It was a big week for news as President Bush laid out his initiatives in his State of the Union message and the government released a number of important statistics on the health of the economy.  As of this morning the Dow is down 2.3% from Monday and was more volatile than usual.  During the last two weeks it has fallen 10.4% from its peak of 8869 to close at 7945 yesterday. 

We started the week with a report that housing starts in December increased 5% to a 1.835 million-unit annual rate, the highest since June 1986.  December building permits rose 8.2% to a 1.880 million unit annual rate.  The increases were larger than expected and provide strong evidence that the housing boom remains healthy and will likely remain so for months to come.  The boom continues to be fueled by historically low interest rates.  The average rate on a 30-year mortgage was 5.97% last week.  That was close to the 5.85% at the start of the month, which Freddie Mac, the No. 2 buyer of mortgages, said was the lowest since the 1960s.

As we head into earnings season, the top international news stories, mostly about Iraq, continue to steal the thunder from some pretty good company earnings.  By the end of today, 95 of the S&P 500 will have reported their earnings.  First Call reports that the number of reports beating expectations is well ahead of this time last year.  Granted, the comparisons are pretty easy, but hey, let’s enjoy a little good news.  Many of the major banks reported strong results this week.  Bank of America’s 4th Quarter net income rose 27% and beat average analysts’ estimates by $.06.  BB&T reported a 21% increase in earnings. 

We began the week with some surprisingly strong economic news.  As reported by the Institute for Supply Management,U.S.manufacturing increased in December by the largest amount since the last recovery from recession in June of 1991.  Manufacturing contributes about 15% to the nations’ economy.  Manufacturing and business in general have been slow to recover in this latest economic slowdown, but this latest ISM report showed much more strength than expected by economists.  Some economists are now raising their growth target for the economy from 1.5% in the first quarter to 2.5%, while others say the report probably overstates the amount of improvement.