Volume 12, Number 9 Economic Highlights for the Week Ending March 10, 2006

[Adam in CO]

Monday, March 6th
The NAR's pending home sale index was down for the fifth straight month declining by 1.1% to 116.3 after falling 2.6% in December. Over the past year the index has fallen 4.8%. The index measures the number of signed real estate contracts and is a leading indicator of existing home sales. A level over 100 suggests existing homes sales remain above 2001 levels but sequential declines indicate further weakening going forward.

Tuesday, March 7th
Why is it that rates seem to move higher, faster? Part of the reason is that rising rates tend to quash refinancing activity meaning homeowners are more likely to keep their mortgages longer. Lessened demand for Treasuries results when companies like Freddie Mac and Fannie Mae sell their longer dated Treasuries when adjusting their hedging strategies. Mortgage related selling in the bond market pushes rates higher which then could lead to more selling.
Consumer credit rose e$3.9 billion in January, less than expectations for a $5.0 billion gain. Over the past year consumer credit outstanding has grown at an average of $5.0 billion per month or an annual rate of 2.9% making it the slowest pace of growth since 1993. Slower credit growth shows consumers' reluctance to take on more debt and instead use home equity extraction to finance their spending.

Wednesday, March 8th
The MBA mortgage applications index rose 0.7% to 575.6% for the week that ended March 3. The purchase index slipped 0.4% last week as the refinance index rose 2.6%. The gain in refinancing reflects recent modest declines in mortgage interest rates. But slowing in the housing market is expected to continue.

Thursday, March 9th
Mortgage rates popped up this week to a two-and-a-half year high as Treasury yields rose in the bond market. Stronger economic data, inflation concerns and higher global interest rates continued to solidify rate hike expectations and push yields higher and mortgage rates followed. 30-year fixed rate mortgages averaged 6.37% this week compared to 6.24% last week according to Freddie Mac's mortgage market survey. Economists at Freddie Mac note that higher rates will continue to cool the housing market this year to a more normal pace of activity.
The international trade deficit on goods and services widened to $68.5 billion in January from a shortfall of $65.1 billion in December. The wider than expected gap was due a 3.5% gain in imports while exports gained 2.5%. Both surged to new record highs on strong foreign and domestic demand. Because imports are almost 50% larger than exports and are growing faster, expect the trade deficit to widen further going forward.
Treasuries were flat after an $8.0 billion auction in 10-year notes Thursday. The notes were awarded a high yield of 4.76% and received a 2.87 bid-to-cover ratio compared to 2.32 at the last auction. Results seemed strong but indirect bidders which include foreign central banks accounted for just 5.5% of the accepted bids. Price movements were limited ahead of Friday's employment report. In late trading the 10-year note was little changed at 98-6/32 to yield 4.72%.
Jobless claims increased 8k to 303k for the week that ended March 4. This is the first time since January that claims have topped 300k. Nevertheless, the level of claims indicates solid labor market conditions and is consistent with monthly payroll growth of around 200k.

Friday, March 10th
Payroll employment increased 243k in February, better than an expected gain of 210k. However, revisions to January's payroll tally showed 23k fewer jobs. Strength emanated from the service sector as factory and construction jobs gained moderately. Hourly earnings rose 0.3% in February and are up 3.5% over the last twelve months, the fastest pace since September 2001. The unemployment rate edged higher in February to 4.8% from 4.7% of the workforce. With over 2 million jobs created over the past year the outlook is for strong job growth to continue this year.


Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11076.34 11021.59 +54.75 or +0.49%
NASDAQ 2262.04 2302.60 -40.56 or -1.76%



WEEK IN ADVANCE
Recent strong data like Friday's employment report have firmed rate hike expectations. Fed funds futures traders are pricing in a 100% likelihood of a quarter point hike at the end of March and a 94% probability of another one in May. That would bring the target for the fed funds rate to 5.0%.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 7.50 6.50 5.50
Fed Discount 5.50 4.50 3.50
Fed Funds 4.50 3.51 2.50
11th District COF 3.347 2.757 2.183
10-Year Note 4.76 4.13 4.45
30-Year Treasury Bond 4.74 4.40 4.82
30-Yr Fixed (FHLMC) 6.37 5.71 5.85
15-Yr Fixed (FHLMC) 6.00 5.30 5.38
1-Yr Adj (FHLMC) 5.45 4.45 4.24
6-Mo Libor (FNMA) 4.9907 4.0817 3.1495
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco




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Upward pressure on interest rates
Downward pressure on interest rates
No pressure to change interest rates
News worthy

[DennisAJC]

So......What are you trying to tell us Adam???


Are you piking on MOAB?

[CO Hummer]

He's trying to get everything intelligent out of his system. That way he can just eat, drink, burp and fart in Moab.