Last Week in Review

[Adam in CO]

Economic Highlights for the Week Ending August 4, 2006

Monday, July 31st Fed funds futures traders were pegging the chances of another rate increase at the next FOMC meeting at about 31% today.

Tuesday, August 1st The ISM manufacturing index increased to 54.7% in July from 53.8% in June. The price index contained in this data series also increased, showing elevated price pressures. Manufacturing activity continued to expand solidly last month. That, combined with higher prices raised some doubt as to an anticipated Fed pause next week. Personal income rose 0.6% in June in line with expectations. Gains in both wages and transfer payments boosted income growth in June. Consumer spending increased 0.4% in June after a 0.6% gain in May. A closely watched inflation gauge contained in these data, the core PCE price deflator rose 0.2% for the month and was up 2.4% on the year, its highest level since September 2002. The NAR's pending home sales index rose 0.4% in June after an upwardly revised gain of 1.4% in May. The pending home sales index is a leading indicator of existing home sales. Recent index gains suggest more stable market conditions early in the third quarter. Construction spending rose 0.3% in June, as spending in the previous two months was upwardly revised to show modest gains instead of declines. June's gain was led by a 2.7% surge in non-residential construction. Investment in the non-residential segment continues to lead spending growth and is expected to remain a source of strength for the economy the second half of this year.

Wednesday, August 2nd Motor vehicle sales jumped 5.8% in July to an annual rate of 17.2 million units. Generous auto dealer incentives gave sales a lift last month. However, sales are well off their year ago annual rate of over 20 million units when employee discounting was first introduced. Retail sales and consumer spending will get a boost from higher auto sales which will jumpstart third quarter growth. The MBA mortgage applications index fell 1.2% to 527.6% for the week that ended July 28. Purchase applications fell 3.3% on the week while refinancings rose 2.2%. Mortgage application volume, down 29.8% from year ago levels, has been trending lower since last year under higher interest rates.

Thursday, August 3rd The ISM non-manufacturing index fell to 54.8% in July from 57.0% in June. July's reading of service sector expansion was the lowest it's been since Hurricane Katrina. The level of the index shows growth in the sector albeit at a slower pace. Factory orders increased 1.2% in June less than an expected gain of 1.8%. Durable goods orders led the gain. Demand for nondurable goods declined. Factory activity remains volatile but is trending higher. Jobless claims rose 14k to 315k in the week that ended July 29. The level of claims, while volatile and a bit higher than expected this week, are still consistent with solid labor market conditions. Mortgage rates tumbled again this week on GDP data that showed slower than expected economic growth in the second quarter with fairly tame inflation. 30-year fixed rate mortgages averaged 6.63% this week compared to 6.72% last week according to Freddie Mac's mortgage market survey. Economists expect long term mortgage rates to drift higher and lower but remain below 7.0% this year.

Friday, August 4th Payroll employment increased just 113k in July much less than an expected gain of 145k. Despite the weakness in job growth, average hourly earnings gained a strong 0.4% on the month. The average workweek remained unchanged at 33.9 hours while the unemployment rate increased to 4.8% of the workforce. Employment data today support a Fed rate hike pause Tuesday but a small chance remains it could go the other way.
Stock Market Close for the Week Index Latest A Week Ago Change DJIA 11240.35 11219.70 +20.65 or +0.18% NASDAQ 2085.05 2094.14 -9.09 or -0.43%


WEEK IN ADVANCE The FOMC meeting Tuesday highlights this week. The data are in and most are leaning toward a pause. Data coming up on the economic calendar include Q2 productivity, retail sales, import prices and the deficits, trade and budget. Also, the Treasury will auction $44 billion in notes and bonds at its quarterly refunding. Key Interest Rates Latest 6 Mos Ago 1 Yr Ago Prime Rate 8.25 7.32 6.25 Fed Discount 6.25 5.32 4.25 Fed Funds 5.25 4.44 3.29 11th District COF 4.090 3.296 2.676 10-Year Note 4.90 4.55 4.34 30-Year Treasury Bond 4.99 4.63 4.57 30-Yr Fixed (FHLMC) 6.63 6.23 5.82 15-Yr Fixed (FHLMC) 6.27 5.81 5.38 1-Yr Adj (FHLMC) 5.69 5.33 4.47 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