Economic Highlights for the Week Ending March 31, 2006 (For CO)

[Adam in CO]

Volume 12, Number 12

Monday, March 27th
The U.S. Treasury auctioned $22 billion of 2-year notes today with a high yield of 4.73%. The notes received a 2.12 bid-to-cover ratio compared to 2.24 last month. 2-year yields are reflecting the anticipated Fed rate hike Tuesday. Treasuries moved lower Monday with 10-year notes down 9/32 to 98-12/32 to yield 4.70%.

Tuesday, March 28th
The consumer confidence index shot up 4.5 points to 107.2% in March to its highest level since May 2002. Also, the March confidence reading breaks out to the high side of the range it has been in for the past three years. Consumers rated both the present situation and expectations for the future higher and more indicated they believed jobs were plentiful. Stronger labor market conditions have boosted consumer optimism for now but confidence levels are likely to remain range bound going forward amid higher gas prices and rising interest rates.
The FOMC raised key short term interest rates by 25 basis points today as widely expected. The target for the fed funds rate now stands at 4.75%. This was the Fed's 15th straight rate hike since the tightening cycle began in June 2004. The policy statement released after the meeting, announcing the rate increase and touching upon the rate outlook, remained little changed. Bernanke pledged continuity of Greenspan's policies when he was first sworn in and has fulfilled that promise in his first meeting as Chairman today. The statement said that economic growth rebounded in the first quarter but is likely to moderate to a more sustainable pace. Also, energy prices could boost inflation but have not so far because of productivity growth. Other risks that could add to inflationary pressures are increases in resource utilization and higher commodity prices. The Fed also stated that further policy firming may be needed in order to keep the risks to both growth and inflation roughly in balance. Futures markets have placed a high probability of one more rate hike to a target of 5.0% at the next meeting in May.

Wednesday, March 29th
The MBA mortgage applications index rose 1.2% to 571.7% for the week that ended March 24. The purchase index gained 2.4% on the week while the refinance index fell 1.0%. Mortgage application activity overall remains down 15.2% over the past year and is expected to continue trending lower this year as rates move higher.
The NAR housing affordability index rose 1.0% in February as a decline in the median price of a single family home more than off set a mild increase in mortgage interest rates. A lower priced home means lower principal and interest payments thus more incomes would qualify to buy. Affordability is likely to suffer if rates rise sharply but the outlook is for improved housing affordability this year as house price gains slow amid weaker demand.

Thursday, March 30th
Fourth quarter GDP was upwardly revised in its final estimate to 1.7% rate of growth from 1.6% in the preliminary reading. On an annual basis the economy grew at 3.2% rate. While growth was little changed in the final revision to GDP, economy wide inflation increased to 3.5% during the quarter from 3.3% previously. Over the past year inflation has increased 3.1%, its fastest pace since 1991.
Jobless claims fell 10k to 302k for the week that ended March 25. Claims have maintained this low range for several months indicating solid labor market conditions and another strong gain in monthly payroll employment for March.

Friday, March 31st
Personal income rose 0.3% in February as consumption increased just 0.1%. Income growth slowed over the past month but wage and salary gains remained solid. Spending growth, though modest was a bit better than expected. The Fed's favorite inflation gauge, the PCE deflator was unchanged from last month while the core deflator, which excludes food and energy, was up just 0.1% on the month and 1.8% on the year  under the 2.0% level the Fed deems acceptable for inflation.


Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11109.40 11279.97 -170.57 or -1.51%
NASDAQ 2339.79 2312.82 +26.97 or +1.16%



WEEK IN ADVANCE
The economic data, more important than ever now because of the nearing end to the Fed's tightening cycle, will continue to drive interest rate movements. The economic calendar is chock full this week with everything from the employment report to construction spending, manufacturing to the service sector, motor vehicle sales to consumer credit. Payroll employment on Friday highlights, with an expected job gain of 194,000.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 7.75 6.75 5.75
Fed Discount 5.75 4.75 3.75
Fed Funds 4.88 3.76 2.77
11th District COF 3.347 2.757 2.183
10-Year Note 4.85 4.55 4.55
30-Year Treasury Bond 4.89 4.56 4.72
30-Yr Fixed (FHLMC) 6.35 5.91 6.04
15-Yr Fixed (FHLMC) 6.00 5.48 5.58
1-Yr Adj (FHLMC) 5.51 4.68 4.33
6-Mo Libor (FNMA) 5.1196 4.2154 3.3876
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