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April 9, 2010
By Paul Fero
The stock market had a positive week with the S&P 500 closing at 1194 and approaching the next level of overhead resistance in the 1200 area. The ten year U.S. Treasury test overhead resistance at the 4 percent yield level and closed at 3.89 percent about the same as last week. Commodities moved significantly higher this past week with Oil closing at $84.50 a barrel and gold closing at $1,1645 an ounce.
The National Association of Realtors reported its seasonally adjusted index of sales agreements rose 8.2 percent from January to a February reading of 97.6. January's reading was revised slightly downward to 90.2. The index is considered a barometer for future sales activity because there is typically a one to two month lag between a signed sales contract and a completed deal. A reading of 100 is equal to the level of sales activity in 2001, when the index started. Home sales had been sluggish during the winter, partly because shoppers felt less rushed after lawmakers extended the deadline to qualify for a tax credit. First-time buyers can get a tax break of up to $8,000 if they sign a contract by April 30. Lawmakers also added credit of $6,500 for existing homeowners who move. The biggest month to month increase was in the Midwest, where pending sales rose by nearly 22 percent. Sales posted gains of 9 percent in the South and Northeast, but fell nearly 5 percent in the West.
The Institute for Supply Management reported that the nation's service industry rose in March to 55.4 from 53 in February. The growth in the service index is the fastest since ISM revised how it measured the industry in January 2008. Readings above 50% in the indicate that activity at more firms is expanding rather than contracting. The index had bounced around the 50% level for months before jumping higher in February and March. The ISM employment measure rose 49.8% in March just shy of the 50% growth threshold. The ISM employment index has been below 50% since December 2007. It hit a low of 31.1% in November 2008. The business activity index rose to 60% from 54.8% in the previous month. The new-orders index jumped to 62.3% from 55.0% in February. The price index rose to 62.9% in March from 60.4% in the previous month. Inventories rose to 46.5% from 45.0% in February. Imports jumped to 51% from 48.5% in the prior month. New export orders soared to 57.5% in March from 47% in February. Supplier deliveries fell to 49.5% from 53.5% in the prior month.
The Labor Department reported that first-time jobless claims increased by 18,000 in the week ending April 3, to a seasonally adjusted 460,000. The four week average, which smoothes volatility, rose to 450,250. Two weeks ago, the average fell to its lowest level since September 2008, when Lehman Brothers collapsed and the financial crisis intensified. On a more positive note in the Labor Department's report, the number of people continuing to claim benefits fell by 131,000 to 4.55 million, the lowest level since December 2008. That figure lags initial claims by a week. But it doesn't include millions of people who have used up the regular 26 weeks of benefits typically provided by states, and are receiving extended benefits for up to 73 additional weeks, paid for by the federal government. Slightly more than 5.8 million people were receiving extended benefits in the week ended March 20, the latest data available, a drop of about 230,000 from the previous week. The extended benefit data isn't seasonally adjusted and is volatile from week to week.
The Commerce Department reported that inventories at the wholesale level were up 0.6 percent in February while the sales component rose 0.8 percent. The gains are an encouraging sign that stronger demand is prompting businesses to restock depleted shelves, a development that will help sustain the economic recovery. The inventory increase followed a 0.1 percent rise in January, which was initially reported as a decline of 0.2 percent. The rise in sales followed a 0.9 percent January advance and marked the 11th straight month that sales have been up. The back-to-back gains in inventories were the first since increases in both October and November. However, inventories dropped in December. Before October, inventories had posted 13 straight declines as businesses went through a massive liquidation of their stocks during the recession, struggling to contain costs as demand for their products slumped. The rise in inventories and sales in February left the inventory to sales ratio at 1.16, the same as in January. That is still at a historically low level and means that it would take only 1.16 months to deplete stockpiles at the February sales pace. The inventory to sales ratio was at 1.38 months a year ago. The swing from massive inventory reductions contributed about two-thirds of the economy's overall growth in the October-December quarter, a period when the gross domestic product expanded at a 5.6 percent annual rate.
March 26, 2010
By Paul Fero
The stock market edged up just slightly this week with the S&P 500 closing at 1166. One interesting note this week was the S&P 500 tested it’s newly found support level at 1150 after breaking through resistance the previous week. Another reference item to keep an eye on is the CBOE Volatility Index or the VIX for short which is well under the 20 level at 17.77. Levels below 20 recently, as in the past few years, have indicated a pull back in the market. However, historically during major market expansions, it can be below 20 for years as volatility is not an issue. This could be the new normal, so to speak. The 10 year U.S. Treasury yield moved higher this week crossing the 3.90 percent level not seen in months to close the week at 3.86 percent. Oil closed slightly lower this week at $80 a barrel while gold closed flat at $1,104 an ounce.
The Commerce Department reported that durable goods, those goods lasting three years or longer, rose a seasonally adjusted 0.5 percent in February, the third straight increase. Orders for machinery and civilian aircraft were strong in February, while orders for autos, defense goods and electronics declined. Orders for core capital goods excluding aircraft and defense increased 1.1 percent, a sign of rising capital spending by businesses. Excluding a 0.7 percent drop in the volatile transportation goods area, orders rose 0.9 percent, the third increase in the past four months. Meanwhile, shipments of durable goods fell 0.6 percent, led by fewer shipments of transportation goods. Excluding transportation, shipments rose 0.4 percent. However, January's orders were revised higher, from a 2.6 percent gain to 3.9 percent, and December's orders were also revised higher. Shipments of core capital equipment goods increased 0.8 percent in February, a sign of increasing business investment. Inventories of durable goods rose 0.3 percent in February an indication that the inventory correction has largely run its course. Unfilled orders rose 0.4 percent, the largest increase since mid-2008. Orders for transportation goods fell by 0.7 percent, led by declines of 19 percent in defense aircraft and 1.9 percent in autos. Civilian aircraft orders rose 32.7 percent in February after jumping 135 percent in January. Shipments of transportation equipment fell 3.4 percent in February. Orders for electronics excluding semiconductors fell 0.6 percent. Shipments of electronics including semiconductors dropped 3 percent.
That National Association of Realtors reported that sales of existing homes and condominiums fell 0.6 percent in February to a seasonally adjusted annual rate of 5.02 million, the lowest level in eight months, raising doubts about the durability of the housing recovery. Sales of existing homes have fallen three consecutive months, after having risen steadily through the fall in response to a federal subsidy for first-time home buyers. The tax credit has been restored and expanded to repeat buyers, but there has been no rebound in sales yet. Sales are up 7 percent compared with a year ago. Inventories of sales on the market jumped during February, rising 312,000 to 3.59 million, the highest since September. The inventory data are not seasonally adjusted. The inventory level represents an 8.2-month supply at the current sales pace, the most since August. The median sales price was $165,100, down 1.8 percent compared with a year earlier. Sales rose at a seasonally adjusted annual pace of 2.8 percent in the Midwest and 2.4 percent in the Northeast, while sales dropped by 4.7 percent in the West and by 1.1 percent in the South. Sales of single-family homes decreased 1.4 percent to a seasonally adjusted annual rate of 4.37 million, the lowest since June. Sales of condos rose 4.8 percent, reaching a seasonally adjusted annual rate of 650,000
The Federal Housing Finance Agency reported its national home price index fell 0.6 percent in January compared with December. Prices were down 3.3 percent compared with a year earlier and down 13.2 percent from the peak in 2007. Prices fell in January in six of nine regions, according the FHFA report, based on repeat sales of homes with mortgages backed by Fannie Mae or Freddie Mac.
The Commerce Department reported the economy grew at a 5.6 percent pace in the October-to-December quarter in its third and final estimate of economic activity during the period. The government first estimated that the economy grew at a 5.7 percent pace in the fourth quarter. Then last month it boosted that estimate to a 5.9 percent pace. Businesses in the fourth quarter boosted spending on equipment and software at a pace of 19 percent, the most in 11 years. Foreigners snapped up U.S.-made goods and services at a pace of 22.8 percent, which propelled exports to grow at the fastest pace since 1996. Consumers however only increased their spending at a pace of just 1.6 percent. Nearly two-thirds of the economy is propelled by consumer spending.
The Labor Department reported that first-time jobless claims dropped by 14,000 to 442,000 last week. It was the fourth straight weekly drop in initial claims, a sign that job losses are slowing and the economy is inching ever so slowly toward job creation. The four-week moving average of claims, a less volatile measure than the weekly figures, decreased to 453,750 last week, the lowest level since September 2008, from 464,750. The number of people continuing to receive jobless benefits decreased 54,000 in the week ended March 13 to 4.65 million, the lowest since Dec. 20, 2008. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs. The number of people who've used up their traditional benefits and are now collecting emergency and extended payments fell by about 345,800 to 5.7 million in the week ended March 6.
March 19, 2010
By Paul Fero
The stock market powered through overhead resistance at 1150 on the S&P 500 to close the week at 1160 and signaling the recovering stock market will continue. The 10 year U.S. Treasury held relatively flat for the week to close at 3.69 percent. On the commodities side, both oil and gold closed down slightly at $80.68 and $1,107, repectively.
The Federal Reserve reported that industrial production edged up 0.1 percent in February and a 0.2 percent increase from January marking the eighth straight monthly increase. However, the Federal Reserve reported that manufacturing, the index's largest component, fell 0.2 percent; while mining and utilities increased by 2.0 percent and 0.5 percent, respectively. Manufacturing took a hit from winter storms that shut down most of the Northeast in February, decreasing hours worked at factories and restraining workers' earnings. However, the storms increased demand for heating energy, boosting mining and utility production. Production of consumer goods fell in February as factories built fewer cars, appliances and other durable goods. American industry was operating at 72.7 percent of its full capacity. Although the index is still 7.9 percentage points below its average from 1972 to 2009.
The National Association of Home Builders reported its housing market index, which tracks industry confidence, slipped this month by two points to 15, back to its January level. Builders are seeing fewer prospective buyers and are feeling less optimistic about the likelihood of sales over the next six months, according to the survey of 477 builders. Readings below 50 indicate negative sentiment about the market. The last time the index was above 50 was in April 2006. The dour outlook comes as record snowstorms in January and February struck many parts of the U.S., keeping many would-be homebuyers less able to shop for a home. The reading for its current sales conditions slipped two points to 15. The index measuring foot traffic from prospective buyers fell two points to 10, while the index for sales expectations over the next six months fell three points to 24.
The Commerce Department reported that construction of new homes and apartments fell 5.9 percent in February to a seasonally adjusted annual rate of 575,000 units, as winter storms held down activity in the Northeast and South. January activity was revised up to a pace of 622,000 units, the strongest showing in 14 months. The February weakness reflected a modest 0.6 percent drop in single-family construction, which declined to 499,000 units. The more volatile multi-family sector plunged 30.3 percent to an annual rate of 76,000 units after having surged 18.5 percent in January. Activity dropped by 9.6 percent in the Northeast and 15.5 percent in the South, two regions hit by snowstorms in February. Building rose by 10.6 percent in the Midwest and 7.9 percent in the West.
The Labor Department reported that wholesale inflation dropped 0.6 percent in February. Excluding food and energy, prices edged up a slight 0.1 percent. While overall wholesale prices have risen 4.4 percent over the past 12 months, core inflation, which excludes energy and food, is up a much more subdued 1 percent over the past year. The 0.6 percent fall in the Producer Price Index was the biggest decline since a 1.2 percent drop last July. In January, wholesale prices had surged by 1.4 percent, driven higher by rising energy costs. Last month, energy prices plunged by 2.9 percent with most of that decline reflecting a 7.4 percent drop in gasoline costs. The PPI report showed food costs rising by 0.4 percent in February, the fifth straight monthly gain. The food increase last month reflected big price gains for fresh vegetables, eggs and meat. Outside of food and energy, the price for new cars rose 0.5 percent, the largest advance since June, while the price of carpets and rugs increased 1.6 percent, the biggest advance since last April.
The Labor Department reported a flat reading on the consumer price index. The core consumer price index, which excludes food and energy prices, rose 0.1 perecent. In the past year, the CPI has risen 2.1 percent. The core rate is up 1.3 percent in the past year, the smallest year-over-year increase in six years. If current trends continue, the core rate could drop below the Federal Reserve's target of 1% to 2% for the first time since 1963, fueling some worries about deflation. However, the deceleration in inflation has been almost entirely due to housing costs. Falling shelter costs have been the major factor keeping the CPI subdued. Shelter costs, which account for more than 32 percent of the CPI, have fallen 0.4 percent over the past year. In February, energy prices fell 0.5 percent, the largest decline in 10 months. Gasoline prices fell 1.4 percent, and fuel-oil prices dropped 2.4 percent. Food prices increased 0.1 percent, led by a 0.4 precent gain in meat prices. Dairy and vegetable prices fell 0.1 percent. With consumer prices flat and nominal hourly earnings up 0.1 percent, real (inflation-adjusted) hourly earnings rose 0.1 percent in February. Over the past six months, real earnings have been essentially unchanged. Medical costs rose 0.5 percent in February. Prescription drug prices rose 0.6 percent. Apparel costs fell 0.7 percent, the most since late 2008. Recreation costs fell 0.1 percent. New-car prices rose 0.1 percent, while used-car prices rose 0.7 percent. Airfares fell 0.7 percent. Education and communication prices rose 0.2 percent.
