Economic Highlights for the Week Ending December 10, 2010

MONDAY, December 6th

Treasury prices headed higher, subsequently lowering yields in the bond market today in response to Ben Bernanke's 60-Minutes interview that aired over the weekend. The Fed Chairman said that the central bank could increase QE2 beyond the announced $600 billion limit if necessary. He assessed the economic recovery at this time to be barely self-sustaining and that persistently high unemployment remains a threat. Bernanke said it could take 4 or 5 years to reduce unemployment by half the current 9.8% rate. The 10-year note was up in afternoon trading, as its yield fell to 2.95% from 3.00% late Friday.

TUESDAY, December 7th

Consumer credit increased by $3.3 billion in October compared to expectations for a $1.0 billion decline. Revolving debt balances like credit cards fell by a sharp $5.6 billion as lenders continued to write-off bad debts. Over the past year, revolving debt has fallen by an average of $7.1 billion a month and is expected to continue trending lower in the months ahead. Non-revolving credit categories like car loans increased by $9.0 billion in October after surging $10 billion in September as consumers purchased new vehicles due to better credit availability. Consumer credit usage remains dependent on reliable job growth.

Extension of the Bush tax cuts by the Obama administration and congressional Republicans today improved the economic outlook. The proposed tax cuts will provide a substantial boost to growth in 2011 and virtually eliminate the potential for the economy to slip back into recession. Economists project the economy to grow at a 4.0% rate next year with job creation of 2.8 million. It also greatly reduces the chance the Fed would have to employ additional easing measures. Yields were sharply higher across the maturity spectrum with the benchmark 10-year note yield up 21 basis points to finish at 3.13%.

WEDNESDAY, December 8th

The MBA mortgage applications index fell 0.9% to 603.5% for the week ending December 3. In a reversal of recent trends the purchase index increased in six of the last seven weeks gaining 1.8% last week but still down 12.7% on the year. The refinance index fell for the fourth straight week, down 1.4% and now 8.0% lower than last year.

THURSDAY, December 9th

Long-term fixed mortgage rates rose again this week and are now nearly 50 basis points higher than the record low set in mid-November. Investors fled the bond market this week as progress was made in the European debt crisis and as the outlook improved for the U.S economy. Yields rose and mortgage rates followed suit as the 30-year fixed rate rose to 4.61% from 4.46% in the prior week according to Freddie Mac's mortgage market survey.

Jobless claims dropped 17k to 421k for the week ending December 4. Initial claims for unemployment are trending irregularly lower and are now maintaining well below the 450k level. Claims remain elevated indicating still sluggish hiring conditions however; claims are headed lower showing some progress is being made in the labor market.

FRIDAY, December 10th

The international trade deficit on goods and services decreased to $38.7 billion in October from a trade gap of $44.6 billion in September. The shortfall was due to stronger exports while imports declined. Net exports subtracted 1.75 percentage points from Q3 GDP; October trade data suggests net exports will add positively to Q4 economic growth.

Consumer sentiment increased to 74.2% in early December from 71.6% in November. Consumers' ratings of both current conditions and expectations increased this month. Sentiment is up sharply in the past two months indicating perhaps, a turn toward optimism.

The federal government ran a $150.4 billion budget deficit in November compared to a $120.3 billion deficit in November 2009. Calendar effects on outlays are the reason for the year-over-year deterioration in the budget. Fiscal year-to-date the cumulative budget deficit is running at $290.8 billion vs. a $296.7 billion deficit for the same period last year. After improving somewhat last year the CBO projects the 2011 budget deficit to be on par with the record 1.4 trillion deficit of 2009.