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
Sunday, April 27, 2008
Monday, April 21, 2008
MONDAY, April 14th
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
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 14, 2008
Economic Highlights for the Week Ending April 11, 2008
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
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
Saturday, April 05, 2008
Economic Highlights for the Week Ending April 4, 2008
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
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
Sunday, March 30, 2008
Economic Highlights for the Week Ending March 28, 2008
MONDAY, March 24th
Existing home sales gained 2.9% in February to an annual pace of 5.03 million units. The increase in home sales last month breaks a six-month string of declines. While the increase in sales last month is encouraging, economists at NAR are not expecting significant recovery until the second half of this year, when higher loan limits, along with monetary and fiscal stimulus will unleash pent-up demand. In the meantime, the housing correction will continue as rising defaults and foreclosures push inventories higher and accelerate price declines.
The Fed’s next rate move remains uncertain at this time. Policy decisions will be fluid depending on downside risks to growth and the state of credit markets. After an upside surprise in existing home sales, fed funds futures traders are currently pricing in a 60% probability of a 50 basis point rate cut when the FOMC meets at the end of April, down from a 71% chance earlier this morning.
TUESDAY, March 25th
Consumer confidence tumbled to 64.5% in March from a reading of 76.4% in February. The index is at its lowest level since the start of the Iraq war in 2003. The scores of the two index components, present conditions and expectations fell sharply during the month while consumers’ assessments of the labor market weakened significantly. Inflation expectations rose as well. Confidence continues to face downside risks in the near term amid weak economic conditions.
Both the 10-city and 20-city composite S&P/Case-Shiller house price indexes declined on a month-over month basis and posted the largest year-over-year declines since the inception of the index in 1988. The 10-city house price index fell 2.3% in January from December and dropped 11.4% from January one year ago. The 20-city house price index declined 2.4% on the month and was down 10.7% on the year. Because of tighter credit and weak housing market conditions, house price declines are expected to continue through 2008.
WEDNESDAY, March 26th
New home sales fell 1.8% in February to 590k, compared to expectations for a larger decline to a rate of 576k. This was the lowest level of new home sales since February 1995. Over the past year, sales have declined 29.8%.
The MBA mortgage applications index surged 48.1% to 965.9% for the week that ended March 21. The purchase index jumped 10.6% on the week but remains 1.8% below its level one year ago. The refinance index soared 82.2% during the week and is up 93.6% from one year ago. A sharp drop in mortgage interest rates resulted in a flood of applications last week. Lower rates will need to be maintained to sustain these volumes.
THURSDAY, March 27th
Jobless claims fell 9k to 366k for the week ending March 22. The level of claims remains elevated which indicates acceleration in the pace of layoffs. Continuing claims are on a rising trend which indicates a weaker pace of hiring. Soft labor market conditions portend of another decline in payrolls in the jobs report, April 4.
Mortgage rates were mixed but little changed this week, maintaining for the most part the large drop the week before. 30-year fixed rate mortgages averaged 5.85% this week compared to 5.87% last week according to Freddie Mac’s mortgage market survey. After the Fed’s big rate cut last week, economic data met expectations which lessened some of the recent gyrations in financial markets.
FRIDAY, March 28th
Personal income rose 0.5% in February, better than an expected gain of 0.3%. Income growth was boosted by a onetime jump in transfer payments related to the Medicare prescription drug plan. Personal spending increased 0.1% last month but long term spending growth has flat-lined. A closely watched inflation measure, the core PCE price index rose 0.1% in February and was up 2.0% over the past year. Core inflation has eased recently to bring it within the Fed’s comfort zone.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12216.40 12361.32 -144.92 or -1.17%
NASDAQ 2261.18 2258.11 +3.07 or +0.14%
WEEK IN ADVANCE
The economy remains a concern. Data flows in the coming week are expected to show further weakening with a decline in payrolls and contracting activity in the manufacturing sector. Data results will continue to be reflected in Fed rate decisions.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
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
Thursday, March 20, 2008
Economic Highlights for the Week Ending March 14, 2008
MONDAY, March 10th
Expectations for a 75 basis point rate cut increased significantly following last Friday’s bleak employment report. An 85k job loss since the beginning of this year has permutated recession fears into reality. Fed funds futures traders are pricing in a 98% probability the Fed will lower the fed funds target rate to 2.25% from 3.00% currently at the conclusion of their policy setting session March 18.