The Conference Board’s index of leading economic indicators, a gauge of future economic activity, rose 0.1 percent in February, suggesting slow economic growth and was the smallest gain in 11 months. In January, the index increased 0.3 percent. Only four of the leading index's 10 indicators increased in February: the interest rate spread, real money supply, supplier deliveries to companies and manufacturers' new orders for consumer goods.
The Federal Reserve Bank of Philadelphia reported its regional index rose to 18.9 in March from 17.6 in January. Employment indicators strengthened in March, but orders, shipments and inventories slipped. For the fourth straight month, more firms reported adding to their workforce than reported job cuts. The index gauging the number of employees rose to 8.4 from 7.4. The new orders index fell to 9.3 from 22.7. The shipment index fell to 13.6 from 19.7. About 60 percent of firms expect business conditions to improve in the next six months, while just 8 percent expect conditions to worsen. The expectations index rose to 52 percent. For the second quarter, 57 percent of firms expect to increase their production.
The Labor Department reported that in the week ended March 13, initial jobless claims dropped to a seasonally-adjusted 457,000 from 462,000. The four-week average of initial claims fell by 4,250 to 471,250. Although jobless claims have fallen a combined 41,000 in the past three weeks, they are still 5.8 percent higher compared to the end of 2009. The number of people who continue to get regular state unemployment checks rose by 12,000 to a seasonally-adjusted 4.58 million in the week ended March 6. In the week of Feb. 27, the number of workers receiving extended federal benefits climbed 352,000 to 6.04 million, not seasonally adjusted. Altogether, 11.65 million people were collecting some type of unemployment benefits in the week of Feb. 27, up from 11.36 million. The numbers are not seasonally adjusted.
March 12, 2010
By Paul Fero
The stock market inched a bit higher this week and sitting at overhead resistance at 1150. This could well be the tipping point for the market recovery. If the market can power head through this resistance level then higher we shall go. However, a failure would indicate a short term double top (the first in January) and the second now, and would send us lower. Once again, without any meaningful fundamental news expected I’m inclined to move to the sidelines as the risk greater for the downside then to the upside. Therefore, the likely next move is lower. The 10 year U.S. Treasury, stayed about the same this week to close at 3.71 percent. Oil was about the same to close at $81.24 a barrel. Gold lost a touch this past week to close at $1,102.
The Commerce Department reported that inventories at the wholesale level were reduced 0.2 percent in January following a 1 percent drop in December. Sales were up a solid 1.3 percent and the 10th consecutive month of increases. Inventories at the wholesale level fell for 13 straight months and have been down 15 of the past 17 months. The only gains in wholesale inventories occurred in October and November. With the January drop in inventories, the ratio of inventories to sales dipped to a record low of 1.10, meaning it would take 1.10 months to deplete inventories at the wholesale level given the January sales pace. That was the lowest point since the data series began in 1992. The government also revised the December report to show a bigger inventory drop of 1 percent rather than the 0.8 percent fall that was originally reported. Wholesalers hold 25 percent of all inventories with factories holding about one-third and retailers holding the rest.
The Commerce Department reported that total inventories were unchanged. Total business sales rose by 0.6 percent following a 1 percent gain in December. The flat reading on inventories followed a 0.3 percent drop in December, which was larger than the 0.2 percent decline previously reported. Inventories posted gains in October and November following a string of 13 straight declines, the longest stretch of weakness since inventories fell for 15 straight months in 2001 and 2002 as the country was struggling to emerge from the 2001 recession. The flat reading in January came from a 0.2 percent increase in inventories held by manufacturers and declines of 0.1 percent in retail inventories and 0.2 percent in wholesale inventories. Wholesalers hold 25 percent of all inventories with factories holding about one-third and retailers holding the rest. The ratio of inventories to sales dipped to 1.25 in January, meaning it would take 1.25 months to exhaust inventories at the January sales pace. The figure had been 1.26 in December and stood at 1.46 in January 2009. The 0.6 percent rise in total business sales is an encouraging sign of rising demand. Businesses slashed inventories during the recession as they struggled to control costs in the face of a deep economic downturn and falling demand for their products. The economy got a boost in the final three months of last year from a slowdown in the inventory liquidation process. The swing from massive inventory reductions contributed two-thirds of the economy's overall growth of 5.9 percent in the October-December period.
The Commerce Department reported that retail sales rose 0.3 percent in February. The overall gain was held back by a 2 percent decline in auto sales, reflecting in part the recall problems at Toyota. Excluding autos, sales rose 0.8 percent. The gains outside of autos were widespread with sales rising at department stores, furniture stores, appliance shops and hardware stores. Restaurants and bars enjoyed a 0.9 percent advance, their biggest gain in nearly two years, possibly an indication that snowbound Americans decided to visit their local eating and drinking establishments to get a break from their homes. The International Council of Shopping Centers had reported that sales jumped 3.7 percent in February compared to a year ago, the biggest gain since November 2007, and the month before the recession began. (Once again a reminder that year over year increases is attributed more too very weak numbers last year at the recession hit a bottom.) That marked the third consecutive increase. Shoppers shrugged off major snowstorms to visit a broad array of merchants from luxury retailer Nordstrom to middlebrow Macy's to discounter Target. All three chains reported solid sales increases that beat analysts’ expectations. The Commerce report showed that the 0.3 percent February gain followed a 0.1 percent rise in January, which had originally been reported as a stronger increase of 0.5 percent. The retail sales report showed that sales at general merchandise stores, the category that includes department stores and big discounters such as Wal-Mart, rose by 1 percent in February after a 1.3 percent rise in January. Sales at appliance stores were up 3.7 percent while sales at hardware stores rose by 0.5 percent. Sales at gasoline stations posed a 0.3 percent rise.
RealtyTrac Inc. reported that the number of U.S. households facing foreclosure in February grew 6 percent from the year-ago level, the smallest annual increase in four years. More than 308,000 households, or one in every 418 homes, received a foreclosure-related notice. That was down more than 2 percent from January. Still, fears remain about the hundreds of thousands of homeowners who are still being evaluated for help under loan modification programs. Many analysts say most of those borrowers will eventually lose their homes, sparking a new round of foreclosures later this year. Banks repossessed nearly 79,000 homes last month, down 10 percent from January but still up 6 percent from February 2009. The number of borrowers who have either missed a payment or are in foreclosure was at 15 percent. A record 2.8 million households were threatened with foreclosure last year and the number is expected to rise to more than 3 million homes this year. The Obama administration's $75 billion foreclosure prevention program has helped only 116,300 homeowners in the past year. Among states, Nevada posted the nation's highest foreclosure rate, though foreclosures there were down 7 percent from January and down more than 30 percent from a year earlier. It was followed by Arizona, Florida, California and Michigan. Rounding out the top 10 were Utah, Idaho, Illinois, Georgia and Maryland. The metro area with the highest foreclosure rate in February was Las Vegas. Though one in every 90 homes there received a foreclosure filing, foreclosures were down 9 percent from a month earlier. Foreclosures in the second highest metropolitan area are the Cape Coral-Fort Myers area in Florida, and were up 31 percent from a month earlier. Also topping the list of foreclosure hot spots were the California metro areas of Modesto, Riverside-San Bernardino-Ontario and Stockton.
The Labor Department reported that job openings rose sharply earlier this year, evidence that employers are slowly ramping up hiring. The number of openings in January rose about 7.6 percent, to 2.7 million. That's the highest total since February 2009. There are now about 5.5 unemployed people, on average, competing for each opening. That's still far more than the 1.7 people who were competing for each opening when the recession began. But it's down from just over 6 people per opening in December 2009. The Labor Department's Job Openings and Labor Turnover Survey illustrate the heavy job turnover that occurs even in a sluggish economy. Employers hired about 4.08 million people in January, according to the report while at the same time; 4.12 million people were fired or otherwise left their jobs.
The Labor Department reported that initial claims for state unemployment benefits slipped 6,000 to a seasonally adjusted 462,000 from 468,000 the prior week. The four-week moving average of new claims, which irons out week-to-week volatility, rose 5,000 to 475,500, the highest since late November. The number of people still receiving benefits after an initial week of aid rose 37,000 to 4.56 million in the week ended February 27. The number of claims from the emergency insurance program totaled 5.53 million for the week ending February 20.
The Thomson Reuters/University of Michigan's Surveys of Consumers reported the preliminary March reading for the surveys' overall index on consumer sentiment was 72.5, down from 73.6 where it ended in February as Americans are less positive about the job outlook. In early March, consumers were expecting no change in the national rate of unemployment, which stands at 9.7 percent, for the rest of 2010, and were losing confidence in help from government economic policies. The March reading was just a tad below the six-month average of 72, and up strongly from 57.3 in March 2009. The survey's gauge of current economic conditions fell to 80.8 from February's final reading of 81.8. The survey's barometer of consumer expectations weakened to 67.2 at the beginning of March from 68.4 in February. The index of consumers' 12-month economic outlook fell to 74 from 80 in February.
March 5, 2010
By Paul Fero
The markets were positive this past week as the S&P 500 index moved up over 2 percent to close the week at 1139. This moves the market closer toward overhead resistance at 1150 reached in January. This will be a pivotal move in the recovery of the market. A brake out above this level will be a HUGE move plus the market. My fear is there are not enough positive fundamental moves for the breakout which would leave the market trading sideways through a sector rotation of buying and selling. The yield on the 10 year U.S. Treasury moved up a bit to close at 3.68 percent. Commodities moved higher again the oil moving above the $80 a barrel threshold to close at $81.50 a barrel. Gold also moved higher to close at $1,135 an ounce.
The Commerce Department reported that personal spending rose by 0.5 percent in January but incomes edged up only 0.1 percent. The income gain was the weakest showing in four months and raised more concerns about whether consumers will be able to keep spending at a sufficiently strong pace to support an economic rebound. Consumer spending is closely watched because it accounts for 70 percent of total economic activity. For the past two years, income growth has been held back by continued job losses. For all of 2009, personal incomes actually fell by 1.7 percent, the weakest showing since the Great Depression year of 1938, when incomes had fallen by 7.7 percent. In January, after-tax incomes actually dropped by 0.4 percent, the biggest monthly decline since last July. With after-tax incomes falling as spending increased, the personal savings rate dipped to 3.3 percent in January, down from 4.2 percent in December. For all of 2009, the savings rate had risen to 4.3 percent, the highest annual savings rate since 1998.
General Motors February sales rose 11.5 percent thanks to new models and pent-up demand from fleet buyers, but it was unclear how much is a result from Toyota's safety woes. GM on reported sales of its Buick, Chevrolet, Cadillac and GMC brands climbed 32 percent. GM plans to keep those four brands and is phasing out Pontiac, Saturn and Hummer. It has sold Saab. Ford's reported sales jumped 43 percent thanks to strong demand for its cars. The automaker grabbed some sales from Toyota. Ford reported renewed demand from rental-car companies and other corporate fleets, which are buying again after weak sales in 2009. Ford's fleet sales surged 74 percent over February of last year. Ford says its car sales climbed 54 percent as consumers continued to shop for more fuel-efficient vehicles. Toyota meanwhile reported sales fell 9 percent last month. Chrysler reported its sales rose half a percent, its first year-over-year monthly increase since December of 2007. Chrysler credited strong fleet sales, but didn’t release a number. Chrysler’s car sales rose 38 percent, but truck sales dived 28 percent. Hyundai reported its sales rose 11 percent. Most carmakers offered deals to Toyota customers for trading in their vehicles. According to the automotive website Edmunds.com, incentive spending rose 11 percent from January to $2,588 per vehicle. Toyota's incentive spending rose 26 percent, to $1,833 per vehicle. As a reminder with year over year sales figures, that the first quarter of 2009 was the trough of the recession so the one would expect what appears to be a large increase as last year was so dismal. It’s not that 2010 is as good as much as 2009 was so bad.
