Economic Update

Economic Week in Review: Is the recession over?
Federal Reserve Chairman Ben Bernanke's speech declaring the recession “likely over” began a week of fairly optimistic economic reports. Producer prices rose, business inventories dropped, and retail sales reached their highest level in three years. While the economy may have turned a corner, it remains weak. It's unclear whether the consumer spending momentum will continue given the end of incentive programs such as Cash for Clunkers and a still high unemployment rate. For the week ended September 18, the S&P 500 Index rose 2.5% to 1,068.30 (for a year-to-date total return of about 20.2%). The yield of the 10-year U.S. Treasury note rose 15 basis points to 3.49% (for a year-to-date increase of 124 basis points).



Producer prices rise sharply
Producer prices for finished goods rose 1.7% in August from –0.9% a month earlier, largely because of higher energy prices. The energy goods index jumped 8.0% in August—the largest monthly increase since November 2007—with a spike in gasoline, home heating oil, and liquefied petroleum prices. Excluding food and energy, the price of core finished goods increased 0.2%, offsetting a decline in July. The rise in the Producer Price Index last month is expected to ease some economists' fear of deflation.



Clunkers propel retail sales
Retail sales climbed 2.7% in August, the highest level in three years, far outstripping analysts' expectations. Sales were driven largely by the popular Cash for Clunkers program, which boosted auto sales for the month by 10.6%. Excluding autos and energy, retail sales rose 0.6% in August. There was a broad-based increase in sales across many retail outlets ranging from apparel to sporting goods. The only weak spots were furniture and building supply stores.



New-home construction jumps
New-home construction rose at an annual rate of 1.5% in August to 598,000 units compared with a month earlier. The increase in housing starts came from a spike in multifamily home constructions. After five straight months of gains, single-family starts declined 3.0% in August from July. Single-family homes are the largest segment of the residential market. While total housing construction permits rose 2.7% in August, housing completions—which have yet to reach bottom—fell 5.5%. On a regional basis, the Northeast reported the largest number of housing starts in August, while the South was the biggest laggard.
The economic week ahead
The week begins with a report on The Conference Board's index of leading indicators (Monday). On Wednesday the Federal Open Market Committee (FOMC) will release minutes from its meeting, while Thursday brings reports on jobless claims and existing-home sales. Data on durable goods and new-home sales will be out Friday.



courtesy of Ron Melao



Ron Melao
RJR Mortgage Company, LLC.
908.709.9070(p)