortgage applications index slipped 0.9% to 556.5% for the week that ended August 25. Mortgage rates have been on a gradually declining trend since the middle of last year and are now 23.0% below their year ago level. For the week, the purchase index fell 1.6% while the refinance index remained unchanged.
Thursday, August 31st
Personal income rose 0.5% in July, as expected. Over the past year personal income has been trending higher, growing by a strong 7.1%. Consumer spending increased 0.8% during the period, led by motor vehicle purchases and services spending. A pick up in spending was accompanied by softer inflation. A closely watched inflation gauge contained in this data series, the core PCE deflator rose 0.14% on the month and 2.4% on the year. The annual gain remains high but it has stopped accelerating.
Jobless claims fell 2k to 316k for the week that ended August 26. Jobless claims were little changed this week and have stabilized. The level of claims is consistent with moderate payroll gains.
Mortgage rates eased again this week on reduced rate hike expectations. 30-year fixed rate mortgages averaged 6.44% this week compared to 6.48% last week according to Freddie Mac's mortgage market survey. Mortgage rates remain historically low which many are hoping will result in a soft landing for the cooling housing market.
Friday, September 1st
Payroll employment increased 128k in August matching economists' expectations. Moderate payroll growth was accompanied by softer wage gains as well. Average hourly earnings rose just 0.1% last month compared to an expected 0.3% gain. The unemployment rate eased to 4.7% of the workforce from 4.8% in the previous month. These data combined with other evidence of slowing economic conditions and contained inflationary pressure will help to sway the Fed to remain on hold possibly through the remainder of this year.
Construction spending tumbled 1.2% in July compared to expectations for a 0.1% increase. Moreover, the previous two months were downwardly revised. Private construction expenditures fell 1.3% led by a 2.0% drop in the residential segment. This is the fourth monthly decline in residential building which is off 3.0% year over year.
The ISM manufacturing index slipped to 54.5% in August from 54.7% in July. The level of the index suggests manufacturing activity nationwide continues to expand at a solid pace albeit slightly slower than in 2005. Expansion in the sector is expected to continue through this year and into next.

Economic Highlights for the Week Ending August 25, 2006

2006-08-26T13:34:00.000-07:00

Monday, August 21st
Stocks suffered under Lowe's lower guidance Monday. It seems that consumer spending is taking a hit from higher gas prices and the housing slowdown. Consumer spending accounts for nearly two-thirds of all economic activity so as goes spending so goes the economy. Investors are expecting some consolidation this week after last week's run-up. The Dow fell 36.42 to 11345.05. The NASDAQ tumbled 16.20 to 2147.75.
Tuesday, August 22nd
The National Association of Homebuilders housing opportunity index fell to 40.6% in Q2 from a level of 41.3% in Q1. Essentially, the level of the index represents the percentage of new and existing homes that were sold during the quarter that were affordable to families earning the national median income of $59,600. Higher mortgage rates decreased affordability in the second quarter. Nationally, the weighted mortgage interest rate was 6.65% in Q2 compared to 6.39% in Q1. The nation's most affordable major metro area was Indianapolis where 87.4% of homes sold were affordable to families with the area's median income of $65,100. The least affordable major metro area was Los Angeles where just 2.0% of homes sold during the quarter were affordable to those earning the area's median income of $56,200. The median sales price of homes sold in Indianapolis and Los Angeles during the period was $120,000 and $521,000 respectively.
Wednesday, August 23rd
Existing home sales fell 4.1% in July to a seasonally adjusted annual rate of 6.33 million units. Sales were much weaker than expected last month missing estimates for a rate of 6.55 million. Existing home sales have been trending lower since peaking last summer with declines driven by higher mortgage interest rates. Slower sales have resulted in much higher inventories which in turn are placing downward pressure on prices. Due to softening fundamentals, further slowing in the housing is expected.
The MBA mortgage applications index rose 0.1% to 561.5% for the week that ended August 18. Applications activity increased for the third straight week in response to mortgage rate declines during the same timeframe. Despite the gain, application volume continues to trend lower and remains down 25.7% on the year.
Thursday, August 24th
Durable goods orders fell 2.4% in July led by a large decrease in orders for transportation equipment, mainly motor vehicles and civilian aircraft. Excluding the volatile transportation sector, durable goods orders rose 0.5% on the month. Despite the steep decline, durable goods manufacturing remains healthy outside of the auto sector.
Jobless claims fell 1k to 313k for the week that ended August 19. The level of the index suggests a low level of layoffs and modest payroll expansion. Expectations are for jobless claims to drift higher in coming months as the slowdown in the housing sector reduces construction and other types of jobs supported by the sector.
Mortgage rates slipped for the fifth straight week on lower rate hike expectations. Weaker than expected housing market data confirms a broader economic slowdown and lessens the chance the Fed will raise again this year. 30-year fixed rate mortgage averaged 6.48% this week compared to 6.52% last week according to Freddie Mac's mortgage market survey.

