Economist's Commentary: October 15, 2008

Quick Take on the Economy: October 15, 2008

By Danielle Hale, Research Economist

The Market Composite Index, a measure of overall mortgage application activity, increased 5.1 percent from the week ending October 3 to the week ending October 10.
Underlying this composite change was an increase in refinancing applications (12.5 percent) and a decrease in purchase applications (0.3 percent). The fixed and adjustable rate indexes along with the conventional index saw increases. The government index saw a slight decline.
From a longer run perspective, the government index is the only one showing a year over year increase.

The Producer Price Index (PPI) fell 0.4 percent in September after a decline in the previous month as well. Energy was a big driver in both of these decreases. In fact, the "core" PPI that includes all goods except energy and food increased slightly in both August and September.
Analysts tend to focus on "core" changes because energy and food prices can be extremely volatile and mask longer term price trends. Decreases in the prices of "core" intermediate and crude goods suggest that inflation of other goods may in fact be subsiding.

Overall retail sales were down on the month (1.2 percent) and the year (1.4 percent). When motor vehicle and parts dealers are excluded, retail sales still declined 0.6 percent in September, but are up 3.8 percent over the year.
Because of the soft sales this month, we have downgraded our expectations for third quarter GDP.

Financial uncertainty last week prompted home owners to try to refinance, but encouraged potential home buyers to remain on the fence. Over the year, expect continued weakness in conventional mortgage applications and more government mortgage applications.
A reduction in prices, even if only a result of subsiding energy prices, is welcome. There are signs that this moderation may eventually carry over into other types of finished goods.
Lower prices and weak retail sales will grab the attention of policy makers trying to walk the line between the risks of inflation and slow economic growth. We expect an additional rate cut at the Fed's next meeting.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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