The Federal Reserve reported that consumer borrowing rose by $4.96 billion in January, as consumer borrowing broke a record stretch of declines as a boost in auto loans offset continued weakness in credit card borrowing. The small gain, the first in nearly a year, could be a signal that Americans are regaining confidence in the economy. It was the first gain after a record 11 straight declines, and it was the largest increase since July 2008. In percentage terms, the overall increase was an advance of 2.43 percent and followed a revised 2.23 percent drop in December. The strength in January came from a $6.62 billion increase in borrowing for auto loans and other non-revolving debt. That represented a 5.01 percent gain. Credit cards and other types of revolving credit fell $1.66 billion or 2.3 percent. Even with the decline, it was a much smaller drop than the 12.9 percent plunge in December. Credit card borrowing has now fallen for a record 16 straight months. But the January decline was the smallest since July. The second straight month of increases in auto loans and the slowing of the decline in credit card borrowing could be an indication that consumers are beginning to feel more confident about boosting their spending and increasing debt. The rise in overall credit pushed consumer borrowing to a total of $2.45 trillion, still 4.2 percent below where borrowing stood a year ago. The 11 straight months of declines in overall borrowing through December marked the longest such stretch on records that go back to the 1940s. The consumer borrowing report does not include housing related and other real estate based consumer lending.
The Institute for Supply Management reported its services index rose to 53.0 from 50.5 in January. The reading was the highest since December. A reading above 50 indicates general expansion in the services sector, which accounts for the majority of U.S. employment. The index's employment component jumped to 48.6 from 44.6 the prior month while the prices paid component fell to 60.4 from 61.2.
The Fed's Beige Book survey of the 12 regional Federal Reserve Banks showed that the nation's recovery is managing to plod ahead though not at a strong enough pace to persuade companies to ramp up hiring. The Fed said "economic conditions continued to expand...although severe snowstorms in early February held back activity." Of the Fed's 12 regions surveyed, nine showed improvement. The Richmond district, which includes Maryland, Virginia and the Carolinas, was hurt the most by the bad winter. That region reported economic activity had "slackened or remained soft across most sectors" because of the weather. The jobs market "remained soft throughout the nation”. Bad weather hampered home sales and construction in regions including New York, Philadelphia and Atlanta. And, it was blamed for some of the sluggishness in car sales in some places. Given the precarious state of the economy, Americans had little appetite to take out new loans, and most banks are still cautious about lending, according to the report. The Fed's survey said that consumer spending did show signs of improvements in many parts of the country and hindered in part where weather played a factor. Meanwhile, manufacturing strengthened in most parts of the country, especially for high-tech equipment, automobiles and metals. Factories in the Philadelphia and Richmond regions, though, noted production delays due to the snowstorms as some were able to make up the losses by having people work longer hours and extended shifts. Demand for services was generally positive, particularly for health care and information technology firms.
The National Association of Realtors reported its existing home sales index that tracks sales agreements fell 7.6 percent from December to a seasonally adjusted January reading of 90.4, as winter weather hampered the housing sector. The index is at the lowest reading since last April. The weakness, however, was not confined to the wintry Northeast. The biggest month-to-month drop was in the West, where sales fell 13 percent. Sales fell almost 9 percent in the Northeast and Midwest and 2 percent in the South. The index is considered a barometer for future sales because typically there is a one- to two-month lag between a signed sales contract and a completed deal. A reading of 100 is equal to the average level of sales activity in 2001, when the index started. The index has declined for two out of the past three months because home shoppers feel less rushed after a deadline for a homebuyer tax credit was extended from Nov. 30 to April 30. In addition, the Federal Reserve is on track to complete $1.25 trillion in purchases of mortgage-backed securities this month. That has kept interest rates low. The average rate on a 30-year fixed rate loan fell this week to 4.97 percent from 5.05 percent a week earlier according to Freddie Mac.
The Labor Department reported that initial claims for unemployment insurance fell by 29,000 to a seasonally adjusted 469,000. Still, last week's drop only partly reverses a sharp rise in claims in the previous two weeks. The four-week average of claims which smoothes out volatility fell by 3,500 to 470,750. Despite the drop, the average has risen by about 20,000 since the beginning of the year. Claims rose sharply two weeks ago partly because several states processed a backlog of claims that had built up from previous weeks when government offices closed due to bad weather. No states reported backlogs this week according to a Labor Department analyst. The number of people continuing to claim jobless benefits, meanwhile, fell to 4.5 million. But the continuing claims do not include millions of people who have used up the regular 26 weeks of benefits typically provided by states, and are receiving extended benefits for up to 73 additional weeks, paid for by the federal government. Nearly 5.9 million people were receiving extended benefits in the week ended Feb. 13, the latest data available, up from about 5.7 million the previous week. The extended benefit data isn't seasonally adjusted and is volatile from week to week.
The Labor Department reported that productivity rose by 6.9 percent in the fourth quarter. This is just another sign that companies are raising output without adding many jobs. While higher productivity, or output per hour worked, raises living standards in the long run, it also enables companies to get by with fewer workers. Productivity general increases in larger than normal percentages as recessions end.
The Labor Department reported that U.S. employers cut 36,000 jobs in February, leaving the unemployment rate steady at 9.7 percent. The Labor Department said it was unclear how severe weather had impacted payrolls. Although the “weather factor” would not likely show up in the jobs category but would be a factor in the weekly hours number. Jobs losses for December and January were revised to show 35,000 fewer jobs lost than previously reported. Since the start of the recession, 8.36 million jobs have been lost. The labor market is gradually improving by declining in relatively small amounts versus last years well over 500,000 a month decline. However, with such a large number of jobs lost, it will take many years for the labor market to recover. Construction payrolls fell 64,000 jobs and financial firms cut by 24,000. Manufacturing added 1,000 jobs in February while temporary hiring added 48,000, the service sector added 24,000. Government payrolls dropped by 18,000 as state and local governments cut 25,000. The federal government added 7,000 of which 15,000 temporary workers were added for the 2010 census. The average workweek for all employees slipped to 33.8 hours from 33.9 hours in January. The “real unemployment” rate (U-6) which includes those working part-time for economic reasons rose to 16.8 in February from 16.5 in January, a continued sign of the struggles in the labor market.
February 26, 2010
By Paul Fero
More volatility returned the markets this past week as economic and financial uncertainty became more apparent. The good news is the market shook off some key economic news that at best was bad and at worst horrific. The S&P 500 index ended the week down a few points but remained above the key 1100 level. With the worse economic news came a pullback in the 10 year US Treasury yield, losing about 20 basis points to close at 3.60 percent. Oil also had a fair amount of volatility throughout the week trading plus or minus 5 percent and ending the week not just off the close from last week at $79.66 a barrel. As a result of the increase in oil the past month, gas prices have begun to climb at the consumer level in noticeable increments. Gold also saw a noticeable increase the past week of nearly 5 percent to close at $1,118.
The latest outlook from The National Association for Business Economics sees regular job gains resuming this quarter but no drop in unemployment below 9 percent for another year. Consumer spending will be relatively sluggish as consumers continue to dig themselves out of debt but inflation is expected to remain subdued, and home prices should rise at a rate slightly above inflation in 2010 and 2011. The NABE forecast is largely consistent with its last quarterly forecast in November and reflects an economy in slow-but-steady recovery mode. Its prediction that unemployment will decline only to 9.6 percent by the fourth quarter also mirrors the Federal Reserve's forecast last week that the jobless rate will remain high over the next two years because businesses are likely to stay cautious about taking on more workers. The NABE economists foresee an average monthly gain of 103,000 jobs this year. Still, consumer spending is expected to rise only 2.2 percent this year before increasing 2.8 percent next year, according to the poll. Home prices are predicted to rise 1.6 percent in 2010 and an additional 2.6 percent in 2011. The stock market is expected to climb significantly in 2010 and 2011. On average, the NABE economists predict the S&P 500 index will rise 23 percent over the next two years. The S&P 500 is still down 29.1 percent from its high. Nearly a third of those surveyed, however, believe conditions will remain restrictive due to regulatory guidance, capital pressures and a general climate of risk aversion. Federal debt was identified as the biggest concern among 14 economic challenges. The NABE survey of 48 professional forecasters was taken Jan. 22-Feb. 4.
The Conference Board reported that consumer confidence index fell to 46 in February from an upwardly revised 56.5 last month. Not only did the index fall sharply, but it fell sharply without any significant news that would indicate a strong change in confidence. It’s also far from indicating strength in the economy. A reading above 90 means the economy is on solid footing. Consumers are vital to a strong, sustained economic recovery because their spending accounts for more than two-thirds of all economic activity. Just a month after touching a 16-month high, it's now at the lowest reading since April 2009. It's ranged between 46 and 56 since last May, after having bottomed out at a record-low 25.3 in February 2009. As a result, the present situation index plunged to its lowest level in 27 years to 19.4 from an upwardly revised 25.2. The percentage of consumers who said economic conditions are good dropped to 6.2% from 8.5%, while those who say conditions are bad climbed to 46.3% from 44.7%. The percentages who say jobs are plentiful dipped to 3.6%, while the percentage saying jobs are hard to get edged up to 47.7%. The expectations index, meanwhile, fell to 63.8 from downwardly revised 75.9.
The Standard & Poor's/Case-Shiller 20-city home price index rose 0.3 percent from November to December, to a seasonally adjusted reading of 145.87. The index was off 3.1 percent from December last year. Only five of 20 cities in the index showed declines from November to December. The index is now up more than 3 percent from its bottom in May, but still 30 percent below its May 2006 peak. Los Angeles and Phoenix posted the largest price increases. The worst performer was Chicago with a 0.6 percent decline. On a quarterly basis, U.S. home prices fell 2.5 percent compared with the fourth quarter of 2008. The Case-Shiller indexes measure home price increases and decreases relative to prices in January 2000. The base reading is 100; so a reading of 150 would mean that home prices increased 50 percent since the beginning of the index.
The Mortgage Bankers Association reported an 8.5 percent decline in its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended February 19. U.S. mortgage applications fell for a third straight week, with demand for home purchase loans sinking to the lowest level in 13 years partly a result of inclement weather. This does not bode well for the hard-hit U.S. housing market, which remains highly vulnerable to setbacks and heavily reliant on government intervention. The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 1.6 percent. The MBA's seasonally adjusted purchase index fell 7.3 percent, the lowest level since May 1997. The MBA's seasonally adjusted index of refinancing applications decreased 8.9 percent. The refinance share of mortgage activity decreased to 68.1 percent of total applications from 69.3 percent the previous week. The shares of adjustable-rate mortgages, or ARM, increased to 4.7 percent from 4.4 percent the previous week.
The National Association of Realtors reported sales of previously occupied homes fell 7.2 percent to a seasonally adjusted annual rate of 5.05 million from a downwardly revised pace of 5.44 million in December. The results, the weakest since June and the second straight month in January. It’s another sign the housing market's recovery is faltering. Sales declined throughout the country, falling the most at nearly 11 percent in the Northeast. Sales fell by about 7 percent in the South and Midwest and by more than 5 percent in the West. Potential buyers have left the market this winter because the deadline for a tax credit for first-time buyers was extended. It had been set to expire on Nov. 30, but Congress extended the deadline until April 30 and expanded it to existing homeowners who move. The median sales price was $164,700, unchanged from a year earlier and down 3.4 percent from December. The inventory of unsold homes on the market was down slightly at 3.27 million. That's a 7.8 month supply at the current sales pace, up from a recent low of 6.5 months in November.
The Commerce Department reported that sales of new homes in the U.S. unexpectedly fell in January to the lowest level on record, a sign that an extension of a government tax credit may not be enough to rekindle demand. Purchases declined 11 percent to an annual pace of 309,000. The median sales price dropped 2.4 percent from January 2009 and the supply of unsold homes increased. Three of the four U.S. regions showed declines in new-home sales last month, led by a 35 percent plunge in the Northeast. Purchases fell 12 percent in the West and 9.5 percent in the South. They rose 2.1 percent in the Midwest. The median price of a new home in the U.S. decreased to $203,500 in January, the lowest since December 2003, from $208,600 in the same month last year. The supply of homes at the current sales rate increased to 9.1 months’ worth, the highest since May 2009.
First American CoreLogic, a research firm that monitors housing equity, reported that 11.3 million homeowners, or 24% of all homes with mortgages, were underwater as of the end of 2009. That's up from 23% and 10.7 million borrowers three month earlier. Nevada was the state with the worst record at 70% of all mortgaged properties underwater. That was followed by Arizona (51%), Florida (48%), Michigan (39%) and California (35%). For many homeowners, being underwater, also know as negative equity, has few consequences. If they're not planning to sell and can afford their monthly bills, they can wait out the downturn. For others, it becomes all too easy to walk away.
The Commerce Department reported that orders for durable manufactured goods jumped 3 percent in January, the biggest increase since a 5.8 percent increase last July. However, excluding transportation, durable goods orders fell by 0.6 percent. The drop in orders excluding transportation followed solid gains of 2 percent in both December and November. For January, the 3 percent rise in overall orders was led by a 15.6 percent increase in demand for transportation products. That gain was propelled by a more than doubling in demand for commercial aircraft, where orders jumped by 126 percent. This offset a 2.2 percent drop in orders for motor vehicles, a sector that continues to face tough times. The 0.6 percent drop in orders outside of transportation reflected a big 9.7 percent plunge in demand for machinery, which offset a 1.9 percent increase in orders for primary metals such as steel. Orders for non-defense capital goods, excluding aircraft, fell by 2.9 percent in January following solid gains in the two previous months. This category is considered a proxy for business plans to invest in new equipment to expand and modernize.
