Economic & Market Update: July 28, 2008

“Easing off the Gas Pedal”

Chip Norton, Managing Director of Fixed Income & Economic Analysis

Last Week’s Highlights:

Stocks:                               Dow finds stability near 11.4k

Bonds:                               10-yr at 4.09%

Oil:                                     Retreat in place at $123

Dollar:                                A bit of uptick at $1.57

Economics This Week:

Date      Item                                  Est.                     Comment

7/29      Cons. Confidence               50                        Stability seen

7/31      GDP Q2 Prelim                  1.5%                    Good performance

8/1        Employment                       5.5%/-70k         Slight weakening

Selected Rates:

10-yr Treasury                                           4.09%

2-yr Treasury                                             2.66%

10-yr AAA Muni                                         4.05% (TEY -6.23% @ 35% Fed bracket)

Tax-Exempt Money Fund                         1.13%

30-yr Mortgage                                           6.41%

30-yr Mortgage jumbo                               7.59%

1-yr CD                                                         3.54%

5-yr CD                                                         4.11%

GDP and Employment

As we hit the halfway mark for the summer, the two big items on the economic calendar this week will be GDP and the employment data. The current estimates are for GDP to show yet another round of solid data with estimates ranging from up 1.5% to up as much as 3%. It’s a big range that is being influenced by exports and growth in agriculture. The bottom line, however, is that it appears that a recession by the numbers has possibly been avoided.  That’s not to say the economy is in dandy shape--because it isn’t. The continued overhang in housing and its downstream impacts are still dragging on growth and on consumer confidence. Indeed, on Tuesday of this week we will get another glimpse of consumer confidence. The expectations are for a flat read. The all important employment data is also out this week with expectation of a slight uptick in the unemployment rate from 5.5% to 5.6% and an estimated job loss of 70k.

Source: Briefing.com

Prices are Falling

You will certainly have noticed a good price decline at the pump in the last week as national gas price averages are falling nearly every day. This, of course, has been helped along by crude prices dropping now to just above $123 from the lofty $148 levels just a few week ago. The expectation is for further gas price declines in the coming weeks most likely leveling near $3.75 unless crude takes another dip lower toward the magic $100 mark.  With crude showing a leveling near the $125 mark, there is talk that some of the big speculative trade profit taking may be completed, which suggests price leveling. Of course, this is just one factor in the maze of issues that push oil around everyday. The other issue that is helping matters is a lack of hurricane threat on the horizon. So far, this season has been light and refinery shut downs minimal (Texas last week) – we’ll keep our fingers crossed on this one!

Source: EIA

Source: WTGR Economics

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