Week In Review

[Adam in CO]

Economic Highlights for the Week Ending August 25, 2006

Monday, August 21st Stocks suffered under Lowe's lower guidance Monday. It seems that consumer spending is taking a hit from higher gas prices and the housing slowdown. Consumer spending accounts for nearly two-thirds of all economic activity so as goes spending so goes the economy. Investors are expecting some consolidation this week after last week's run-up. The Dow fell 36.42 to 11345.05. The NASDAQ tumbled 16.20 to 2147.75.

Tuesday, August 22nd The National Association of Homebuilders housing opportunity index fell to 40.6% in Q2 from a level of 41.3% in Q1. Essentially, the level of the index represents the percentage of new and existing homes that were sold during the quarter that were affordable to families earning the national median income of $59,600. Higher mortgage rates decreased affordability in the second quarter. Nationally, the weighted mortgage interest rate was 6.65% in Q2 compared to 6.39% in Q1. The nation's most affordable major metro area was Indianapolis where 87.4% of homes sold were affordable to families with the area's median income of $65,100. The least affordable major metro area was Los Angeles where just 2.0% of homes sold during the quarter were affordable to those earning the area's median income of $56,200. The median sales price of homes sold in Indianapolis and Los Angeles during the period was $120,000 and $521,000 respectively.

Wednesday, August 23rd Existing home sales fell 4.1% in July to a seasonally adjusted annual rate of 6.33 million units. Sales were much weaker than expected last month missing estimates for a rate of 6.55 million. Existing home sales have been trending lower since peaking last summer with declines driven by higher mortgage interest rates. Slower sales have resulted in much higher inventories which in turn are placing downward pressure on prices. Due to softening fundamentals, further slowing in the housing is expected. The MBA mortgage applications index rose 0.1% to 561.5% for the week that ended August 18. Applications activity increased for the third straight week in response to mortgage rate declines during the same timeframe. Despite the gain, application volume continues to trend lower and remains down 25.7% on the year.

Thursday, August 24th Durable goods orders fell 2.4% in July led by a large decrease in orders for transportation equipment, mainly motor vehicles and civilian aircraft. Excluding the volatile transportation sector, durable goods orders rose 0.5% on the month. Despite the steep decline, durable goods manufacturing remains healthy outside of the auto sector. Jobless claims fell 1k to 313k for the week that ended August 19. The level of the index suggests a low level of layoffs and modest payroll expansion. Expectations are for jobless claims to drift higher in coming months as the slowdown in the housing sector reduces construction and other types of jobs supported by the sector. Mortgage rates slipped for the fifth straight week on lower rate hike expectations. Weaker than expected housing market data confirms a broader economic slowdown and lessens the chance the Fed will raise again this year. 30-year fixed rate mortgage averaged 6.48% this week compared to 6.52% last week according to Freddie Mac's mortgage market survey.

Friday, August 25th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11284.05 11381.47 -97.42 or -0.85%
NASDAQ 2140.29 2163.95 -23.66 or -1.09%


WEEK IN ADVANCE Slower housing data raised hopes that the Fed's work may be done. A slew of data this week should help determine if the possibility of another rate hike has been taken off the table prematurely. Of keen interest will be consumer confidence, payrolls, the ISM index and motor vehicle sales, all covering the August period. Also, the preliminary revision to Q2 GDP should show stronger economic growth than first estimated.

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% 3.52%
11th District COF 4.090% 3.296% 2.676%
10-Year Note 4.78% 4.56% 4.20%
30-Year Treasury Bond 4.92% 4.51% 4.37%
30-Yr Fixed (FHLMC) 6.48% 6.26% 5.77%
15-Yr Fixed (FHLMC) 6.18% 5.89% 5.35%
1-Yr Adj (FHLMC) 5.60% 5.32% 4.56%
6-Mo Libor (FNMA) 5.5473% 4.8126% 3.9235%

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