Market News - Weekly Wrap-up - 04.18.08

Market and Economic Recap

News on the new homes real estate industry, mortgage loans and the economy.

Business Week Ending April 18, 2008

News from the Labor Department

• Economic indicators: With the the Conference Board’s index of leading economic indicators posting its first rise in six months, analysts see that as a sign that the constriction of the economy may not be as brutal as they thought.  The infusion of money into the financial system and a relatively strong showing in manufacturing indicators helped boost the index.  Weak numbers in construction start-ups for new homes, job layoffs and lower stock prices hurt the index overall.  While the rise is positive, such small gains do not indicate that the economy is in recovery - yet.  Analysts will now watch closely to see if the government’s economic stimulus plan will do the job or fall flat.

• Consumer prices: The Labor Department said its inflation gauge, the Consumer Price Index (CPI) ended the month of March up 4% over the previous year and 0.3% from February at 213.3. But overall, inflation remains in check - a result of the economic slowdown.  Business feels less pressure to pass higher production costs on to the consumer when consumer demand has fallen and labor costs have decreased.  One of the most positive signs shows that food inflation, which peaked at levels previously not seen since the 1980s, is beginning to edge down.

• Jobs: For week ending April 12, jobless claims are showing a gradual rise, with initial claims increasing 17,000 to 372,000.  Looking at the four-week moving average, a better reflection of unemployment conditions, claims fell only slightly to 376,000 - remaining just below the high seen after Hurricane Katrina.  Looking at continuing jobless claims gives a better picture of hiring in the market place; figures do not paint a rosy picture.  For the week ending April 5, continuing claims increased 26,000 to 2.984 million - levels not seen since early summer in 2004.

The Stock Market

Can you say bull run?  Stocks may end up having their brightest day since 2003.  The Dow Jones has gained 4.5% over the last week; the Nasdaq is up 5.2% and Standard & Poors gained 4.6%.  Why the surge?  Coca-Cola, JPMorgan and Intel Corporation topped projected earnings.  Then Google surprised Wall Street when it reported that earnings increased by 31 cents a share over last year, thanks largely to increased revenue in pay-per-click advertising and international markets.  Honeywell and Caterpillar also surpassed Wall Street expectations with growth in non-U.S. business.  Citigroup reported a hefty $5.1 billion loss, 7 cents a share greater than expected, yet investors were relieved.  Even though Citigroup took $15.2 billion in write-downs and credit costs, that was an improvement over the $18.2 billion in write-downs in the last quarter of 2007; and the company reported revenues of $13.2 billion, still off 48% from last year but an increase over the $7.2 billion reported for Q4 2007.  After announcing it will cut 9,000 more jobs over the next year, maybe investors think Citigroup will be able to get its financial ducks in a row.

Investors remained keyed into commodities this week.  Gold and silver have dropped off to end the week.  But crude oil prices have once again hit a record high, closing at $116.54 per barrel after reaching an intraday record of $117.00 in this session’s electronic trading.  On the year, oil prices are up more than 23%.

The Fed

When the Federal Open Market Committee meets at the end of the month, most economists expect the Federal Reserve to cut interest rates again, down to 2%.  The Fed has also been on a mission to inject capital into our cash-strapped financial markets.  Banks have been taking advantage of discounted loans, borrowing heavily from the Fed’s discount window.  To prevent the spread of the credit crisis, the Fed created additional lending facilities to help financial institutions that previously could not borrow directly from the Fed’s central bank.  Now accepting mortgage-backed securities as collateral, the Fed has absorbed some credit risk, hoping that its bold move will shore up liquidity and confidence in the financial sector as a whole.  Analysts see the Fed using more creative strategies to provide markets with liquidity, rather than continuing to cut interest rates again after this month.

Stay tuned for more news on the economy, mortgage loans, and the new homes real estate industry.

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