Friday, August 25th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11284.05 11381.47 -97.42 or -0.85%
NASDAQ 2140.29 2163.95 -23.66 or -1.09%

WEEK IN ADVANCE
Slower housing data raised hopes that the Fed's work may be done. A slew of data this week should help determine if the possibility of another rate hike has been taken off the table prematurely. Of keen interest will be consumer confidence, payrolls, the ISM index and motor vehicle sales, all covering the August period. Also, the preliminary revision to Q2 GDP should show stronger economic growth than first estimated.

CERTIFIED RESIDENTIAL SPECIALIST DESIGNATION AWARDED

2006-08-24T06:48:00.000-07:00

FOR IMMEDIATE RELEASE IN ARIZONA

CHARLENE SPILLUM HAS BEEN AWARDED THE CERTIFIED RESIDENTIAL SPECIALIST DESIGNATION BY THE COUNCIL OF RESIDENTIAL SPECIALISTS.

Gilbert, August 24, 2006 – Charlene Spillum, a Gilbert Realtor has been awarded the Prestigious Certified Residential Specialist (CRS) Designation by the Council of Residential Specialists, the largest not-for-profit affiliate of the National Association of Realtors.

Realtors who receive the CRS Designation have completed advanced courses and have demonstrated professional expertise in the field of residential real estate. Fewer than 38,000 Realtors nationwide have earned the credential.

Home buyers and sellers can be assured that CRS Designees subscribe to the strict Realtor code of ethics, have access to the latest technology and are specialists in helping clients maximize profits and minimize costs when buying or selling a home.

Charlene Spillum is a sales associate with ReMax 2000 in Gilbert. She is a member of the Southeast Valley Real Estate Board of Realtors.

