Market News - Weekly Wrap-up - 01.04.08

The first economic news for 2008 did not bring good tidings for the new year.

Market and Economic Recap

Business Week Ending January 4, 2008

Stocks tumbled in early trading after several economic reports and key economic indicators for December came in below analyst’s expectations.

December job growth numbers were weak, with non-farm payroll employment adding only 18,000 jobs - down from 115,000 in November and well below the 70,000 economists forecast for the month.  In fact, job growth figures haven’t been this weak since August 2003. 

The jobless rate in December rose higher than expected to 5 percent, the highest it has been in two years.  Since September, unemployment had held at 4.7 percent, and analysts had expected it would edge up slightly to 4.8 percent for last month.

Oil prices, which had surged higher than a record $100 a barrel earlier this week, eased up a bit after the glum jobs report.

Are We Heading Toward a Recession - Or Not?

Some economists predicted a recession would hit the U.S. in the fourth quarter, with consumers impacted by falling home values and rising energy costs pulling in their household purse strings.  But it didn’t happen.  At least not yet.

The question is, will the drag from housing sales and construction of new homes, and the “credit crunch” from the subprime lending crisis ultimately send us into recession?  Analysts still disagree if recession is impending or not.

Many forecasts with the recession scenario are based on the premise that large losses from subprime mortgage debt will force banks to reduce lending in a big way.  This credit crunch, they believe, will encumber both business growth and investment and consumer spending.

The Federal Reserve is doing what it can to keep a recession at bay, announcing today that is will increase the amount of money it makes available to banks through its new auction process.  The Fed crafted and rolled out the auction strategy last month to encourage banks to borrow money, after cutting rates to borrow from the Fed’s discount window did not inject the funds into the banking system as hoped.  Banks hesitant to borrow directly fearing it would raise doubts about their financial security and stability, have responded to the Fed auction, bidding more than three times the $20 billion offered by the Fed.

After two successful auctions in December, the Fed plans two more this month on January 14 and 28 and will increase the amount offered by 50 percent from $20 billion last month to $30 billion this month.  The Fed says it will continue with the auctions for as long as it deems necessary.

Analysts believe that with the poor December jobless report, we’ll see the Fed continue cutting interest rates when they meet again this month as a means to boost economic growth.

Stay tuned…

If you're new here, you may want to subscribe to our RSS feed.

If you would like to receive email updates to our blog, you may Subscribe to New Homes Real Estate Blog by Email

Thanks for visiting!