Economic Highlights for the Week Ending December 3, 2010

MONDAY, November 29th

Along with a full slate of economic releases this week, the lame duck Congress reconvenes for their final session. Many weighty issues have been left for decisions during this time including the Bush tax cuts, set to expire January 1 and extension of unemployment benefits for nearly 2 million workers. Some form of relief is likely in both cases. Funding the budget and more importantly, reducing the deficit are also on the agenda. A stronger economy will help broaden the tax base and naturally reduce the need for federal spending. Additionally, deficit reduction will require sacrifices in the form of higher taxes and deep spending cuts in many programs that could impact many Americans.

TUESDAY, November 30th

The S&P/Case-Shiller 20-city home price index fell 0.8% in September the third straight monthly decline. Home prices are now only 0.6% above their year ago level. As recently as May, home prices were up 4.7% year over year. Sharply lower home price gains in the past four months is reflective of soft existing home sales during the period combined with a high percentage of distressed sales. Larger home price declines can be expected going forward as foreclosure inventories work through the market next year.

The consumer confidence index increased to 54.1% in November from a level of 49.9% in October. The gain was led by a higher expectation score though present situation ratings were up slightly as well. Nevertheless, confidence remains mired in recessionary territory as consumers wait for stronger job creation and faster growth.

WEDNESDAY, December 1st

The MBA mortgage applications index dropped 16.5% to 608.8% for the week ending November 26. The purchase index increased 1.1% on the week as the refinance index plunged 21.6%. The refinance index is trending sharply lower over the past several weeks while it appears that purchase activity may finally be recovering from its post-tax credit correction. Currently rates remain near historic lows and credit markets continue to thaw which should encourage homeowners to refinance. Home sales and purchase activity remain dependent on a substantial turnaround in job and income growth.
The ISM manufacturing index slipped to 56.6 in November from 56.9 in October. Manufacturing activity nationwide is holding up well; the level of the index indicates continued expansion in manufacturing activity nationwide with mild expansion in the broader economy.
Motor vehicle sales maintained an elevated 12.3 million unit annual pace in November, matching the highest sales level since September 2008, with the exception of the cash-for-clunkers program in August 2009. Despite the improvement, vehicle sales remain well below their longer running average of 16 million units per year. Sales are not expected to return to that pace for another year or two.

The Fed's beige book summary of economic conditions in their 12 banking districts during October and early November showed that the economy continued to improve on balance in most all areas of the country. Consumer spending, manufacturing and jobs growth were slightly stronger while inflation and wage pressures remained subdued. The housing market and commercial construction remained the weak spots. The report, compiled in preparation for the December 14 FOMC meeting, indicates the fed funds rate will be maintained close to zero for an extended period.

THURSDAY, December 2nd

Jobless claims jumped by 26k to 436k for the week ending November 27. Even with the gain, initial claims are trending lower and maintaining a range below 450k suggesting the pace of layoffs has slowed again. Other data from the labor market however suggests the pace of hiring has yet to pick up in earnest.

The pending home sales index rose 10.4% in October to 89.3%. The rise in the index over the last few months could result in stronger existing home sales in November and December. However, any improvement in home sales will be from a very low level.

FRIDAY, December 3rd

Payroll employment grew by 39,000 in November much less than an expected job gain of 145,000. The government shed 11k jobs while private sector jobs rose by 50k. Upward revisions in the prior two months resulted in a net gain of 38k additional jobs which provided some offset to weaker-than-expected private sector job growth. So far this year the private sector has created 1.171 million jobs; employment is still 7.412 million below its December 2007 peak level. Separately, the unemployment rate rose to 9.8% last month from 9.6% in October.