Economic Highlights for the Week Ending August 18, 2006

2006-08-19T07:22:00.000-07:00

Economic Highlights for the Week Ending August 18, 2006

Monday, August 14th
Financial markets believe that the Fed may not be done with rate hikes just yet. Fed funds futures traders are pricing in a 27% chance the FOMC will raise rates at their September 20 meeting but nearly a 70% chance of another tightening in December. Inflation data remains key to the interest rate outlook.
Tuesday, August 15th
The producer price index increased 0.1% in July after a 0.5% gain in June. Over the past year producer prices have climbed 4.1% with 2.9% of that attributable to higher energy prices. Excluding food and energy from the index core producer prices fell 0.3% in July and were up just 1.3% over the last year. The unexpected drop in core wholesale inflation provided some relief but price pressures at the crude and intermediate levels of processing remain.
The NAHB housing market index plunged 7 points to a level of 32 in August. Homebuilders rated current sales and sales prospects in six months much lower while foot traffic through model homes slowed substantially. The contraction in builders' attitudes stems from a high level of sales cancellations and rising inventories homes for sale.
The NAR reported that house price growth slowed appreciably in the second quarter. Median existing home prices showed the largest gain in the Northeast where they rose 6.3%. Median prices were up 4.1% in the South and 3.6% in the West. Second quarter median existing single-family home prices were down 2.0% in the Midwest. Of the 151 metro areas included in the report 37 showed double digit growth while 26 showed minor price declines. NAR chief economist, David Lereah said appreciation rates slowed to single digits in most metro areas and that the cooling is indicative of a soft landing in the housing sector. Weakening house prices also may signal an end to Fed rate hikes.
Wednesday, August 16th
The consumer price index increased 0.4% in July, in line with expectations. Rising energy costs pushed the index higher once again last month. The CPI has now gained 4.2% in the last twelve months. Excluding food and energy, the core CPI rose 0.2% last month and is up 2.7% over the last year. Although core inflation is slowing, it is still running at a faster pace than the Fed would like to see.
Industrial production rose 0.4% in July less than an expected gain of 0.6%. Weakness was concentrated in manufacturing output which gained just 0.1% because of weak auto production. Excluding motor vehicles gains were quite strong. Mining production gained 0.8% while utilities usage surged 2.0% because of a nationwide heat wave the last two weeks of July. The capacity utilization rate inched higher to 82.4% from 82.3% in the previous month.
Housing starts fell 2.5% in July to a seasonally adjusted annual rate of 1.80 million. Housing starts have tumbled 20.8% since peaking in January of this year and are now at their lowest level since 2003.
Thursday, August 17th
Jobless claims fell 10k to 312k for the week that ended August 12. Claims were lower than expected last week with the level consistent with moderate growth in payrolls.
The index of leading economic indicators fell 0.1% in July, below estimates for a 0.1% gain. The decline was led by a 6.5% drop in building permits during the month. The pace of decline in the housing market is worth noting due to its impact on the broader economy. The LEI index suggests economic growth will continue to slow over the next six to nine months.
Friday, August 18th
Consumer sentiment fell 6.0 points to 78.7% in the preliminary reading for August. The drop was led by much lower ratings in the expectations component though current conditions ratings dropped as well. Turmoil in the Middle East and its impact on oil prices probably weighed on consumer attitudes this month. With a cease fire now in place and oil prices retreating the final August sentiment reading in two weeks will likely improve.

Ten Things Buyers Like Best About Working with Real Estate Agents

2006-08-15T17:15:00.000-07:00

Ten Things Buyers Like Best About Working with Real Estate Agents

1. Good Negotiating skills
2. Personality of Agent
3. Persistence
4. Made it easier. Saved us time.
5. Listened
6. Followed up, but did not sound like a telemarketer
7. Went the extra mile. Put together a buyer packet for us
8. Treated us with respect
9. Told us the truth. Showed us what we really needed to do.
10. Worked with a smile, even on weekends

(The National Association of REALTORS® Profile for Home Buyers and Sellers, 2004.)

Economic Highlights for the Week Ending August 11, 2006

2006-08-11T16:23:00.000-07:00

Economic Highlights for the Week Ending August 11, 2006

Monday, August 7th
Consumer credit increased by $10.3 billion or at a 5.7% annual rate in June. This is the third straight month of oversized gains in credit outstanding. Credit gains were led by the revolving credit category which consists mostly of credit card debt. Non-revolving credit balances, like car loans, also increased strongly during the month.
Tuesday, August 8th
Productivity grew at a 1.1% annual rate in the second quarter, in line with expectations, but slower than a 3.7% rate in Q1. Unit labor costs increased 4.2% last quarter after upward revisions to costs in the previous three quarters. These data show that productivity growth has slowed while labor costs are running at their fastest pace in over 5 years.
The Federal Open Market Committee opted to hold key short term rates steady at their policy setting session today as widely expected by economists and financial markets. The fed funds rate stands at 5.25%, its highest level since March 2001. The pause in tightening today follows 17 consecutive 25 bp rate hikes. In the policy statement the Fed indicated that economic growth has moderated because of a cooling housing market and higher energy costs and interest rates.
Wednesday, August 9th
The MBA mortgage applications index rose 4.9% to 553.3% for the week that ended August 4. The purchase index gained 3.4% on the week while refinancings increased 7.1%.
Homebuilder Toll Bros reported weaker than expected quarterly results today and lowered estimates for the number of homes it will deliver in the current quarter. Chairman Robert Toll said in a statement that the current housing slowdown "is the first downturn in the forty years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors." Toll believes it "to be the result of an oversupply of inventory and a decline in confidence." While the Chairman expects the market to return to previous high levels once supply is absorbed and buyers become confident that home prices have stabilized, he expects the slowdown to last at least through this year and possibly for another year or two.
Thursday, August 10th
The international trade deficit on goods and services narrowed to $64.8 billion June from a gap of $65.0 billion in May. The smaller trade gap was due to a solid decline in oil imports and considerable export gains. The June trade picture was better than expected and will result is a small upward revision to Q2 GDP.
Jobless claims increased 7k to 319k for the week that ended August 5. The level of claims is above their year-to-date average indicating still solid but somewhat softer labor market conditions.
Lenders eased mortgage rates this week in response to the Fed's pause in tightening. 30-year fixed rate mortgages averaged 6.55% this week compared to 6.63% last week according to Freddie Mac's mortgage market survey. Lower mortgage rates should help sustain healthy housing market activity. Freddie Mac economists predict that 2006 will be the third highest level for total home sales on record.
Friday, August 11th
Retail sales jumped 1.4% in July after a downwardly revised drop of 0.4% in June. Retail sales were stronger than expected last month and driven primarily by a 3.1% gain in motor vehicle sales. Gasoline sales were strong too, up 2.5% on the month due to higher prices. The strong rebound in spending last month gets Q3 off to a fast start but may come under some restraints as consumers try to manage rising debt, higher energy prices, weaker home price appreciation and slower job growth.
Import prices jumped 0.9% in July led by a 4.7% increase in petroleum prices. Excluding petroleum, import prices actually fell 0.1% last month. Higher imported energy costs will likely boost headline producer and consumer prices for the month of July as well. Lower overall import prices suggest more contained core rate gains.

