Market News for the week ending January 19, 2007

[Adam in CO]

Inflation Data Matches Forecasts

The most highly anticipated news last week was the monthly inflation data, but the December figures offered few surprises. As a result, mortgage rates ended the week close to unchanged from the prior week. The December Consumer Price Index (CPI) inflation report came in as expected, with the core rate increasing at a 2.6% annual rate. The core level of the Producer Price Index (PPI) increased at a 2.0% annual rate, which was closer to the Fed?s comfort zone. These reports indicate that inflation is still declining along the path expected by the Fed.

While the inflation data closely matched the forecasts last week, unexpected strength was found in the labor market. Weekly Jobless Claims fell to the lowest level in eleven months, and the Philadelphia Fed manufacturing index showed a sizable pickup in its Employment component. Last week?s data is especially notable in light of the most recent Employment report, which shocked investors with its high level of job creation and wage gains. A healthy labor market enables more consumers to purchase homes. The downside is that rising labor costs may fuel future inflation, which could lead to higher mortgage rates down the road.

In fact, last week?s data provided further evidence that the housing market has improved over the last couple of months. December Housing Starts jumped 5%, handily beating the consensus, while Building Permits exceeded the forecasts by a similar margin, with the first increase seen in 11 months. In addition, the January Homebuilders index of sales activity rose to the highest level since July, above the 15-year low seen in September.

• Also Notable:
• December Building Permits exceeded the consensus forecasts, with the first increase seen in 11 months
• The January Homebuilders index of sales activity rose to the highest level since July
• The National Association of Realtors predicted that there will be 1.51 million housing starts in 2007
• Oil prices fell to $50 per barrel, the lowest level since early 2005

Average 30 yr fixed rate: Last week:+0.12%This week:+0.01%Stocks (weekly): Dow:12,560+22NASDAQ:2,447-46
Week Ahead
After a slow start, next week will feature important housing and manufacturing data. Existing Home Sales will be released on Thursday, followed by New Home Sales on Friday. Recent data appears to indicate that the housing sector has already experienced the worst of the slowdown, and these reports will be closely watched. The only other major economic data next week will be Friday?s look at Durable Orders, an important indicator of future economic activity. Treasury auctions and Fed speakers may help fill in some of the gaps in next week?s light economic schedule.

Sounds pretty much pc.

[KenP]

Thanks Amanda!!!