Weekly Economic Update

Volume 15, Number 45 Economic Highlights for the Week Ending December 4, 2009

MONDAY, November 30th The Obama administration announced today that together with the Treasury and HUD they will step up efforts to convert more borrowers who are in the trial phase of the Home Affordable Modification Program to permanent modifications. To increase the conversion rate, a new agency will monitor the nation's largest servicers for the status of each loan and the number of permanent modifications. Currently, about 650k borrowers are in the trial period for modifications.

TUESDAY, December 1st Motor vehicle sales increased 4.5% in November to an annual rate of 10.9 million units. The better than expected sales appear to be clear of the cash-for-clunkers effect of the past several months. Moreover, sales were roughly 5% above the year ago total, the first yearly gain since November 2007. Truck and auto sales are moving in the right direction but remain quite weak due to credit restraints and poor job prospects. The ISM manufacturing index slipped to 53.6% in November from a level of 55.7% in October. The index reading was a bit lower than expected however; the level still indicates modest ongoing expansion in national manufacturing conditions. The pending home sales index rose 3.7% in October to 114.1, its highest level since March 2006. The index is now 31.8% above its year ago level. The index has gained steadily over the last 6 to 9 months indicating stronger existing home sales in November and December. Construction spending was unchanged in October from November after sharp downward revisions in the previous two months. After a substantial three year decline, construction spending now appears to be bottoming out. Any recent gains in total spending are being carried by improvement in the residential sector although homebuilding remains about 60% lower than at its peak. The nonresidential sector continues to tumble while public construction spending remains volatile.

WEDNESDAY, December 2nd The MBA mortgage application index increased 2.1% to 613.7% for the week ending November 27. The purchase index rose 4.1% during the week and is down 35.7% from a year ago. The refinance index gained 1.7% on the week but is 24.6% lower than its year ago level. Refinance activity accounted for more than 70% of all new mortgage activity and has been on a modestly rising trend most of the year as homeowners continue to take advantage of low mortgage interest rates. The Fed's round-up of economic conditions known as the beige book portrays an economy that is recovering irregularly depending on the region and industry. The survey covers the timeframe of late October and November and is compiled in preparation for the next FOMC meeting December 15. The majority of districts reported a pick-up in activity, including consumer spending and residential real estate but the commercial real estate market continued to struggle. Inflation was subdued, labor market remained weak and credit was still an issue. The economy is in the beginning stages of a mild recovery and so monetary policy is expected to be accommodative for the foreseeable future.

THURSDAY, December 3rd Jobless claims fell 5k to 457k for the week ending November 28. Meanwhile, claims were downwardly revised in the previous week to 462k. Declines in the last two weeks put initial claims in a new lower range indicating improved labor market conditions especially compared to the first half of the year. Layoffs appear to have slowed while hiring remains weak.

FRIDAY, December 4th The economy shed only 11k jobs in November, much stronger than a projected payroll decline of 125k. Additionally, upward revisions in the past two months resulted in a net 159k fewer job losses. Steep payroll declines have stopped for the moment possibly laying the foundation for job gains over the next several months. However, with over 7 million jobs lost since the onset of the recession, the road back will likely be long and arduous. Also on a positive note, the unemployment rate fell to 10.0% of the workforce from 10.2% previously.

Stock Market Close for the Week

Index Latest A Week Ago Change DJIA 10388.90 10309.92 +78.98 or +0.76% NASDAQ 2194.35 2138.44 +55.91 or +2.61%

WEEK IN ADVANCE

All eyes will be on the retail sales report for November, due out on Friday in the coming week, for the latest data on the all-important holiday shopping season.

Key Interest Rates Latest 6 Mos Ago 1 Yr Ago Prime Rate 3.25 3.25 4.00 Fed Discount 0.50 0.50 1.25 Fed Funds 0.13 0.19 0.49 11th District COF 1.259 1.380 3.125 10-Year Note 3.47 3.70 2.66 30-Year Treasury Bond 4.39 4.54 3.15 30-Yr Fixed (FHLMC) 4.71 5.29 5.53 15-Yr Fixed (FHLMC) 4.27 4.79 5.33 1-Yr Adj (FHLMC) 4.25 4.81 5.02 6-Mo Libor (FNMA) 0.48813 1.24000 2.59125 Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco