Volume 15, Number 6                                      Economic Highlights for the Week Ending February 13, 2009
MONDAY, February 9th
Treasuries were little changed Monday ahead $67 billion in new supply scheduled for sale this week. Supply issues were weighing on prices somewhat but the bond market was in wait-and-see mode ahead of major policy decisions out of Washington this week. Traders remained uncertain about the stimulus package and the bank bailout plan. The 10-year note was up 2/32 106/14/32 to yield 2.98%.
TUESDAY, February 10th
In addition to the Treasury’s sweeping bank stabilization plan which put forth two major goals of jump starting the economy and restoring credit flows, Fed Chairman Ben Bernanke, spoke to the House Financial Service Committee about the Federal Reserves liquidity measures. The Chairman’s remarks followed an announcement by the Federal Reserve that it will expand the Term Asset-Backed Securities lending Facility to as much as $1 trillion. That means the Fed will purchase a broad array of securities to use this credit tool. Bernanke indicated the measures were helping but ultimately were not a cure. On a separate policy front, the Senate approved an $838 billion stimulus bill that will now go back to the House where it will be reconciled with the $820 billion bill passed there, before going to the President for his signature.
WEDNESDAY, February 11th
The international trade deficit on goods and services narrowed to $39.9 billion in December from a $41.6% shortfall in November. This is the fifth straight month the deficit has shrunk due to steep declines in imports and exports related to weakening global economic conditions and lower oil prices. Weaker-than-expected trade activity will detract further from Q4 GDP in subsequent revisions.
The Treasury budget deficit totaled $83.8 billion in January compared with a budget surplus of $17.8 billion in January 2008. Shrinking revenues and ballooning outlays related to TARP are resulting in unheard shortfalls in the budget. Fiscal year to date the cumulative budget deficit came in at $569 billion, more than six times greater than the budget gap for the same period last year.
The MBA mortgage applications index plunged 24.5% to 600.6% for the week ending February 6. The bulk of the decline was led by a 30.3% drop in the refinance index, though the purchase index decreased 9.8% as well. The recent uptick in mortgage rates has depleted many favorable refinancing opportunities and weighed on purchase activity. Most all policy actions at this point are aimed at reducing borrowing costs and freeing up credit flows which will be a boon to applications activity and the housing sector.
THURSDAY, February 12th
Retail sales increased unexpectedly last month, breaking a six-month string of declines. Retail sales were up 1.0% in January led by sales gains in autos, electronics and at restaurants. Despite the gain, consumer spending is still trending much, much lower as consumer pull back amid job losses, frozen credit, falling home values and financial market turmoil. It appears as though sales gains in January are a fluke and currently are not sustainable going forward.
Jobless claims fell 8k to 623k for the week ending February 7. Continuing claims rose by 11k to 4.81 million for the week ending January 31. The elevated levels of both initial and continuing claims shows increased layoffs and weak hiring, indicating severe deterioration in labor market conditions.
Mortgage rates fell this week in tandem with yields in the bond market. 30-year fixed rate mortgages averaged 5.16% this week compared to 5.25% last week according to Freddie Macs mortgage market survey. Separately, the NAR reported that home prices dropped a record 12.4% last quarter to $180,100 from $205,700 in Q407.
FRIDAY, February 13th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 7850.41 8280.59 -430.18 or -7.12%
NASDAQ 1534.36 1591.71 -57.35 or -3.60%
WEEK IN ADVANCE
For all the posturing and urgency, we seem to still be in the dark about the governments plans to rescue banks and stimulate the economy. Divining the economic data provides some detail as to the situation the economy is in regardless of the policy actions put forth to improve it. This week, look for inflation levels in the PPI and CPI and the latest on homebuilding activity in housing starts data.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 3.25 5.00 6.00
Fed Discount 0.50 2.25 3.50
Fed Funds 0.25 2.00 3.00
11th District COF 2.757 2.829 4.072
10-Year Note 2.89 3.91 3.72
30-Year Treasury Bond 3.67 4.54 4.53
30-Yr Fixed (FHLMC) 5.16 6.52 5.72
15-Yr Fixed (FHLMC) 4.81 6.07 5.25
1-Yr Adj (FHLMC) 4.94 5.18 5.00
6-Mo Libor (FNMA) 1.66000 3.08375 3.0413

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

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