2006-08-08T12:06:00.000-07:00

Economic Highlights for the Week Ending August 4, 2006

Monday, July 31st
Fed funds futures traders were pegging the chances of another rate increase at the next FOMC meeting at about 31% today.
Tuesday, August 1st
The ISM manufacturing index increased to 54.7% in July from 53.8% in June. The price index contained in this data series also increased, showing elevated price pressures. Manufacturing activity continued to expand solidly last month. That, combined with higher prices raised some doubt as to an anticipated Fed pause next week.
Personal income rose 0.6% in June in line with expectations. Gains in both wages and transfer payments boosted income growth in June. Consumer spending increased 0.4% in June after a 0.6% gain in May. A closely watched inflation gauge contained in these data, the core PCE price deflator rose 0.2% for the month and was up 2.4% on the year, its highest level since September 2002.
The NAR's pending home sales index rose 0.4% in June after an upwardly revised gain of 1.4% in May. The pending home sales index is a leading indicator of existing home sales. Recent index gains suggest more stable market conditions early in the third quarter.
Construction spending rose 0.3% in June, as spending in the previous two months was upwardly revised to show modest gains instead of declines. June's gain was led by a 2.7% surge in non-residential construction. Investment in the non-residential segment continues to lead spending growth and is expected to remain a source of strength for the economy the second half of this year.
Wednesday, August 2nd
Motor vehicle sales jumped 5.8% in July to an annual rate of 17.2 million units. Generous auto dealer incentives gave sales a lift last month. However, sales are well off their year ago annual rate of over 20 million units when employee discounting was first introduced. Retail sales and consumer spending will get a boost from higher auto sales which will jumpstart third quarter growth.
The MBA mortgage applications index fell 1.2% to 527.6% for the week that ended July 28. Purchase applications fell 3.3% on the week while refinancings rose 2.2%. Mortgage application volume, down 29.8% from year ago levels, has been trending lower since last year under higher interest rates.
Thursday, August 3rd
The ISM non-manufacturing index fell to 54.8% in July from 57.0% in June. July's reading of service sector expansion was the lowest it's been since Hurricane Katrina. The level of the index shows growth in the sector albeit at a slower pace.
Factory orders increased 1.2% in June less than an expected gain of 1.8%. Durable goods orders led the gain. Demand for nondurable goods declined. Factory activity remains volatile but is trending higher.
Jobless claims rose 14k to 315k in the week that ended July 29. The level of claims, while volatile and a bit higher than expected this week, are still consistent with solid labor market conditions.
Mortgage rates tumbled again this week on GDP data that showed slower than expected economic growth in the second quarter with fairly tame inflation. 30-year fixed rate mortgages averaged 6.63% this week compared to 6.72% last week according to Freddie Mac's mortgage market survey. Economists expect long term mortgage rates to drift higher and lower but remain below 7.0% this year.
Friday, August 4th
Payroll employment increased just 113k in July much less than an expected gain of 145k. Despite the weakness in job growth, average hourly earnings gained a strong 0.4% on the month. The average workweek remained unchanged at 33.9 hours while the unemployment rate increased to 4.8% of the workforce. Employment data today support a Fed rate hike pause Tuesday but a small chance remains it could go the other way.

