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

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

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