Economic Highlights for the Week Ending August 24th, 2007

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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