Week In Review

[Adam in CO]

Economic Highlights for the Week Ending November 10, 2006


Monday, November 6th The interest rate outlook ran the gamut last week with weak data at the start increasing rate cut expectations substantially and the employment report Friday replacing that with an on hold scenario through the first quarter of 2007. Fed funds futures traders are fully pricing in a stable fed fund target rate of 5.25% through January and less than 20% odds of a rate cut at the March FOMC meeting.

Tuesday, November 7th Two major homebuilders, Toll Brothers and Beazer Homes reported order declines of more than 50% in their latest fiscal quarters. Both builders continued to struggle with high inventories, slower demand for new homes, sharply higher cancellation rates and steep discounting. More evidence of slowing housing market conditions and its impact on the broader economy will continue to place downward pressure on rates. Consumer credit outstanding fell $1.2 billion in September driven primarily by a $4.1 billion decline in non-revolving credit, which is comprised mostly of car loans. Revolving credit or credit cards increased $2.9 billion during the month. Cash-out refinancing boosted by a drop in rates over the summer, continues to limit consumer credit balances. As the housing market slows in coming months, consumers may again turn to revolving credit usage to support spending.

Wednesday, November 8th The MBA mortgage applications index jumped 8.8% to 620.9% for the week that ended November 3. The purchase index surged 7.1% on a recent drop in mortgage interest rates. The refinance index surged 11.0% as homeowners moved to lock in fixed mortgage rates. Purchase application volumes remain 13.6% below year ago levels but refinancing activity is actually up 5.5% over last year.

Thursday, November 9th Import prices tumbled 2.0% for the second straight month in October, more than double estimates. The outsized decline last month was again led by falling petroleum prices which were down 8.3% in October after a 9.7% decrease in September. Excluding petroleum, import prices still fell 0.6% on the month. Import price declines bode well for upcoming consumer and producer price reports. The international trade deficit on goods and services fell 6.8% in September to $64.3 billion from a record high of $68.96 billion in August. The improvement in the trade gap was due to less expensive crude and lower import oil volumes during the month. Lower energy prices should help limit the growth in the trade deficit in coming months. A narrower than expected trade gap in September will likely result in an upward revision to third quarter GDP growth. Consumer sentiment fell 1.3 points to 92.3% in its preliminary reading for November. The slight drop in sentiment followed sharp gains in the prior two months which arrested the downward trend in sentiment that had been in place over the last two years. It appears that as gasoline prices have stabilized so have consumer attitudes. The final reading for November sentiment will be released in two weeks. Jobless claims fell 20k to 308k for the week ending November 4. Lower than expected unemployment filings last week indicate relatively tight labor market conditions and stable, if moderate pace of hiring. Mortgage rates drifted higher this week on evidence of underlying strength in recently released economic data. 30-year fixed rate mortgages averaged 6.33% this week compared to 6.31% last week according to Freddie Macs mortgage market survey. Slow economic growth in the current quarter has kept a lid on interest rate gains. Economists at Freddie Mac expect fourth quarter growth to rebound moderately although the increase is expected to come from sectors of the economy other than housing.

Friday, November 10th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12108.43 11986.04 +122.39 or +1.02%
NASDAQ 2389.72 2330.79 +58.93 or +2.53%


WEEK IN ADVANCE A full economic calendar next week yields the latest data on inflation, consumer spending, manufacturing and new home construction starts. Data results will be weighed against current outlook for economic slowing and possible rate cuts next year.
Key Interest Rates
Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 7.79% 7.00%
Fed Discount 6.25% 5.79% 5.00%
Fed Funds 5.25% 4.84% 4.00%
11th District COF 4.382% 3.624% 2.972%
10-Year Note 4.57% 5.14% 4.60%
30-Year Treasury Bond 4.68% 5.22% 4.74%
30-Yr Fixed (FHLMC) 6.33% 6.58% 6.36%
15-Yr Fixed (FHLMC) 6.04% 6.17% 5.89%
1-Yr Adj (FHLMC) 5.55% 5.62% 5.12%
6-Mo Libor (FNMA) 5.3898% 5.2879% 4.4467%

Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco