February 19, 2010 - Weekend Update

After many weeks of trying to pull good news out of dismal economic reports, this week has been far more positive and the economy is showing clear signs of recovery. The government this week raised the Federal Discount Rate unexpectedly by .25% which is probably the greatest indicator that things are improving economically. The government wants to return to what would be considered standard economic policy versus the "crisis policy" that we have seen for over 2 years.
Housing has shown positive signs with two significant reports announced this week:'
• Housing Starts rose 2.8% which was more than expected
• Building Permits declined by 4.9% however most of the decline was related to a multi-family drop. Single family permits increased by .4%
In addition to the housing reports, there were a number of other reports which have suggested that the economy is getting stronger. The positive reports are a long needed respite from the barrage of negative news we have been hearing about in the economy and global markets for the last few weeks.
The Manufacturing Index rose more than expected indicating that the cost of production is on the rise. This month's report was also the 6th straight month of production gains which is indicative that consumers are starting to make purchases again.
The Producer Price Index rose 1.4% from December however when you subtract volatile food and energy prices, the core PPI was only .3% The Consumer Price Index rose 2.6% percent however once again when you factor out volatile retail energy prices, especially gasoline prices at the pump, the core CPI only increased .2% which was less than forecast. At the present time inflation still appears to be subdued and is a not a currently a major economic concern.
The stock market has been reacting positive to the economic news as of late and has been rallying for most of the week recovering many of the losses incurred from last week. In addition to the positive economic news being announced in the U.S., concerns over the European and Asian debt crisis have been easing as well.
With the economy remaining on fragile ground, the positive economic reports are welcome to many. The signs are starting to emerge that we are headed in the right direction and let us remain optimistic that the positive indicators of economic recovery will continue.
Economic news that can move the markets on tap for next week is:
• Monday February 22nd - Ben Bernake Speaks about Employment Growth
• Tuesday February 23rd - Case-Shiller House Value Index and Consumer Confidence Reports
• Wednesday February 24th - New Home Sales
• Thursday February 25th - Durable Goods Orders and Weekly Jobless Claims
• Friday February 26th - GDP, Consumer Sentiment and Existing Home Sales
**Special Note: The government will be holding bond auctions throughout the week. The appetite for bonds by investors can have a significant impact on mortgage rates.