The Labor Department reported that first-time claims for unemployment insurance rose by 22,000 to a seasonally adjusted 496,000. Bad weather can cause job losses in construction and other industries sensitive to weather. In addition, many state agencies in the mid-Atlantic and New England regions that process the claims were closed due to the storms and are now clearing out backlogs. The four-week average, which smoothes volatility, rose by 6,000 to 473,750. The four-week average rose by about 30,000 in the past month, raising concerns that job cuts are continuing. Initial claims had fallen sharply over the summer and fall but the improvement has stalled since the year began. The number of people continuing to claim unemployment benefits, meanwhile, was essentially unchanged at 4.6 million. Those figures, known as "continuing claims," lag initial claims by a week. But there are now many more people receiving extended unemployment benefits that aren't included in the continuing claims figures. Congress has provided up to 73 weeks of extra benefits, paid for by the federal government, for jobless workers who have used up the standard 26 weeks of benefits customarily provided by states. About 5.7 million people received extended benefits in the week ended Feb. 6, the latest data available, down from more than 6 million the previous week. The extended benefit data isn't seasonally adjusted and is volatile from week to week.
The Commerce Department reported the latest revision to GDP was better than the government's initial estimate a month ago of 5.7 percent growth. It would mark the strongest showing in six years. Even so, it didn't change the expectation of much slower economic activity in the current January-to-March quarter. Roughly two-thirds of last quarter's growth came from a burst of manufacturing, but not because consumer demand was especially strong. In fact, consumer spending weakened at the end of the year, even more than the government first thought. Instead, factories were churning out goods for businesses that had let their stockpiles dwindle to save cash. If consumer spending remains lackluster as expected, that burst of manufacturing and its contribution to economic activity will fade. Businesses boosted spending on equipment and software at a sizzling 18.2 percent pace, the fastest in nine years. Foreigners snapped up U.S.-made goods and services, which propelled exports to grow at 22.4 percent pace, the most in 13 years. And the slower drawdown in businesses' stockpiles accounted for nearly 4 percentage points of the fourth-quarter's overall growth, even more than the government first estimated. Consumers, however, lost energy. They increased their spending at a pace of just 1.7 percent. That was weaker than first thought and down from a 2.8 percent growth rate in the third quarter. If gains from inventories and exports are taken out, the economy last quarter grew at just a 1.6 percent pace. Though modest, that pace would mark a big improvement from 2009, when the economy contracted by 2.4 percent, the worst showing since 1946. Sizzling growth in the 5 percent range would be needed for an entire year to drive down the unemployment rate, now 9.7 percent, by just 1 percentage point.
February 19, 2010
By Paul Fero
This was a pretty positive week for the markets as the S&P 500 reversed course to power ahead about 5 percent to close the week at 1109. Once again the market is at a pivotal point at this level. If the market continues higher, than the recent pullback obviously was a momentary pause will likely push the market higher to at least test recent highs around 1150. However, it could also reverse course and re-affirm the down trend from January was really the beginning of new short term trend. The 10 year U.S. Treasury yield has powered ahead nearly reaching the highs hit in December. The 10 year yield has been tracking the equity trends as of late and close to yield 3.78 percent. Commodities have been strong movers the past couple of weeks. Oil shot ahead nearly 5 percent as well and briefly hit the $80 a barrel level only to pull back just slightly at $79.81 Gold rose nearly 5 percent as well to close the week at $1,121.
The New York Fed's "Empire State" general business conditions index rose to 24.91 in February, the highest level since October and up from 15.92 in January. The inventories index rose sharply, to 0.0, its highest reading in more than a year. But the new orders index tumbled to 8.78 in February from 20.48 in the previous month. Employment indexes were positive for a second consecutive month, although at relatively low levels. The expectations index for six months ahead slipped to 52.78 in February from 56. This clearly shows the improvements have been only related to the inventory replenishment cycle.
The Philadelphia Federal Reserve reported that regional manufacturing is improving. The Philly Fed's manufacturing index rose to 17.6 in February from 15.2 in January. This index has remained positive for six consecutive months. The future general activity index dipped from 43.3 in January to 35.8. The future new orders index edged down 3 points but the future shipments index increased by 11 points. Again, pointing the inventory replenishment cycle and hardly a sound footing for sustained improvement.
The Federal Reserve reported that industrial production for January rose 0.9 percent after a 0.7 percent increase in the prior month. Manufacturing gained 1 percent as factories produced more consumer good and business equipment to replenish depleted stockpiles. Capacity utilization which measures the proportion of plants in use increased to 72.6 percent from 71.9 percent. Plant usage has averaged about 80 percent over the past two decades and reached a record low of 68.3 percent in June of last year. Production of business equipment increased 0.9 percent as demand for computers and electronic equipment rose, a sign of increased business investment. Output of consumer goods rose 1.1 percent and construction supplies increased 1 percent. Utility output rose 0.7 percent and mining output which includes oil drilling increased 0.7 percent. Motor vehicle and parts production rose a strong 4.9 percent following a 0.3 percent decline in the prior month.
The National Association of Home Builders reported its housing market index rose two points to 17 in February, after falling for two consecutive months, as low interest rates and federal tax credits are boosting demand for new homes. Traffic by prospective buyers remained flat at 12. The builders' outlook for sales over the next six months climbed one point to 27. Regionally, the index for the Midwest and South increased two points, but dropped one point in the Northeast and West. The index reflects a survey of 528 residential developers across the U.S. Index readings below 50 indicate negative sentiment about the market. The last time it was above 50 was in April 2006.
The Commerce Department reported housing starts increased 2.8 percent to a seasonally adjusted annual rate of 591,000 units, reversing the prior month's weather-induced drop. December's housing starts were revised upwards to 575,000 units from the previously reported 557,000 units. Compared to January last year starts surged 21.1 percent. Groundbreaking for single-family homes rose 1.5 percent last month to an annual rate of 484,000 units after declining 3 percent in December. Starts for the volatile multifamily segment increased 9.2 percent to a 107,000 unit annual pace after rising 12.6 percent in December. New building permits, which give a sense of future home construction, fell 4.9 percent to 621,000 units last month after rising to a 14-month high of 653,000 units in December. The inventory of total houses under construction fell 2.3 percent to a record low 503,000 units last month, while the total number of units authorized but not yet started eased 0.9 percent to 94,300 units.
The Mortgage Bankers Association reported its seasonally adjusted index of mortgage application activity decreased 2.1 percent to 600.5 in the week ended February 12. Applications for U.S. home mortgages fell slightly last week even as interest rates held near record low levels below 5 percent. The MBA's seasonally adjusted index of refinancing applications fell 1.2 percent to 2,860.1 last week. The gauge of loan requests for home purchases sank 4 percent to 212.3.
The Mortgage Bankers Association reported that the percentage of borrowers who missed just one payment on their home loans fell to 3.6 percent in the October to December quarter, down from 3.8 percent in the third quarter. The decline was even more remarkable because delinquencies usually rise at that time of year due to higher heating bills and holiday spending. However, more than 15 percent of homeowners with a mortgage had missed at least one payment or were in foreclosure, a record for the 10th straight quarter. Though the number of borrowers who missed their first payment declined, the number who were at least three months behind continues to soar. More than 5 percent of borrowers fell into that category in the fourth quarter, up from 4.4 percent in the third quarter.
The Labor Department reported that wholesale prices rose 1.4 percent last month, reflecting higher costs for gasoline and other energy products. Core inflation at the wholesale level, which excludes energy and food, rose 0.3 percent in January. Over the past 12 months, wholesale prices are up 4.6 percent. The price pressures at the wholesale level are coming primarily from big increases in the cost of energy. The wholesale price report showed that energy prices rose 5.1 percent last month. The January increase was led by an 11.5 percent advance in gasoline prices and a 16.2 percent increase in the cost of home heating oil. Food prices rose 0.4 percent in January following a 1.3 percent jump in December. Last month, the price increases came in meat, up 3 percent, processed poultry, up 2.3 percent and milk products, which rose 1.7 percent.
The Labor Department reported that consumer prices edged up 0.2 percent in January while the core rate, excluding food and energy, slipped 0.1 percent. That was the first monthly decline since December 1982. The 0.2 percent rise in overall prices reflected a 2.8 percent jump in energy costs, the biggest one-month gain since August. Energy prices were driven up by a 4.4 percent rise in gasoline pump prices and a 3.5 percent increase in the cost of natural gas. Food prices rose a moderate 0.2 percent even though fruit and vegetable costs jumped by 1.3 percent. The drop in core rate reflected falling prices for shelter, new cars and airline fares.
The Labor Department reported that first-time claims for unemployment benefits rose by 31,000 to a seasonally adjusted 473,000 from a revised 442,000 the week before. The increase followed a drop of 41,000 in the previous week. The 4-week moving average was 467,500, a decrease of 1,500 from the previous week's revised average of 469,000. The average is considered a more stable indicator because it smoothes out the week-to-week volatility. This week’s numbers are also muddied by the ripple effects of last week's record-setting Mid-Atlantic snowstorms. As the closing of businesses and government offices may have prevented some newly unemployed workers from filing their initial claims. The number of claims under the emergency unemployment compensation claims increased 304,748 to total 5,797,875 for the week ending January 30th, the latest data available.
The Conference Board reported its index of leading economic indicators rose 0.3 percent last month which has risen for a 10th straight month in January. That's weaker than a 1.2 percent rise in December and a 1.1 percent rise in November. The leading indicators index is designed to forecast economic activity in the next three to six months.
The Fed announced that it would increase its discount lending rate by a quarter-point to 0.75 percent. This is the rate it charges banks for emergency loans. Although the Fed said the step should not be seen as a signal that it would soon begin raising a key target for consumer and business loans, global financial markets were roiled by the Thursday’s announcement after the market closed. The Fed had made it clear the past of couple of months that it would raise the discount rate the perception was that it would coincide with the Fed’s Federal Open Market Committee meeting of the Fed Board of Governors. On a technical note, the discount rate is determined by the Fed’s regional banks and not by the FOMC. With that said the general policy provisions are communicated each way and aligned together. However, the Federal Reserve officials moved to calm speculation that a surprise rise in its emergency lending rate could bring forward broader policy tightening, saying borrowing costs in the economy would stay low. Fed Chairman Ben Bernanke flagged the move last week, saying the central bank aimed to widen the spread between its main policy rate that remains pegged near zero and the discount rate at which banks can borrow from the Fed. However, no one in markets expected it to act so soon and the timing of the move, well ahead of the March 16 policy meeting, prompted investors to price in a greater likelihood of a rise in the benchmark fed funds rate late this year.
As an general economic sales indicator, Wal-Mart one of the recession's biggest beneficiaries, felt the pinch during the fourth quarter as quarterly same store sales fell at U.S. Wal-Mart stores for the first time dropping by 2 percent while same store sales at Sam's Club had a 0.7 percent increase. That excludes sales from fuel. Thomas Schoewe, Wal-Mart CFO, reported the company's core consumer continued to be "under pressure." The discounter doesn't expect sales at stores opened at least a year to get much better, estimating that same store sales will be anywhere from down 1 percent to up 1 percent for their U.S. Wal-Mart stores.
February 12, 2010
By Paul Fero
This week was a bit choppy for the markets as international finances played a key role, which China’s tightening through the banking system to continued pressures on Greece’s sovereign debt weights heavily within the Eurozone countries. The S&P 500 index managed a positive move for the week closing at 1075. The ten year U.S. Treasury yield climbed up to 3.69 percent. Also climbing for the week was oil to rise to $74 a barrel and gold climbed to $1,089 an ounce.
The Commerce Department reported that wholesale inventories were reduced 0.8 percent in December in a troubling sign that companies are still too pessimistic about the economy to begin restocking shelves on a sustained basis. Wholesale inventories rose 1.6 percent in November which had triggered hopes that businesses were growing more optimistic after a prolonged period of slashing inventories. The report indicated that sales at the wholesale level did rise in December, increasing 0.8 percent. The rise in sales followed an even bigger 3.6 percent increase in sales in November. Wholesalers hold 25 percent of all inventories with factories holding about one-third and retailers holding the rest. It was a big slowdown in the pace of inventory reductions that contributed nearly two-thirds of the growth in the overall economy in the fourth quarter as measured by the gross domestic product. GDP grew at an annual rate of 5.7 percent in the October-December period, but the concern is that this boost from inventories will be temporary as GDP will slow significantly in coming quarters.
The Mortgage Bankers Association's (MBA) seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, decreased 1.2 percent for the week ended February 5. The MBA reported rates on 30-year fixed-rate mortgages, the most widely used loan, fell below 5 percent for the first time since the week ended December 18. Low mortgage rates fueled a slight uptick in demand for home refinancing loans last week, with activity reaching its highest level since the week ended December 11. A continuation of lackluster demand for home purchase loans would not bode well for the U.S. housing market, which remains highly vulnerable to setbacks and heavily reliant on government intervention. The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 3.8 percent.
RealtyTrac reported the number of U.S. households facing foreclosure in January increased 15 percent from the same month last year. More than 315,000 households received a foreclosure-related notice in January. That number is down nearly 10 percent from 349,000 in December, which saw the third highest total since the company began tracking foreclosure data in 2005. In January, one in 409 homes were sent a filing, which includes default notices, scheduled foreclosure auctions and bank repossessions. Banks repossessed more than 87,000 homes last month, down 5 percent from December but still up 31 percent from January 2009. January marked the 11th straight month with more than 300,000 properties receiving a foreclosure filing. A record 2.8 million households were threatened with foreclosure last year, and the numbers are expected to rise to between 3 and 3.5 million homes this year. The foreclosure crisis forced the federal government and several states to come up with plans to prevent or delay the process to help delinquent borrowers. Foreclosed homes are usually sold at steep discounts, so they often lower the value of surrounding properties. Cities lose property tax dollars from foreclosure homes that sit empty and from declining home values, straining local economies. Home prices have stabilized in some cities, but are still down 30 percent nationally from mid-2006. Among states, Nevada posted the nation's highest foreclosure rate, followed by Arizona, California, Florida and Utah. Rounding out the top 10 were Idaho, Michigan, Illinois, Oregon and Georgia. The metro area with the highest foreclosure rate in January was Las Vegas, with one in every 82 homes receiving a foreclosure filing. It was followed by Phoenix and the California cities of Modesto, Stockton, and Riverside-San Bernardino-Ontario.
The National Association of Realtors reported that the median sales price for previously occupied homes rose in 67 out of 151 metropolitan areas in the October-December quarter versus a year ago. That's a sharp improvement from the third quarter, when prices rose in only 20 percent of cities. The national median price was $172,900, or 4.1 percent below the fourth quarter last year. That was the smallest year-over-year price decline in more than two years. Home sales surged in the quarter, outpacing the third quarter and the previous year's figures. A federal tax credit of up to $8,000 for first-time homebuyers that was originally due to expire Nov. 30 but was extended through April provided much of the fuel. Sales for the quarter hit a seasonally adjusted annual rate of 6 million, up 27 percent from a year earlier. The big question hanging over the housing market this year is whether the tentative recovery will stumble after the government pulls back support. The Federal Reserve's $1.25 trillion program to push down mortgage rates is scheduled to expire at the end of March. A month later, the newly extended tax credit for first-time homebuyers runs out.
The Labor Department reported first-time claims for unemployment insurance dropped by 43,000 to a seasonally adjusted 440,000. A Labor Department analyst said the decline largely reflects the end of administrative backlogs in California and other states that had elevated claims in the previous three weeks. The four-week average fell by 1,000 to 468,500, the first drop after three weeks of increases. Claims are now close to the low levels they reached in late December, when claims dropped to their lowest point in nearly 18 months. That is likely to raise hopes that the job market is improving. The number of people claiming benefits for more than a week, meanwhile, fell by nearly 80,000 to 4.5 million. But the so-called continuing claims do not include millions of people who have used up the regular 26 weeks of benefits typically provided by states, and are receiving extended benefits for up to 73 additional weeks, paid for by the federal government. Nearly 5.7 million people were receiving extended benefits in the week ended Jan. 23, the latest data available, down from nearly 5.9 million the previous week. The extended benefit data isn't seasonally adjusted and is volatile from week to week.
MasterCard Advisor's SpendingPulse, which offer an estimate of spending in all forms including cash. Reported that retail sales rose for a third month in a row compared with a year earlier, largely because of gas price hikes. Including goods from food to clothing to gasoline, but excluding cars, U.S. retail sales rose 3.6 percent from January 2009. That increase followed a 4.8 percent gain in December and a 2.1 percent gain in November. Excluding both gas and auto sales, retail sales rose 0.3 percent in January, 2.1 percent in December and 0.2 percent in November compared with a year earlier. The year-over-year figures are not seasonally adjusted. SpendingPulse's month-to-month figures, which are seasonally adjusted and include gasoline but exclude autos, show January's sales rising 2.8 percent from December's, which fell 1.9 percent from November's. November's sales rose 1.1 percent from October. SpendingPulse estimates that women's clothing sales rose 2.7 percent and men's 2.5 percent in January 2010 from January 2009. In contrast, electronics sales rose only 0.4 percent and online sales growth slowed to 15.1 percent from 17.7 percent in December 2009.
The Commerce Department reported that retail sales increased by 0.5 percent last month, the best showing since November. Excluding autos, sales posted a 0.6 percent reading with strength coming from a 1.5 percent jump in sales at general merchandise stores, a category that includes big national chains such as those owned by Wal-Mart and Target. The 0.5 percent increase in retail sales in January followed a 0.1 percent decline in December, a figure that was revised up from an initial report that sales had fallen 0.3 percent during the month. The latest reading was the best showing since sales had surged by 2 percent in November. Sales at auto dealerships were flat in January following a 0.1 percent rise in December. Activity last month was hurt by a series of safety recalls at Toyota. The 0.6 percent increase in retail sales excluding autos followed a 0.2 percent drop in this category in December. Sales at specialty clothing stores rose by 0.3 percent while sales at gasoline stations were up 0.4 percent. Other stores experiencing increases in January were sporting goods stores, restaurants and bars and non-store retailers, the category that covers internet shopping. Retailers seeing declines during the month included furniture stores, where sales fell by 1.4 percent, and hardware stores, with a drop of 1.2 percent.
February 5, 2010
By Paul Fero
Another volatile week for the markets as uneasiness about the economic recovery and sovereign debt, namely Greece, Spain and Portugal mount. This won’t go away anytime soon as the market has priced in a traditional “V” shape recovery, which is not going to happen. As I have repeatedly stated, when an recession contains an credit crisis component, the recovery last much longer as a key component to pulling out of the recession isn’t there which is the financial sector. The S&P 500 closed down for the third straight week to close at 1066. The price of crude oil dropped to $71 a barrel and gold also dropped to close at $1,052. The yield on the ten year U.S. Treasury dropped to yield 3.55 percent.
The Institute for Supply Management reported its manufacturing index read 58.4 in January, compared with 54.9 in December. A reading above 50 indicates growth. New orders, a sign of future growth, jumped to 65.9 in January, the highest level since 2004, from 64.8 in December. Current production surged to 66.2 from 59.7, also to its peak since 2004. Order backlogs grew, and prices that companies paid rose. Thirteen of 18 industries reported they were expanding, led by the apparel, textile mills and machinery sectors. Manufacturers have been pumping up production to feed their customers' depleted stockpiles. The ISM reported manufacturers' inventories contracted at a slower rate in January, but their customers' stockpiles fell to an all-time low. As their customers try to restock their shelves, manufacturers need to ramp up production to match their demands. ISM's employment measure grew last month.
The Institute for Supply Management reported its service sector index rose to 50.5 last month from a revised 49.8 in December. Any reading above 50 signals growth. That threshold was broken in September for the first time in 13 months. The service sector's recovery has been bumpy since, shrinking in November and December. ISM originally reported December's measurement was 50.1, a growth reading, but revised it lower to 49.8 in its yearly seasonal adjustment late last month. New orders, a signal of future business activity, picked up in January, showing growth for the fifth straight month. Business activity also expanded in January, although more slowly than in December. Of the 18 industries ISM surveyed, however, only four grew -- other services, which include a grab bag of smaller sectors such as advocacy, dry cleaning and machinery repair; utilities; information and wholesale trade. Eleven industries were still shrinking, led by arts and entertainment, mining, retail and transportation. Three didn't shrink or grow in January. The group's employment index, which measures companies' intent to hire, showed job losses moderating. It improved to 44.6 in January from 43.6 in December. Still, it’s the 25th straight month of jobs contraction. The service-sector gauge is closely watched because service jobs comprise more than 80 percent of non-farm U.S. employment. The service sector is highly dependent on consumer spending, which powers about 70 percent of the economy.
General Motors reported its January sales rose 14 percent due to higher fleet and crossover vehicle sales. Toyota reported a 16 percent sales drop as worries of quality impacted by their recall take hold as Toyota stopped selling the affected models on Jan. 26. Ford sales were up 25 percent, Honda sales fell 5 percent, and Nissan sales rose 16 percent. Chrysler was down 8 percent.
The Commerce Department reported construction spending for home building fell by the steepest amount in seven months, evidence that housing remains a weak spot in the economy. Spending on new homes, office buildings and highways fell 1.2 percent to a seasonally adjusted annual rate of $902.5 billion, the lowest since August 2003. November's figures were revised down to also show a 1.2 percent decline, below the 0.6 percent drop initially reported.
The National Association of Realtors reported its seasonally adjusted index of sales agreements rose 1 percent from November to December to a reading of 96.6. The index has risen for nine out of the past 10 months as buyers scrambled to take advantage of an $8,000 first-time homebuyer tax credit before its scheduled expiration Nov. 30. Congress extended the tax credit to April 30, and added a $6,500 credit for current homeowners.
The Commerce Department reported that incomes rose by 0.4 percent, the sixth increase in a row. Income growth was spurred by a large, one-time social security payment according to the Department. Wages and salaries rose by only 0.1 percent, after increasing 0.4 percent in November. Consumer spending meanwhile increased by 0.2 percent. The department also revised November's figure to show a 0.7 percent increase in spending, higher than the initial estimate of 0.5 percent. Consumer spending is closely watched because it accounts for about 70 percent of total economic activity. Spending has grown in the past six months. Americans saved 4.8 percent of their incomes in December up from 4.5 percent the previous month. That's up sharply from the spring of 2008, when the savings rate fell below 1 percent. Rising spending helped the economy grow at a rapid pace in last year's fourth quarter as consumer spending increased by 2 percent in the October to December period, after a 2.8 percent increase in the third quarter.
The International Council of Shopping Centers reported that January sales were up 3 percent compared with January 2009, following a 3.6 percent rise in December. In January 2009, sales dropped 4.6 percent. The numbers are based on sales at stores opened at least a year and are considered a key indicator of a retailer's health because it excludes the effects of new stores. The figures exclude Wal-Mart Stores Inc., the world's largest retailer which stopped reporting its sales on a monthly basis last year. Mall-based apparel stores enjoyed a 6.4 percent sales gain for January, the best performance since March 2007 when that segment had a 7 percent increase, according to the ICSC. However, January's figures are being compared with a 14 percent drop a year ago. January's strength came despite poor weather and limited racks of holiday clearance items.
Americans borrowed less for an 11th consecutive month in December, paying off credit cards while increasing borrowing for cars and other products. The mixed picture raises hopes that Americans may soon return to spending, a necessary condition for economic recovery. But the record 11-month decrease in overall borrowing shows consumers are still holding back amid lingering economic uncertainty and 9.7 percent unemployment. The Federal Reserve reported that total borrowing dropped by $1.8 billion in December, far less than the revised $21.8 billion decline in November. Borrowing on credit cards fell by $8.5 billion, while other types of loans increased by $6.8 billion. December's revised $1.8 billion drop in total consumer credit was the smallest drop in percentage terms since the downward trend started 11 months ago. It represented an 0.8 percent decline in consumer credit from the month before. By contrast, November's revised $21.8 billion drop in total credit was the biggest amount in dollars terms since records began in 1943. The Fed's credit report excludes home loans and home equity loans and only covers borrowing that is not secured by real estate. The drop in overall credit for 11 straight months was a record in terms of consecutive declines, surpassing the old mark of seven straight declines set in 1943 and again in 1991. Borrowing in the category that includes credit cards has fallen for 15 straight months, also a record. With the string of declines, overall consumer borrowing by the Fed measure has fallen to $2.46 trillion.
The Labor Department reported that new claims for unemployment insurance rose by 8,000 to a seasonally adjusted 480,000. The rise is the fourth in the past five weeks. The four-week average, which smoothes fluctuations, rose for the third straight week to 468,750. The figure is the highest in the past two months. The number of people continuing to claim benefits was unchanged at 4.6 million. That data lags initial claims by a week. But the so-called continuing claims do not include millions of people who have used up the regular 26 weeks of benefits typically provided by states, and are receiving extended benefits for up to 73 additional weeks, paid for by the federal government. More than 5.8 million people were receiving extended benefits in the week ended Jan. 16, the latest data available, up from about 5.6 million the previous week. The extended benefit data isn't seasonally adjusted and is volatile from week to week.