TUESDAY, March 11th
The international trade deficit on goods and services widened to $58.2 billion in January from a gap of $57.9 billion in December. The trade shortfall was better than expected even amid record high oil prices. Recent strong gains in exports have helped to improve the trade picture.
WEDNESDAY, March 12th
The Treasury budget deficit widened to $175.6 billion in February compared to a shortfall of $120 billion in February one 2007. Fiscal year-to-date the cumulative budget deficit is running at $263.3 billion a 62% increase from the $162.2 billion deficit for the same period last year. While calendar effects played a role in the outsized budget shortfall last month, the budget deficit is widening this year after several years of improvement.
The MBA mortgage applications index slipped 1.9% to 671.7% for the week ending March 7. The purchase index climbed 1.6% on the week while the refinance index fell 4.7% due to a jump in mortgage interest rates. Refinancing activity remains 5.9% above its year ago level while purchasing activity has dropped 11.0% from last year.
The Federal Reserve announced Tuesday that it will lend up to $200 billion in Treasury securities to primary dealers secured for a term of 28 days, instead of overnight. Stocks rallied on the news as Treasury prices fell and yields rose in the bond market. Today, stocks and bonds reversed direction and the dollar fell to a record low against the euro on speculation the Fed’s plan to fix credit markets, while helping, could not resolve all underlying problems in the financial system.
THURSDAY, March 13th
Retail sales fell 0.6% in February compared to expectations for a 0.2% gain. Weakness was led by a 1.9% decline in motor vehicle sales though other spending categories also fell last month. Excluding autos, total retail sales slipped 0.2%, better but still weak. Consumer spending is definitely being affected by higher energy and food costs, the housing downturn and credit crunch. Spending weakness is expected to persist with tax rebate checks expected to provide some relief starting in May.
Import prices rose 0.2% in February, less than an expected gain of 0.6%. Import prices continue to be driven by oil costs. Petroleum prices actually fell 1.5% in February while non-petroleum import prices gained 0.6%, hence the subdued gain in overall prices. Oil prices have since spiked to new record highs which will be reflected in import price readings in the months to follow.
Jobless claims were unchanged at 353k for the week ending March 8. The level of claims remains elevated, indicating sluggish labor market conditions with weak hiring and an accelerated pace of layoffs.
Average mortgage rates moved higher across the board for all loan products this week according to Freddie Mac. 30-year fixed rate mortgages averaged 6.13% this week compared to 6.03% last week. Economists at Freddie Mac point out however that lower home prices combined with still low mortgage rates makes the housing market very affordable for many homebuyers.
FRIDAY, March 14th
The Fed caught a break on consumer price data today. Both the consumer price index and the core CPI, which excludes food and energy costs, recorded no monthly change in February, which allows the FOMC leeway to cut aggressively next week without complications from the inflation outlook.
Stock Market Close for the Week
Latest A Week Ago Change
DJIA 11951.09 11893.69 +57.40 or +0.48%
NASDAQ 2212.49 2212.49 No weekly change
WEEK IN ADVANCE
Following weak data and financial market volatility, rate cut expectations at Tuesday’s FOMC meeting have solidified around a 75 basis point easing. Further easing is expected from there however, the size of future cuts will be determined by the developing results of increased credit market liquidity and monetary and fiscal stimulus already in the pipeline.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
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
Monday, March 10, 2008
Economic Highlights for the Week Ending March 7, 2008
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
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
Saturday, March 01, 2008
Economic Highlights for the Week Ending February 29, 2008
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
Tuesday, February 26, 2008
Economic Highlights for the Week Ending February 22, 2008
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.
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.
Monday, February 18, 2008
Should Buyers Wait for the Market Bottom?
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
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
Friday, February 15, 2008
Economic Highlights for the Week Ending February 15, 2008
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
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
Saturday, February 09, 2008
Economic Highlights for the Week Ending February 8, 2008
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
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
Saturday, February 02, 2008
Economic Highlights for the Week Ending February 1, 2008
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
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
Saturday, January 26, 2008
Economic Highlights for the Week Ending January 25, 2008
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
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
Saturday, January 12, 2008
Economic Highlights for the Week Ending January 11, 2008
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
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
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
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
Monday, December 17, 2007
Economic Highlights for the Week Ending December 14, 2007
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
Friday, December 07, 2007
Economic Highlights for the Week Ending December 7, 2007
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
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
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