Economic Highlights for the Week Ending August 18, 2006
Monday, August 14th Financial markets believe that the Fed may not be done with rate hikes just yet. Fed funds futures traders are pricing in a 27% chance the FOMC will raise rates at their September 20 meeting but nearly a 70% chance of another tightening in December. Inflation data remains key to the interest rate outlook.
Tuesday, August 15th The producer price index increased 0.1% in July after a 0.5% gain in June. Over the past year producer prices have climbed 4.1% with 2.9% of that attributable to higher energy prices. Excluding food and energy from the index core producer prices fell 0.3% in July and were up just 1.3% over the last year. The unexpected drop in core wholesale inflation provided some relief but price pressures at the crude and intermediate levels of processing remain. The NAHB housing market index plunged 7 points to a level of 32 in August. Homebuilders rated current sales and sales prospects in six months much lower while foot traffic through model homes slowed substantially. The contraction in builders' attitudes stems from a high level of sales cancellations and rising inventories homes for sale. The NAR reported that house price growth slowed appreciably in the second quarter. Median existing home prices showed the largest gain in the Northeast where they rose 6.3%. Median prices were up 4.1% in the South and 3.6% in the West. Second quarter median existing single-family home prices were down 2.0% in the Midwest. Of the 151 metro areas included in the report 37 showed double digit growth while 26 showed minor price declines. NAR chief economist, David Lereah said appreciation rates slowed to single digits in most metro areas and that the cooling is indicative of a soft landing in the housing sector. Weakening house prices also may signal an end to Fed rate hikes.
Wednesday, August 16th The consumer price index increased 0.4% in July, in line with expectations. Rising energy costs pushed the index higher once again last month. The CPI has now gained 4.2% in the last twelve months. Excluding food and energy, the core CPI rose 0.2% last month and is up 2.7% over the last year. Although core inflation is slowing, it is still running at a faster pace than the Fed would like to see. Industrial production rose 0.4% in July less than an expected gain of 0.6%. Weakness was concentrated in manufacturing output which gained just 0.1% because of weak auto production. Excluding motor vehicles gains were quite strong. Mining production gained 0.8% while utilities usage surged 2.0% because of a nationwide heat wave the last two weeks of July. The capacity utilization rate inched higher to 82.4% from 82.3% in the previous month. Housing starts fell 2.5% in July to a seasonally adjusted annual rate of 1.80 million. Housing starts have tumbled 20.8% since peaking in January of this year and are now at their lowest level since 2003.
Thursday, August 17th Jobless claims fell 10k to 312k for the week that ended August 12. Claims were lower than expected last week with the level consistent with moderate growth in payrolls. The index of leading economic indicators fell 0.1% in July, below estimates for a 0.1% gain. The decline was led by a 6.5% drop in building permits during the month. The pace of decline in the housing market is worth noting due to its impact on the broader economy. The LEI index suggests economic growth will continue to slow over the next six to nine months.
Friday, August 18th Consumer sentiment fell 6.0 points to 78.7% in the preliminary reading for August. The drop was led by much lower ratings in the expectations component though current conditions ratings dropped as well. Turmoil in the Middle East and its impact on oil prices probably weighed on consumer attitudes this month. With a cease fire now in place and oil prices retreating the final August sentiment reading in two weeks will likely improve.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11381.47 11088.03 +293.44 or +2.64%
NASDAQ 2163.95 2057.71 +106.24 or +5.16%
WEEK IN ADVANCE Housing market activity remains central to the broader economic outlook. New and existing home sales this week will provide the latest read on the pace of the slowdown in the housing sector.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 7.50% 6.50%
Fed Discount 6.25% 5.50% 4.50%
Fed Funds 5.25% 4.49% 3.54%
11th District COF 4.090% 3.296% 2.676%
10-Year Note 4.83% 4.59% 4.24%
30-Year Treasury Bond 4.97% 4.56% 4.41%
30-Yr Fixed (FHLMC) 6.52% 6.28% 5.80%
15-Yr Fixed (FHLMC) 6.20% 5.91% 5.40%
1-Yr Adj (FHLMC) 5.65% 5.36% 4.58%
6-Mo Libor (FNMA) 5.5473% 4.8126% 3.923%
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
08-21-2006, 05:37 PM
Week In Review
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