The Labor Department reported that employers cut 20,000 jobs in January however the unemployment rate fell to a five-month low of 9.7 percent. The Labor Department reported the economy shed 150,000 jobs in December, compared to 85,000 previously reported, but November was revised to a gain of 64,000, up from 4,000. Annual benchmark revisions to payroll data showed the economy has purged 8.4 million jobs since the start of the recession in December 2007. A sharp increase in the number of people giving up looking for work helped to depress the unemployment rate. The number of “discouraged job seekers” rose to 1.1 million in January from 734,000 a year ago. Last month, the services sector added 40,000 jobs after shedding 96,000 positions. The figure included a rise in federal government employment, partly as a result of the hiring of staff for the 2010 Census. Temporary help employment rose 52,000, maintaining a rising trend seen in the past month. Manufacturing payrolls rose 11,000 last month, the first gain since January 2007, after dropping 23,000 in December. But the construction sector, continued to struggle, losing 75,000 jobs, likely because of unusually cold weather. Construction payrolls fell 32,000 in December. In small sign of improvement is the average workweek rose to 33.3 hours, the highest level in a year, from 33.2 hours in December. Total average hourly earnings increased $18.89 from $18.84 in December. Manufacturing overtime rose to 3.5 hours, the highest since September 2008. In January, the civilian labor force participation rate was little changed at 64.7 percent. The employment- population ratio rose from 58.2 to 58.4 percent. The number of unemployed longer than 27 weeks increased by 183,000 from December to January with the percentage increasing to 41.2 percent from 39.8 percent of those unemployed, an indication that job weakness remains. The marginally attached and persons working part-time for economic reasons (U-6 rate) dropped from 17.3 percent to 16.5 percent, this drop also reflects those that stopped seeking employment. Any positive comments from public officials reflecting that this report suggests anything positive would provide a true disservice to the public policy making process.
January 29, 2010
By Paul Fero
Another pullback for the equities this week as the S&P 500 loss a couple of percent close the week at 1074. Here a quick and dirty general view on how the market moves. When the market ignores bad news and moves forward the momentum is clearly up and the market powers higher, which is what we had since fall. Conversely, when the market ignores seemly good news and continues to fall, the momentum is clearly negative as the market will continue the drop, such as some recent earnings announcements and latest news on Friday with the GDP report. Look for market to continue its pull back with support at 1029 to 1036 range then at 1000. Oil lost a couple of bucks this past week and ended at nearly $73 a barrel. Gold also lost a bit of luster this past week to close at $1,083 an ounce.
National Association for Business Economics released its survey report this week that showed that capital spending plans continue to brighten as credit markets loosen slightly. Thirty-five percent of those surveyed reported credit conditions are hurting their business, down from 42 percent in the third quarter. Many indicated credit still remains tight but less so than in recent months. Respondents say they plan to spend money on computers and communications but hold back on building costs. Of the 75 NABE members from private sector and industry trade associations interviewed for the survey, all said they are making business decisions with an eye toward positive economic growth in 2010. Sixty-one percent of survey respondents believe real GDP will expand by more than 2 percent in 2010, up from 45 percent of respondents in October. The vast majority, 69 percent said the government's fiscal stimulus package enacted in February 2009 has had no impact on employment to date. Inventories are falling at about 59 percent of firms. However, the share of firms reducing inventories in anticipation of weaker sales or as a way to cut costs and conserve cash did rise from October to January. That suggests some businesses are still somewhat concerned about the near-term economic outlook.
The National Association of Realtors reported sales of previously occupied homes
took the largest monthly drop in more than 40 years last month. The report reflects a sharp drop in demand after buyers stopped scrambling to qualify for a tax credit of up to $8,000 for first-time homeowners. It had been due to expire on Nov. 30. But Congress extended the deadline until April 30 and expanded it with a new $6,500 credit for existing homeowners who move. December's sales fell 16.7 percent to a seasonally adjusted annual rate of 5.45 million, from an unchanged pace of 6.54 million in November. The median sales price was $178,300, up 1.5 percent from a year earlier and the first yearly gain since August 2007. However, some of that increase could be due to a drop-off in purchases from first-time buyers who tend to buy less expensive homes. Sales are now up 21 percent from the bottom a year ago, but down 25 percent from the peak more than four years ago. The big question hanging over the housing market this spring is whether a tentative recovery will stumble after the government pulls back support. The Federal Reserve's $1.25 trillion program to push down mortgage rates is scheduled to expire at the end of March, a month before the newly extended tax credit runs out. Last year, first-time buyers were the main driver of the housing market, but their presence is on the decline. They accounted for 43 percent of purchases in December, down from about half in November. The inventory of unsold homes on the market fell about 7 percent to 3.3 million. That's a 7.2 month supply at the current sales pace, close to a healthy level of about 6 months. Total sales for 2009 closed out the year at 5.16 million, up about 5 percent from a year earlier. That was the first annual sales gain since 2005. But prices fell dramatically last year, declining 12.4 percent to a median of $173,500, the largest decline since the Great Depression.
The Commerce Department reported that new home sales fell 7.6 percent to a 342,000 unit annual rate from an upwardly revised 370,000 units in November. It was the second straight month that new home sales declined. The number of new homes on the market last month dropped 1.7 percent to 231,000 units, the lowest level since April 1971. However, December's weak sales pace left the supply of homes available for sale at 8.1 months' worth, the highest since June 2009, from 7.6 months in November. New home sales for the whole of 2009 fell 22.9 percent to a record low 374,000 units.
The Standard & Poor's/Case-Shiller composite index of home prices in 20 metropolitan areas slipped 0.2 percent in November after a revised 0.1 percent October dip, for a 5.3 percent annual drop. On a seasonally adjusted basis, the 20-city index rose 0.2 percent in November, after a 0.3 percent rise the prior month. The 10-city index declined 0.2 percent in November after being unchanged in October, for a 4.5 percent annual drop. Only five of the markets saw price increases in November versus October. What is more interesting is that four of the markets, Charlotte, Las Vegas, Seattle and Tampa, posted new low index levels as measured by the past four years. Other markets continue to improve month over month, with Los Angeles, Phoenix, San Diego and San Francisco posting price increases for at least six consecutive months. The three-year housing market crash has swept prices back to levels seen in late 2003. From their peak in the second quarter of 2006 through November, the 10-city index has toppled 30 percent and the 20-city index has tumbled 29.2 percent. Several major government supports for housing are soon ending, including an extended and expanded home buyer tax credit for which buyers must sign contracts by April 30.
According to RealtyTrac, cities in the so-called Sand States dominated the foreclosure rankings in 2009, with the 20 worst-hit metro areas residing in Nevada, Florida, California and Arizona. Las Vegas had the largest number of foreclosure filings of any city last year, with 12% of its households receiving at least one during the year. That was more than five times the national average. Cape Coral, Fla., was a close second with 11.9% of its households; Merced, Calif., was third with 10.1%. And, nationwide, foreclosures grew 21.2% during the year.
The Conference Board's Consumer Confidence Index increased to 55.9, the highest in more than a year but still relatively gloomy. That compares with 53.6 in December. It takes a reading of 90 to indicate an economy on solid footing and 100 or more to indicate growth. The Consumer Confidence index hit a historic low of 25.3 in February after registering 37.4 last January and enjoyed a three-month climb from March through May, fueled by signs that the economy might be stabilizing. Since June, it has bounced along anemically between 47 and 55 as rising unemployment has taken a toll.
The Commerce Department reported that orders for durable goods edged up a slight 0.3 percent last month. For all of 2009, durable goods orders plunged by 20.2 percent, the largest drop on records that go back to 1992. The decline highlighted the battering that U.S. manufacturers have suffered during the recession. The 20.2 percent orders decline last year followed a 5.8 percent drop in 2008, the first back-to-back annual declines since 2001 and 2002, a period when the country was also dealing with a recession. For December, the 0.3 percent gain in orders followed a revised decline of 0.4 percent in November, a drop that was previously reported as a small gain of 0.2 percent. Orders fell by 0.1 percent in October after posting a sizable 2.5 percent rise in September. The December increase was supported by a 3.6 percent jump in orders for motor vehicles and parts, the biggest one-month gain in this troubled sector since May 2007. Orders for aircraft, a volatile category, plunged by 38.2 percent in December after an even bigger 40 percent drop in November. Total transportation orders fell by 2 percent. Excluding transportation, orders for durable goods would have been flat in December after a 2.1 percent November gain. This category has posted gains for three of the last four months. Strength last month came in such areas as primary metals including steel, up 8.1 percent, and machinery, up 6 percent. Demand for computers and other electronic products fell by 3 percent.
The Labor Department reported first-time jobless claims dropped 8,000 last week to a seasonally adjusted 470,000. The four week moving average, which smoothes out volatility, rose for the second straight week to 456,250. The average had fallen for 19 straight weeks before starting to rise. Two weeks ago, claims surged by 34,000 due to administrative backlogs left over from the holidays in the state agencies that process the claims. Those delays may still be affecting the data according to the Labor Department. That means the current figures could be artificially inflated. At the same time, it would also mean that the steep drop in claims in late December and early January was also exaggerated by the backlogs. The number of people continuing to claim benefits, meanwhile, dropped by 57,000 to 4.6 million. Those figures lag behind initial claims by a week. But the continuing claims don't include millions of people who have used up the regular 26 weeks of benefits typically provided by states, and are receiving extended benefits for up to 73 additional weeks, paid for by the federal government. More than 5.6 million people were receiving extended benefits in the week ended Jan. 9, the latest data available. That's about 300,000 fewer than the previous week. All told, more than 10 million people are receiving unemployment assistance.
The Labor Department reported that wages and benefits rose by 0.5 percent in the three months ending in December. For the entire year, wages and benefits were up 1.5 percent, the weakest showing on records that go back to 1982. The 1.5 percent increase in total compensation in 2009 was about half the 2.6 percent increase in 2008 and both years represented the smallest gains for the government's Employment Compensation Index.
The economy grew for a second straight quarter from October through December, posting a 5.7 percent annual rate, the fastest pace since the third quarter of 2003. The two straight quarters of growth last year followed a record four quarters of economic decline. Still, the growth at the end of last year was primarily fueled by companies refilling depleted stockpiles, a trend that will soon fade. The report also provides an upbeat end to an otherwise dismal year: The nation's economy declined 2.4 percent in 2009, the largest drop since 1946.
The International Monetary Fund released its quarterly update of its World Economic Outlook which highlighted the world economy is recovering at a healthy pace but still needs government stimulus efforts to keep it going. The IMF raised its forecast for world economic growth in 2010 to nearly 4 percent, up from an estimate of 3.1 percent last October. It expects the U.S. economy to grow by 2.7 percent this year, significantly higher than its previous forecast of 1.5 percent. But with unemployment high in many countries and credit tight the recovery in the United States and other advanced economies "is still expected to be weak by historical standards”. The IMF also projected that the 15 nations that use the euro would grow by 1 percent in 2010, up from its 0.3 percent estimate in October. It kept its estimate for Japan the same, at 1.7 percent growth. It forecast China's growth this year at 10 percent, and said "key emerging economies in Asia are leading the global recovery." A "key risk" to the recovery "is that a premature and incoherent exit" from the low interest rates set by many central banks and other stimulus programs "may undermine global growth".
January 22, 2010
By Paul Fero
Volatility returned to the market once again in a negative way, as the S&P 500 lost about 5 percent last week to close at 1091. The dramatic pullback this week even with some positive corporate earnings, has the S&P 500 at a particularly important support level. Does the market shrug off the news of last week and rebound back up or does this give the shorts the primary push they needed to plow back with abandon. It could go either way really. The economic forecasts that are continuing being updated have been focused on a more prolonged and anemic recovery. One Goldman Sachs report forecasted the Fed won’t raise the fed funds rate until 2012 and the 10 year U.S. Treasury to be between 3 and 3.5 percent. So I think what the market is trying to do is re-evaluate what the appropriate market level should be given an anemic recovery. Therefore, that would mean a tug of war between the bulls and bears, with a trading range this year on the S&P 500 from 1000 to 1150. Next significant level of support is in the 1029 to 1036 range then the 1000 level. These lower levels will provide a better entry point into the market.
While the news headlines would make one believe the pullback in the market this week was due to an announcement from President Obama on the expanding financial regulation, that’s just not the case. The market was looking for an excuse to pull back some that was it. The key underlining tone to the drop is continued weakness in the broader economy and in particular the labor market. Add to the mix, the stunning upset in the Massachusetts Senate race this week that will the turnaround the priorities in Washington. Realize that making good policy is not the key in Washington, its winning elections. Look for priorities to shift completely to “economic concerns” of the middle class or more aptly put from President Clinton’s 1992 Presidential campaign, “It’s the economy, stupid.”
The National Association of Home Builders reported its housing market index fell this month to the lowest level since last summer. The drop reflects fears that demand for new homes will be weak despite the extension of a federal tax credit for buyers. The reading of 15 is the second-straight monthly decline and the lowest since June. It shows that builders are grim about their prospects even though Congress extended the deadline for a tax credit of up to $8,000 for first-time homebuyers and expanded it to include $6,500 for existing homeowners. The index reflects a survey of 504 residential developers nationwide. Index readings below 50 indicate negative sentiment about the market.