Back to School

2006-08-03T07:35:00.000-07:00

Back-to-School With No Stress? It Could Happen!

When the warm summer months begin to wind down and the days become a little shorter, you can almost smell it in the air - back-to-school time is here! And, just as fall and cooler weather approach, so does back-to-school anxiety. Between kids fearing they'll miss the bus and won't make new friends, and parents feeling stressed about hectic mornings and carpooling chaos, how can anyone get excited about the first day back to school? Parents, however, can set the tone for a smooth transition from summer to the new classroom by proactively addressing their children's concerns. Here are a few tips to help ease your family's back-to-school anxiety.

Be enthusiastic. If you are excited and confident, your child will be, too.

Prepare yourself. Note your child's reaction to separation. If possible, visit the new setting together and introduce your child to the new teacher in advance.

Start daily routines. Let your child become involved with packing her lunch and laying out her clothes the night before. Also, begin an earlier bedtime at least one week before.

Pack the night before. Make sure your child packs her book bag every night before bed. This eliminates the morning rush and trying to locate stray items.

Always say good-bye to your child. Be firm, but friendly about separating. Never ridicule a child for crying. Instead, make supportive statements like, "I know it's hard to say good-bye."

Send a photo of your family or write a reassuring note and put it in his backpack or lunch box.

At the end of the workday, put aside your work concerns and focus on being a parent.

2006-07-29T08:03:00.000-07:00

Economic Highlights for the Week Ending July 28th

Monday, July 24th
Fed funds futures traders were pricing in higher odds Monday that the Fed will raise key short term interest rates in August. Odds of a rate hike next month stood at roughly 47% today up from 34% last Friday. Upcoming data central to the interest rate outlook this week are new and existing home sales Tuesday & Thursday and the advance estimate of second quarter GDP on Friday.
Tuesday, July 25th
The slowdown in the housing market continued last month as existing home sales fell 1.3% in June to a seasonally adjusted annual rate of 6.6 million units. The inventory of available homes for sale continues to climb higher under softened demand, rising 3.8% to 3.7 million units which reflect a 6.8 months supply at the current sales pace.
The consumer confidence index rose to 106.5% in July from 105.7% in June. Higher ratings in both index components, expectations and the present situation contributed to July’s gain. While consumers are still fairly positive about jobs and the labor market, gas prices would need to move lower in order for confidence levels to improve further from here.
Wednesday, July 26th
The MBA mortgage applications index fell 1.3% to 533.8% for the week that ended July 21. The purchase index dropped 2.4% on the week while refinancings drifted 0.6% higher. Both home buying and refinancing application volumes continue to trend lower under higher rates. As housing market activity slows so does its contribution to economic growth.
The Fed's round up of economic activity across the twelve Federal Reserve banking districts known as the beige book and compiled in preparation for the FOMC meeting in August, indicated that growth slowed in most parts of the country in June and early July. Manufacturing was strong, residential investment slowed and consumer spending weakened. While high input costs were noted in many areas there was less pass through to retail prices. Labor markets tightened but wage gains do not pose a threat to inflation at this time.
Thursday, July 27th
New orders for durable goods jumped 3.1% in June better than an expected 2.0% gain. June's gain was led by strong demand for transportation equipment especially civilian and military aircraft. Excluding the transportation sector, durable goods orders rose 1.0%. Durable goods orders remain volatile, with hug swings related to aircraft orders, but they are trending higher overall.
New home sales fell 3.0% in June to a seasonally adjusted annual rate of 1.131 million. Moreover, May sales were revised sharply lower from 1.234 million to 1.166 million. New home sales, while still volatile, have been trending lower since peaking last July.
Mortgage rates tumbled this week on signs that the economy may be cooling. Slower economic conditions could help ease inflationary pressures making another Fed rate hike unnecessary. 30-year fixed rate mortgages averaged 6.72% this week compared to 6.80% last week according to Freddie Mac's mortgage market survey.
Friday, July 28th
The economy grew at a 2.5% annual rate in the second quarter, compared to expectations for a 3.1% gain. Growth was boosted by service sector gains but limited by slower consumer spending. GDP gained 3.5% over the past year, in line with longer term averages. Economy wide inflation showed some acceleration with the core index gaining 2.9% in Q2 up from 2.1% in Q1.
The employment cost index rose 0.9% in Q2 after rising 0.6% in Q1. Wage growth is up slightly but offset by a deceleration in benefit costs. Over the past year labor compensation increased a tame 3.0%.

