U.S. economic analysis – week of August 8, 2005

U.S. economic analysis – week of August 8, 2005

Oil continues to grease the headlines with prices flirting with $67 per barrel and the price per gallon of gasoline reaching record highs. Crude oil futures hit $67.10 per barrel on Friday and unleaded gasoline prices have settled at $2.40 according to the America Automobile Association (AAA). AAA also said that Californians pay more, on average, for a gallon of gasoline or about $2.70 while drivers in South Carolina are enjoying the nation’s lowest prices at $2.33. The news does not bode well for the nation’s trucking fleet either as diesel prices surged to $2.47 per gallon, a year-on-year increase of $0.64. Three of the nation’s largest airlines also announced they are reeling from fuel costs and have implemented rate hikes on most domestic routes. United, Continental, and Delta all said they will raise the price of tickets from $2 to $10 depending on the flight and carrier. Meanwhile, earlier this week the Federal Reserve raised interest rates another quarter point. The move was widely expected and many analysts believe the Fed will continue to raise rates again in September and at least once more in November. In fact, the most widely lingering question is how much further they will go in their efforts to keep inflation safely in check. The overall rate now stands at 3.5 percent. Also, it was reported that mortgage applications fell for the third consecutive time. The Mortgage Bankers Association (MBA) reported that application activity fell 0.9 percent to 745.0 last week. Refinancing activity also fell 3.3 percent last week after falling 3 percent the prior week, according to the MBA. In a surprise bit of good news, jobless claims fell by 6’000 last week. For the week ended August 6, 308’000 filed for state unemployment benefits. Many on Wall Street had actually projected jobless claims to rise to 315’000 from a revised 314’000 the week before. The number totals the lowest four-week measure since February 26. The markets this week have been a bit topsy-turvy with small losses earlier in the week outdone by big gains later. On Thursday the market was bolstered by promising retail sales but then lost out to rampant oil prices. However, a late-day rally managed to give all the major indices some very nice gains. Overall, steel shares were quiet this week. The only notable exception was Wheeling-Pittsburgh Corp. whose shares dipped six percent on news that its second quarter profits declined 91 percent from the same period in 2004. As of Friday the Dow Jones US Steel Index was down 2.2 percent for the week. Looking ahead, it is expected that September will be a turbulent time for Wall Street investors. Sources indicate that September is typically the cruelest month being, on average, the worst performing for the Dow Jones and S&P indexes since 1950. August fares only slightly better. Investors probably should not expect great things for the autumn trading season and might regroup in expectation of a minor market correction.