The Commerce Department reported construction of new homes and apartments fell 4 percent in December to a seasonally adjusted annual rate of 557,000 from an upwardly revised 580,000 in November. Construction of new homes dipped unexpectedly last month as bad weather hit much of the country. The results were led by declines of 19 percent in the Northeast and Midwest. Construction fell 1 percent in the West, but rose more than 3 percent in the South. Applications for new building permits, a gauge of future activity, rose 11 percent to an annual rate of 653,000 and the highest level since October 2008. New home construction is down 75 percent from the peak nearly four years ago, but up 14 percent from the bottom last January. For all of last year, builders started construction on more than 550,000 homes, down nearly 40 percent from a year earlier and lowest on records dating back to 1959.
The Labor Department reported that wholesale prices edged up 0.2 percent last month, much slower than the 1.8 percent surge in November. Energy prices, which had been up for two months, fell in December. Energy costs fell by 0.4 percent in December as the price of gasoline dropped by 3.2 percent, the biggest one-month decline since September. Natural gas prices fell by 1.9 percent, the biggest decline since last May. Food costs rose by 1.4 percent, the third straight month of higher food costs. The December jump was led by a 9.4 percent rise in pork prices, the biggest increase in a decade and a 3.7 percent increase in the cost of dairy products, the largest advance in more than two years. The rise in food costs accounted for one-fifth of December's overall 0.2 percent rise in wholesale inflation. The flat reading for core prices, which excludes food and energy, was helped by a 1.2 percent fall in the cost of light trucks, a category that includes sport utility vehicles. For the 12 months ending in December, prices at the wholesale level were up 4.4 percent compared to a 0.9 percent drop in wholesale prices in 2008. That big swing reflected a rise in energy costs in 2009. Core inflation at the wholesale level last year rose by 0.9 percent after having surged 4.5 percent in 2008.
The Labor Department reported that initial claims for unemployment insurance rose by 36,000 to a seasonally adjusted 482,000. The four-week average, which smoothes fluctuations, rose for the first time since August, to 448,250. The weekly claims figure is volatile and it can take time for trends to emerge. The increase last week was due to administrative backlogs leftover from the winter holidays in the state agencies that process the claims. Meanwhile, the number of people continuing to claim regular benefits dropped slightly too just under 4.6 million. The continuing claims data lags initial claims by a week. More than 5.9 million are receiving extended benefits in the week ending Jan. 2, the latest data available, and an increase of more than 600,000 from the previous week. The data for emergency benefits lags initial claims by two weeks.
The Conference Board reported that it’s index of leading economic indicators, a forecast of future economic activity, jumped 1.1 percent in December suggesting that growth could pick up this spring. The gauge had risen a revised 1 percent in November, it was initially reported as a 0.7 percent increase, and has been up for nine consecutive months. The index has risen 5.2 percent in the six months through December, a significant pickup from early 2009 but slower than the 5.7 percent growth rate in the six months through September. Eight of the 10 components in the index showed improvement in December, with the strongest gains in the so-called interest rate spread and building permits, which are a signal of future home construction. The interest rate spread is the difference between the cost of borrowing money for 10 years and borrowing overnight. A wide gap between those costs can signal that investors expect inflation to increase or that they expect economic activity to pick up. The Conference Board's coincident index, which measures the current state of the business cycle, rose 0.1 percent in December for the third month in a row.
Janaury 15, 2010
By Paul Fero
The S&P 500 dropped a bit this week as nervousness over the tepid recovery sank in with the market as the S&P 500 to closed at 1136. It should be noted that the S&P 500 did come up to the technical overhead resistance level at 1150 and pulled back. This could be a sticking point or a breakout point as earnings season begins and additional economic data filter in on the state of the economic recovery. Oil prices came off their highs of the week after approaching $84 a barrel early the week to close at $78 a barrel. Also backing off recent highs were yields on the 10 year US Treasury as they too highs with yields approaching 3.84 percent to close the week yielding 3.68 percent.
The Mortgage Bankers Association (MBA) reported its seasonally adjusted index of mortgage applications, including both purchase and refinance loans, increased 14.3 percent to 528.1 for the week ended January 8. A year ago, the index was at 1,324.8. The four-week moving average of mortgage applications, which smoothes out volatile weekly figures, was down 6.4 percent. The MBA's seasonally adjusted purchase index, a tentative early indicator of home sales, rose 0.8 percent to 213.7. The seasonally adjusted index of refinancing applications increased 21.8 percent to 2,407.2. The refinance share of mortgage activity increased to 71.5 percent of total applications from 68.2 percent the previous week. The adjustable-rate mortgage (ARM) share of activity was unchanged at 4.0 percent from the previous week.
A record 2.8 million households were threatened with foreclosure last year, and that number is expected to rise this year as more unemployed and cash-strapped homeowners fall behind on their mortgages. The number of households that received a foreclosure-related notice rose 21 percent from 2008 according to RealtyTrac. One in 45 homes were sent a filing, which includes default notices, scheduled foreclosure auctions and bank repossessions. In December, more than 349,000 households, or one in 366 homes, were hit with a foreclosure-related notice. That represents a 14 percent increase from November and 15 percent from December 2008. Banks repossessed more than 92,000 homes, up 19 percent from November. That increase was likely due to lenders working to clear their books at the end of the year. Between 3 and 3.5 million homes are expected to enter some phase of foreclosure this year. The top states of foreclosure continue to be Nevada, Arizona and Florida. More than 10 percent of Nevada housing units received at least one foreclosure filing in 2009, with Florida and Arizona following with about 6 percent each. The other states ranked in the top 10 for the year were California, Utah, Idaho, Georgia, Michigan, Illinois, and Colorado.
High foreclosures forced the federal government and several states to come up with plans to prevent or delay foreclosures to help troubled borrowers. One plan intended to help homeowners is the Obama administration's loan modification program known as Making Home Affordable. Lenders participating in the program have offered trial loan modifications to 760,000 eligible borrowers since it was launched in March. A loan modification changes the terms of the loan, such as lowering the interest rate, to make the monthly payments more affordable. As of November, just 31,000 of them had been made permanent. Nearly the same number had dropped out of the program or were found to be ineligible. Since April 2009, there have been nine instances where new program requirements were released, and more than 90 clarifications for new or revised forms, reporting changes and policies. The changes forced mortgage companies to implement new procedures and retrain employees, taking away time that could be spent helping borrowers.
Reports from the twelve Federal Reserve districts, known as the Beige Book, indicated that while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than in the last report. Ten of the twelve districts reported activity was picking up while the Philadelphia and Richmond Fed banks reported mixed conditions. The report indicated that shoppers in the 2009 holiday season spent slightly more freely than in 2008 but at a rate still far below 2007 levels, when the economy was just on the verge of slipping into a serious financial crisis. Job markets were still soft in most of the country, though the New York Fed reported "a modest pickup" in hiring and several service-sector firms in the St. Louis Fed region planned to take on more employees. Wage rises and price pressures were subdued.
The Commerce Department reported total retail sales fell 0.3 percent last month, the first decline in three months, after rising by an upwardly revised 1.8 percent in November. Sales in November were previously reported to have increased 1.3 percent. Compared to December 2008, sales rose 5.4 percent, but fell 6.2 percent for the whole of 2009. It should be noted that the December 2008 numbers were the worst in over 40 years so even a modest increase is still an extremely poor performance. In December, motor vehicle purchases fell 0.8 percent, while sales at electronics and appliance stores dropped 2.6 percent. Excluding motor vehicles and parts, retail sales fell 0.2 percent in December, the biggest decline since July, after rising 1.9 percent the prior month. Core retail sales, which excludes autos, gasoline and building materials, fell 0.3 percent after rising 0.9 percent in November.
The Commerce Department reported that business inventories rose by 0.4 percent in November. It was the second consecutive rise in inventories after 13 months of declines. The hope is that businesses will begin restocking their depleted shelves, helping to support the economic recovery. The report also showed that total business sales rose by 2 percent in November, the best performance in two years. The rise in inventories was led by a 1.5 percent increase in stockpiles held by wholesalers. Inventories held by manufacturers rose by 0.2 percent while retail inventories dropped by 0.2 percent in November. Factories hold about one-third of all inventories, wholesalers hold 25 percent and retailers hold the rest. The combination of a 2 percent jump in business sales and a smaller 0.4 percent rise in inventories left the ratio of inventories to sales at 1.28 in November, down from 1.30 in October. That ratio means it would take 1.28 months to exhaust existing stockpiles at the November sales pace.
This past week President Barack Obama is trumpeting a new White House estimate that his top economist calls "stunning" that his stimulus plan has already created or saved up to 2 million jobs. The analysis is part of the administration's quarterly report to Congress on the controversial $787 billion package of spending and tax cuts he signed weeks after taking office. But the report from the President's Council of Economic Advisers said the economy is a lot better off than it would have been without the stimulus. Citing its own analysis plus a range of private sector summaries, the council estimated the annual growth rate last year would have been roughly 2 percentage points lower, and there would have been 1.5 million to 2 million fewer jobs. The White House jobs analysis said the actual number of jobs saved or created by direct cash grants comes to 640,000. But it stressed the figures are only current through the end of September and do not include "multiplier" effects as the increased spending ripples through the economy. However, the administration's method of counting jobs has been controversial, and starting with fourth-quarter figures, it's adopting a new one, giving up trying to determine if a job has been created or saved, and reporting only that it's funded by the stimulus. The change was ordered quietly last month in a memo to federal agencies. The administration says the new counting method streamlines the process and responds to complaints from grant recipients that the reporting rules were too complex. In the land of make believe as I’ve said from the beginning, in late Spring, the report will show that this has worked completely just in time for the mid-election process to begin in earnest. Yes the spending is save some jobs but to try and quantify the direct result is impossible outside of the standard multiplier effect which is used under normal economic environment which is hardly the current state of the economy. And for those that can’t find a job, this report is almost a slap in the face of reality.
The Labor Department reported that for the week ending Jan. 9, the seasonally adjusted initial jobless claims was 444,000, an increase of 11,000 from the previous week's revised figure of 433,000. The 4-week moving average was 440,750, a decrease of 9,000 from the previous week's revised average of 449,750. The total number of jobless claims during the week ending Jan. 2 was 4,596,000, a decrease of 211,000 from the preceding week's revised level of 4,807,000. The 4-week moving average was 4,855,000, a decrease of 151,500 from the preceding week's revised average of 5,006,500. Under the extended benefits program, there were 302,272 added to the rolls with a total of 5,002,180 for the week ending December 19, the latest available data which is a decrease of 5,692 from previous report which bring the total receiving unemployment benefits to about 9.6 million people.
The Labor Department reported that the Consumer Price Index rose a modest 0.1 percent in December. Excluding food and energy, prices were also up just 0.1 percent last month. That equates to a 2.7 percent rise in overall consumer prices for 2009 followed a 0.1 percent increase in 2008, which had been the smallest gain in more than a half century. Energy costs for the 12 months ending in December shot up 18.2 percent. That was the biggest jump since 1979, after they had dropped 21.3 percent in 2008. The energy surge was led by higher gasoline costs, which rose 53.5 percent after falling 43.1 percent in 2008. Food prices swung in the opposite direction. After rising 5.9 percent in 2008, they fell 0.5 percent for the 12 months ending in December, the biggest drop since 1961. Core inflation, which excludes the volatile food and energy categories, rose 1.8 percent for the 12 months ending in December. It matched the 1.8 percent rise in core inflation in 2008. Both gains were the smallest since a 1.1 percent rise in 2003. One of the factors keeping core inflation under control is housing costs which dropped 0.3 percent for the 12 months ending in December, the biggest annual decline on records dating to 1968. Some costs have continued to rise such as medical costs rose 3.4 percent in 2009, the largest increase since a 5.2 percent increase in 2007, also education costs rose 4.7 percent last year.
The Labor Department reported that inflation-adjusted weekly wages for the 12 months ending in December fell 1.6 percent, the sharpest decline since 1990. Slack wages and scarce job creation have slowed consumer spending, hindering the economy's ability to mount a strong recovery. The 1.6 percent drop in average weekly earnings for nonsupervisory workers was the worst annual performance since a 2.5 percent decline in 1990. Weekly earnings have fallen in five of the past seven years, underscoring the pressures households are facing even before the recession began as earnings fall relative to increasing costs underpinning a declining standard of living.
