Economic Highlights for the Week Ending October 15, 2010

MONDAY, October 11th.

COLUMBUS DAY

Equities and Futures Markets Open
TUESDAY, October 12th

The minutes from the September 21 FOMC meeting showed that policy makers, concerned about the sluggish pace of the recovery, considered initiating quantitative easing measures at this meeting but decided to wait. The data since that time has most definitely confirmed still weak labor market conditions with the release of the September employment report and very weak inflation readings. The Fed will probably act November 2, announcing plans to purchase more securities and using the policy statement language perhaps, to raise inflation expectations.

WEDNESDAY, October 13th

The MBA mortgage applications index jumped 14.6% to 897.2% for the week ending October 8. This was the first increase in six weeks, its largest gain since mid-June and its highest level since mid-May 2009. Mortgage activity is now 20.8% above its year ago level. The purchase index sank 8.5% last week and remains down 37.5% over the last year. The refinance index surged 21.0% on the week and is up 50.0% from a year ago. Refinancing activity now accounts for more than 80% of total new mortgage activity. Contract mortgage rates fell again this week with the 30-year fixed down 4 basis points to 4.21%.

THURSDAY, October 14th

Jobless claims increased 13k to 462k for the week ending October 9. The disturbance in the recent downward trend in claims suggests an elevated pace of layoffs. A declining number of continuing claims last week suggests that many people collecting unemployment have exhausted their benefits rather than finding a job. For the most part hiring remains anemic.
The producer price index rose 0.4% in September as food prices jumped 1.2% and energy costs increased 0.5%. Excluding food and energy from the index, the core PPI gained 0.1% on the month and was up a mild 1.5% on the year. Core producer inflation remains subdued although it has been slowly climbing over the last six months. Core prices at the crude and intermediate stages of production are elevated although they are not being passed through to the finished stage at this time because of limited pricing power related to weak demand and slow economic conditions.

The international trade deficit on goods and services widened to $46.3 billion in August from a shortfall of $42.6 billion in July. The larger trade gap was a result of a much stronger gain in imports during the month compared to exports. Both imports and exports hit bottom in April/May 2009 and have bounced back significantly since then. This has led to a widening of the trade deficit and much weaker net exports. Net exports will once again subtract from Q3 GDP but at a slower pace than in Q2.

FRIDAY, October 15th

Retail sales rose 0.6% in September better than an expected gain of 0.4%. Moreover, retail sales in the previous two months were revised higher. Over the past year retail sales have increased a strong 7.3%. Some of the sales strength last month was based on an increase in unit vehicle sales. Excluding motor vehicles, core retail sales rose 0.4%, in line with expectations. Based on these data, consumers continue to shop despite high unemployment, sluggish income growth and relatively tight credit. Real consumption will be a positive contributor to Q3 GDP.

The consumer price index rose 0.1% in September less than an expected increase of 0.2%. Food prices rose 0.3% while energy prices jumped 0.7%. Excluding food and energy prices from the index, core consumer inflation was unchanged on the month and up a very mild 0.9% on the year, its lowest yearly gain in nearly 50 years. Soft final demands, slack in the economy combined with financial deleveraging contribute to disinflationary tendencies, the point at which inflation is too low. The quantitative policy moves the Fed is contemplating for their meeting will likely result in higher inflation expectations.