WEEK IN ADVANCE
Modest second quarter growth lowered rate hike expectations. The financial markets are clearly leaning toward a pause in August. One more major piece of data remains before the next FOMC meeting. The employment report showing job growth and hourly earnings due out on Friday is crucial to the Fed's policy decision.

2006-07-22T09:45:00.000-07:00

Economic Highlights for the Week Ending July 21, 2006

Monday, July 17th

Rate hike expectations eased last week amid turmoil in the Middle East and surging energy prices. The financial markets expect economic growth to slow significantly during the second half of this year potentially making another rate hike unnecessary. Fed funds futures traders as of last Friday lowered the probability of a 25 bp rate hike in August to roughly 60%. The week ahead provides several events and indicators that should continue to shape the interest rate outlook.

Industrial production jumped 0.8% in June on strong auto and machinery manufacturing. Mining and utilities output also posted solid gains. June capacity utilization also increased to 82.4% from 81.8% in May. Utilization rates were the highest in 6 years and indicate tighter resource usage which could fan inflationary pressures.

Tuesday, July 18th

The producer price index jumped 0.5% in June compared to expectations for a 0.3% gain. Price gains were broad based across most segments. Excluding food and energy prices the core PPI rose 0.2%, in line with expectations. Over the last year core prices rose 1.9%, which is at the upper range of the Fed's comfort zone.
The NAHB housing market index continued to slide in July, dropping to 39 from a reading of 42 in June. Homebuilder optimism is definitely waning as evidenced by lower ratings of both present and future single family home sales. Also, foot traffic through model homes slowed. The sharply lower trend in this index portends of a slowdown in construction of new homes.

Wednesday, July 19th

The consumer price index rose 0.2% in June in line with expectations and related to a decline in energy prices. Excluding food and energy from the index, core consumer prices rose 0.3% last month and are up 2.7% over the past year. Higher than expected gains in the core CPI over the last several months make another Fed rate hike in August a strong likelihood.
The MBA mortgage applications index fell 4.6% to 540.8% for the week that ended July 14. Purchase applications fell 6.2% on the week while refinancings slipped 1.6%. Because of rising interest rates, mortgage application volume has been trending lower and is now 32.5% lower than levels seen last year.
Housing starts fell 5.3% in June to a seasonally adjusted annual rate of 1.85 million units. June's decline was led by a 6.5% drop in new starts of single family homes. Multifamily starts rose modestly.
Chairman Bernanke’s semiannual testimony to Congress today was more dovish than expected by the financial markets. The Fed Chief said that some moderation in economic growth appears to be underway which could help lower inflationary pressures over time. However, inflation has increased somewhat related in part to higher energy and commodity prices but that recent gains are mostly attributable to owners' equivalent rent or higher shelter costs. Slower home purchasing activity can drive up rents which are really more indicative of a slowing housing market than of rising inflation. Fed funds futures traders were pegging chances of another rate hike at 90% following the CPI data today then odds dropped to around 65% after the Chairman's testimony.

Thursday, July 20th

Mortgage interest rates climbed higher this week after easing somewhat in the week prior. 30-year fixed rate mortgages averaged 6.80% this week compared to 6.74% last week according to Freddie Mac's mortgage market survey. Economists at Freddie Mac say that a higher-than-expected reading in core consumer inflation placed upward pressure on mortgage rates this week.
Jobless claims fell 30k to 304k for the week ending July 15. An end to the New Jersey government shutdown accounted for some of the outsized drop in claims this week. Aside from one time factors the level of claims suggests solid labor market conditions.

Friday, July 21st

Stock Market Close for the Week Index Latest A Week Ago Change DJIA
10868.38 10739.35 +129.03 or +1.20%
NASDAQ 2020.39 2037.35 -16.96 or -0.83%

WEEK IN ADVANCE

The economic calendar this week will focus on housing data and economic growth. Along with new and exiting home sales tallies mid-week we will get the first print on Q2 GDP Friday.

Flag Day - June 14

2006-06-13T17:44:00.000-07:00

The American Flag represents a symbol of freedom recognized throughout the world. Today we celebrate that symbol with a national day in honor of our flag. So raise a flag and read these important and perhaps little-known facts about how to properly display Old Glory.

How to Properly Display Our Flag. There is a right way and a wrong way to display the flag. The American flag should be held in the highest of regards. It represents our nation and the many people who gave their lives for our country and our flag. Here are the basics on displaying the American flag:

• The flag is normally flown from sunrise to sunset.

• In the morning, raise the flag briskly. At sunset, lower it slowly. Always, raise and lower it ceremoniously.

• The flag should not be flown at night without a light on it.

• The flag should not be flown in the rain or inclement weather.

• After a tragedy or death, the flag is flown at half staff for 30 days. It's called "half staff" on land, and "half mast" on a ship.

• When flown vertically on a pole, the stars and blue field, or "union," is at the top and at the end of the pole (away from your house).

• The American flag is always flown at the top of the pole. Your state flag and other flags fly below it.

• The union is always on top. When displayed in print, the stars and blue field are always on the left.

• Never let your flag touch the ground, never...period.

• Fold your flag when storing. Don't just stuff it in a drawer or box.

• When your flag is old and has seen better days, it is time to retire it. Old flags should be burned or buried. They should not be thrown in the trash.

Did you Know? There is a very special ceremony for retiring the flag by burning it. It is a ceremony everyone should see. Your local Boy Scout group knows the proper ceremony and performs it on a regular basis. If you have an old flag, give it to them. And, attend the ceremony.

Famous Flag People: Betsy Ross was a seamstress who made clothes for George Washington. In June, 1776, Washington approached her to make the country's first flag - and the rest is history. Francis Scott Key, inspired by the British bombardment of Fort McHenry, penned the lyrics to our national anthem as he witnessed the event as British rockets whizzed in the air while our American Flag flew in the breeze.

Did you Know? If you like to study flags, then you are a vexillologist!

Source: HolidayInsights.com

Graduate Real Estate Institue (GRI)

2006-04-30T10:48:00.000-07:00

Just thought I'd explain the GRI --

Why Choose a REALTOR® With a GRI designation? Buying property is a complex and stressful task. In fact, it's often the biggest single investment you will make in your lifetime. At the same time, real estate transactions have become increasingly complicated. New technology, laws, procedures and the increasing sophistication of buyers and sellers require real estate practitioners to perform at an ever-increasing level of professionalism. So it's more important than ever that you work with an agent who has a keen understanding of the real estate business. The GRI program has helped the best and the brightest in the industry achieve that level of understanding. GRI's are Nationally recognized as top performers in the real estate industry Professionally trained Knowledgeable Dedicated to bringing you quality service A GRI can make a difference. When you see the letters "GRI" after an agent's name, you can count on receiving the knowledge and guidance you need to make your transaction go smoothly. In short, you can count on getting the best service available from a real estate professional. Don't you deserve the best?

Have an Awesome Day!

2006-03-23T14:54:00.000-07:00

Greetings,
It is another wonderful day in Phoenix. If you do not live here - you really should consider it, of course I will be more than happy to help you find a first or second home! The market seems to be picking up a little. If the market continues as it is both buyers and sellers will make out OK. By the way if you are considering a first or second home in San Diego - Check out this awesome Agent > Alan Schmitt you can preview his website www.AtHomeInSD.com or e-mail Alan@AtHomeInSd.com. Thank you and make it a great day.