| Volume 16, Number 23 | Economic Highlights for the Week Ending June 18, 2010 | |
| MONDAY, June 14th | |  Fed funds futures traders believe monetary policy will remain unchanged for the rest of this year while lowering expectations for a rate adjustment in early 2011. Traders are pricing in a roughly a 48% chance the Fed will bump the fed funds rate to 0.5% at their January 2011 meeting down from 58% one week ago. The fed funds rate has been targeted in a range of 0% to 0.25% since December 2008.
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| TUESDAY, June 15th | |  The NAHB housing market index fell sharply in June, dropping to a level of 17 from a reading of 22 in May. The swoon in homebuilder confidence may be related to the downshift in the market following the expiration of the homebuyer tax credit. Weak economic data recently, especially the employment report for May also weighed. Builders lowered scores of current single family sales and sales six months from now while foot traffic through model homes decreased. The homebuyer tax credit provided temporary support for the housing market; now, recovery in the housing market is once again dependent upon growth in the economy, namely jobs and incomes.
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| WEDNESDAY, June 16th | |  The MBA mortgage applications index jumped 17.7% to 659.9% for the week ending June 11. The purchase index rose 7.3% last week, rebounding from its lowest level since the end of 1996 in the previous week. Until last week, the purchase index had fallen nearly 40% in the five weeks since the expiration of the tax credit indicating a slower pace of home sales this quarter and into the third. The refinance index increased 21.1%on the week, its fifth increase in the past six weeks. Refinancings account from almost 75% of total application activity.
| | The producer price index fell 0.3% in May as food prices fell 0.6% and energy prices dropped 1.5%. Excluding food and energy prices from the index, the core PPI rose 0.2% on the month and is up 1.3% on the year. These data indicate subdued inflation at the wholesale level. | | Industrial production increased 1.2% after a 0.7% gain in April. The May gain was led by a 4.8% surge in utilities usage though manufacturing output also increased 0.9% on the month. Total output has risen in 10 of the last 11 months and is now 7.6% above its year ago level. Although industrial activity has been in recovery mode for almost a year, it remains 7.9% below its December 2007 peak. | | Housing starts fell 10.0% in May to a 593k annual rate from a rate of 659k in April. The tumble in new construction starts last month correlates to the end of the homebuyer tax credit and the consequential pullback in demand for homes. Housing starts are now at their lowest level of 2010 but are still 7.8% above their year ago level. After the initial retraction associated with the homebuyer tax credit the outlook for home construction improves but does remain dependent upon a pick-up in job creation and the broader economy. | |
| THURSDAY, June 17th | | The consumer price index fell 0.2% in May as energy prices tumbled 2.9%. Headline consumer inflation is now up a modest 2.0% on the year. The core CPI, which excludes food and energy costs rose 0.1% last month and was up by just 0.9% on the year. Soft final demand and slack in the economy are subduing inflationary pressures which will allow the Fed hold rates down in order to revive the economy. | | Jobless claims rose 12k to 472k for the week ending June 12. The level of claims remains stubbornly high which unfortunately is consistent with weak job creation in the private sector last month. The May employment report combined with the elevated trend in initial claims suggests ongoing duress in labor market conditions. | |
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| Stock Market Close for the Week |
| Index | Latest | A Week Ago | Change | | DJIA | 10450.64 | 10211.07 | +239.57 or +2.35% | | NASDAQ | 2309.80 | 2243.60 | +66.20 or +2.95% | |
| WEEK IN ADVANCE |
| New and existing home sales for May, due out in the coming week will inform on the depth of the post-tax credit pullback. Also, the FOMC will meet and release their policy statement Wednesday. We may see recent weakness reflected in their outlook. Another $108 billion in new supply is scheduled to hit the bond market this week as well. |
| Key Interest Rates | Latest | 6 Mos Ago | 1 Yr Ago | | Prime Rate | 3.25 | 3.25 | 3.25 | | Fed Discount | 0.75 | 0.50 | 0.50 | | Fed Funds | 0.21 | 0.12 | 0.19 | | 11th District COF | 1.825 | 1.259 | 1.380 | | 10-Year Note | 3.22 | 3.56 | 3.75 | | 30-Year Treasury Bond | 4.14 | 4.48 | 4.55 | | 30-Yr Fixed (FHLMC) | 4.75 | 4.94 | 5.38 | | 15-Yr Fixed (FHLMC) | 4.20 | 4.38 | 4.89 | | 1-Yr Adj (FHLMC) | 3.82 | 3.34 | 4.95 | | 6-Mo Libor (FNMA) | 0.75188 | 0.48813 | 1.2400 | | Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco | |
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|  Upward pressure on interest rates
Downward pressure on interest rates
No pressure to change interest rates
News worthy
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