January 8, 2010
By Paul Fero
The Conference Board reported its Consumer Confidence Index rose to 52.9, up from a revised 50.6 in November, but the reading is still far short of the 90 that would signify a solid economy. In October, consumer confidence was 48.7. The index hit a historic low of 25.3 in February. One key component of the Confidence index that measures consumers' outlook over the next six months rose to 75.6 from 70.3 last month, the highest level since December 2007, when the index was 75.8. But the survey's other main component, which measures shoppers' current assessment, actually fell to 18.8 from 21.2. The Conference Board survey showed that consumers' assessment of current conditions worsened in December. Those saying conditions are "bad" increased to 46.6 percent from 44.5 percent, while those saying business conditions are "good" decreased to 7.0 percent from 8.1 percent. Consumers' six-month outlook improved in December. Those anticipating business conditions will be better over the next six months increased to 21.3 percent from 19.7 percent, while those expecting conditions will deteriorate declined to 11.9 percent from 14.6 percent. The outlook for the job market was also more positive. The percentage of consumers expecting more jobs to become available in the months ahead increased to 16.2 percent from 15.8 percent, while those expecting fewer jobs declined to 20.7 percent from 23.1 percent. However, the proportion of consumers anticipating an increase in their incomes declined to 10.3 percent from 10.9 percent.
Retail sales rose 3.6 percent from Nov. 1 through Dec. 24, compared with a 2.3 percent drop in the year-ago period, according to figures from MasterCard Advisors' SpendingPulse, which track all forms of payment, including cash. Adjusting for an extra shopping day between Thanksgiving and Christmas, the number was closer to a 1 percent gain. Given the huge reduction of sales from last year, this proved to be a very weak holiday shopping season. Online sales were a particular hot spot, fueled by a big increase the weekend before Christmas. They rose 15.5 percent on the season, though they make up less than 10 percent of all retail sales. One worrisome sign are merchants facing big hurdles to lure shoppers back in January amid lean inventories and what appear to be weak gift card sales. Gift card sales are recorded only when they are redeemed.
According to the International Council of Shopping Centers sales index, December sales rose 2.8 percent compared to a year ago, ending a year that averaged a 2.0 percent drop. For the overall holiday season, which combines both November and December sales, the index was up 1.8 percent. That figure, however compares with a 5.8 percent drop a year ago, the weakest holiday season in least four decades. The December reading was the strongest for 2009 and the most robust since April 2008 when stores collectively had a 3.3 percent gain, according to the ICSC.
The Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index read 55.9 in December after 53.6 in November. A reading above 50 indicates growth. That is the fifth straight month of expansion and the highest reading for the index since April 2006. Analysts polled by Thomson Reuters had expected a reading of 54.3. Still, the ISM report said new orders, a signal of future production, jumped last month to 65.5 from 60.3 in November. Indexes measuring production and employment also rose. The ISM's manufacturing index first showed growth in August after 18 months of contraction. The index's peak in the last decade was 61.4 in May 2004. It bottomed at 32.9 in the midst of the recession in December 2008.
The Institute for Supply Management, a private trade group, said its service index rose to 50.1 in December from 48.7 in November. Analysts polled by Thomson Reuters had expected a reading of 50.5. A level above 50 signals growth. The gauge rose in September for the first time in 13 months, but the comeback has been fitful amid tiny gains in consumers' incomes and tight bank lending to small businesses. Seven industries reported growth, led by agriculture and retail. ISM's service-sector gauge is closely watched because service jobs comprise more than 80 percent of non-farm U.S. employment. ISM said its employment measure shrank in December, but at a slower pace than in November. It hasn't grown in 2 years. The employment index was 44 in December versus 41.6 a month earlier. The four industry groups adding jobs were retail, finance and insurance, public administration and what is called other services. Meanwhile, new orders, a signal of future business, expanded for the fourth straight month, although less quickly than in November. Business activity also grew, as did the prices paid by businesses.
According to The Standard & Poor's/Case-Shiller index, home prices edged up 0.4 percent to a seasonally adjusted reading of 145.36 in October from September. The index was off 7.3 percent from October last year. The index is now up 3.4 percent from its bottom in May, but still almost 30 percent below its peak in April 2006.
The Commerce Department reported that construction spending fell in November for a seventh straight month as spending on both residential and commercial projects declined by 0.6 percent.
The National Association of Realtors reported that its seasonally adjusted index of sales agreements fell 16 percent from October to a November reading of 96. It was the first decline following nine straight months of gains and the lowest reading since June. The report illustrates that consumers are taking their time following the extension of a tax credit deadline. The incentive of up to $8,000 for first-time buyers was set to expire at the end of November. But Congress pushed back the expiration date to April 2010 and expanded the program.
The Commerce Department reported that orders to U.S. factories posted a surprisingly big gain in November which rose by 1.1 percent in November. Orders reflecting strong demand include a number of industries from steel and industrial machinery to computers and chemicals. This has provided further evidence that manufacturers are beginning to pull out of their steep slump. The increases were widespread outside of autos and aircraft, which posted declines. However, a brief look into the employment within the manufacturing sector, listed below, doesn’t bode well for this sector, as least as reported for December.
U.S. sales of cars and light trucks were down 21 percent for the year to 10.4 million. Overall, 2009 U.S. sales dropped to a level not seen since the recession of 1982, when just over 10.3 million cars and trucks were sold, according to Ward's AutoInfoBank. Ford, the only U.S.-based automaker to avoid bankruptcy protection, fared better than its two Detroit rivals, with overall sales down 15 percent last year compared with 36 percent fewer for Chrysler and 30 percent for GM. In fact, Chrysler sold just 931,000 cars and trucks in 2009, its worst performance since 1962. Yet even though U.S. sales fell for the year, Hyundai continued its surge with an 8-percent yearly gain, while Kia reported an annual gain of nearly 10 percent. Toyota however saw sales dive 20 percent for the year.
The Labor Department reported initial claims for jobless benefits rose by 1,000 to a seasonally adjusted 434,000 last week. But the four-week average of claims which smoothes fluctuations fell for the 18th straight week to 450,250. The number of continuing claims dropped 179,000 to 4.8 million. But that figure doesn't include an additional 5.4 million people who are receiving unemployment under federal emergency programs, as of the week ending Dec. 19. A total of 10.5 million people were receiving unemployment benefits that week, an increase of about 300,000 from the previous week. That increase is partly a result of a decision by Congress in November to extend benefits for a fourth time since the recession began. Jobless workers can now receive up to 73 weeks of benefits, paid for by the federal government, on top of the 26 weeks customarily provided by the states. The many people continuing to receive benefits indicates that even as layoffs are declining, hiring hasn't picked up. That leaves people out of work for longer and longer periods of time. Initial claims for jobless aid have dropped by 100,000, or 19 percent, since late October.
The Labor Department reported that U.S. employers unexpectedly cut 85,000 jobs in December, cooling optimism on the labor market's recovery. November payrolls were revised to show the economy actually added 4,000 jobs rather than losing 11,000 as initially reported, breaking a streak of consecutive losses that dates back to December 2007. With revisions to October, however, the economy lost 1,000 more jobs than previously estimated over the two months. The unemployment rate was unchanged at 10 percent in December, but that reflected a surprisingly large number of people leaving the labor force. For the whole of 2009, the economy shed 4.2 million jobs. The department's survey of households offered an even gloomier assessment of the job market, showing that 661,000 people left the work force last month. The report showed there were 929,000 "discouraged workers" who had given up looking for a job, up from 642,000 a year earlier. The broadest measure of unemployment (U-6 rate), which includes discouraged workers and those working part-time for economic reasons, rose to 17.3 percent from 17.2 percent in the prior month. With some positive areas, professional and business services added 50,000 positions, while education and health services increased payrolls by 35,000. Temporary help employment rose 47,000. However, manufacturing payrolls fell 27,000 after dropping 35,000 in November. The construction sector lost 53,000 jobs, while the service-providing sector shed only 4,000 workers. The average workweek was unchanged at 33.2 hours, while average hourly earnings increased to $18.80 from $18.77 in November.
January 1, 2010
By Paul Fero
No commentary this week to due to the holidays. Happy New Year!
December 25, 2009
By Paul Fero
The stock market powered ahead giving those a nice Christmas present with the S&P 500 closing the week at 1,126. Gold was a few dollars off to close the week at $1,104 while oil was up a couple of bucks to close at $77 a barrel. A big mover this week was the 10 year U.S. Treasury picking 30 basis points in yield to close with a yield of 3.80 percent. Next week once again will be a light trading week that generally is a positive but could also prove to be a negative to lock in some gains for the year. Again, could go either way.
The economy grew at a 2.2 percent pace in the third quarter, as the recovery got off to a weaker start than previously thought. The Commerce Department's new reading on gross domestic product for the July-to-September quarter was slower than the 2.8 percent growth rate estimated just a month ago. The main factors behind the downgrade: consumers didn't spend as much, commercial construction was weaker, business investment in equipment and software was a bit softer and companies cut back more on inventories. Consumer spending grew at a 2.8 percent pace, slightly weaker than the 2.9 percent pace previously estimated and one of the factors behind the lower overall reading. Still, unlike previous economic recoveries, consumers, whose spending accounts for 70 percent of overall economic activity, aren't expected to solely power this one. Businesses and the government are having to pitch in more. A trouble spot for the economy, the commercial real-estate market, was clearly visible in the revised report. Builders cut spending on commercial building projects at an annualized pace of 18.4 percent in the third quarter. That was sharper than the 15.1 percent pace previously estimated and contributed to the GDP downgrade. Business spending on equipment and software, meanwhile, grew at a 1.5 percent, less than the 2.3 percent growth rate estimated a month ago. Additionally, businesses cut inventories more deeply, by $139.2 billion in the third quarter. However, with inventories at extremely low levels, businesses are starting to replenish them, which should support the economy.
The National Association of Realtors reported sales of existing homes rose 7.4 percent to a seasonally adjusted annual rate of 6.54 million in November, from a downwardly revised pace of 6.09 million in October. Sales were 44 percent above last year's levels, a record jump. The median sales price was $172,600, down 4.3 percent from a year earlier, and up 0.2 percent from October.
The Commerce Department reported November's new home sales fell 11.3 percent to a seasonally adjusted annual rate of 355,000 from a downwardly revised 400,000 in October. Sales were down 9 percent from a year ago. The results suggest buyers will wait until spring before taking advantage of newly extended and expanded federal tax incentives designed to spur sales. The median sales price of $217,400 was down nearly 2 percent from $221,600 a year earlier, but up about 4 percent from October's level of $209,400. New home sales data are a better indicator of future real estate activity than sales of previously occupied homes, but capture a smaller slice of the market. The new home figures tally sales agreements signed in November, while home resale numbers reflect contracts signed over the summer that were completed in November.
The Commerce Department reported that personal incomes rose 0.4 percent in November, that fastest pace in six months. The 0.4 percent rise in incomes followed a 0.3 percent October gain. After taking inflation into account, after-tax incomes are rising at an annual rate of just 1.2 percent. Such gains remain too weak to sustain a strong economic recovery. This is especially true at a time when households are using some income to shrink debt loads and rebuild savings, rather than spend. The rise in incomes helped bolster spending, which rose 0.5 percent in November and the second straight increase. At the same time, the Commerce Department reported a 0.5 percent rise in consumer spending that reflected the surprisingly strong 1.3 percent jump in retail sales that occurred during November. A price gauge tied to consumer spending edged up a modest 0.2 percent in November from the previous month, and was actually flat excluding energy and food. Over the past year, this price gauge excluding food and energy is up just 1.4 percent -- well within the comfort zone of officials at the Federal Reserve. The rise in incomes and comparable rise in spending left the savings rate unchanged in November at 4.7 percent of after-tax incomes.
The Labor Department reported the number of new jobless claims fell to a 452,000 last week, down 28,000 from the previous week, on a seasonally adjusted basis. The four-week average for claims, which smoothes out fluctuations, fell to 465,250, the 16th straight weekly decline. That improvement is seen as a sign that jobs cuts are slowing and hiring could pick up early next year. The fall in weekly claims of 28,000 last week, which followed two smaller weekly increases, shows that the halting improvement continues. But the Labor Department warned that seasonal employment from holidays and other variables in the calendar made last week a difficult one to seasonally adjust. The actual number of new claims was higher than the previous week, but fewer than expected. The process of adjusting for seasonal variation reduced the number. The government said the number of people continuing to receive regular jobless benefits fell by 127,000 to 5.08 million for the week ending Dec. 12. That figure does not include millions of people who have used up the 26 weeks of benefits typically provided by states and are now receiving extended benefits for up to 73 additional weeks, paid for by the federal government. The number of people receiving extended benefits jumped to 4.37 million for the week ending Dec. 5, an increase of 141,807 from the previous week. That big rise slows that the problem of high unemployment persists despite a decrease in layoffs.
The Commerce Department reported that orders for durable goods edged up 0.2 percent last month. However, excluding transportation, orders rose 2 percent over the October level. Demand for transportation products sank 5.5 percent as orders for motor vehicles and parts edged down 0.2 percent, the weakest showing in five months. Not a surprise that the Cash for Clunkers program ended and inventory has generally been replenished. Demand for commercial aircraft plunged 32.6 percent. The 2 percent increase in orders excluding transportation reflected a rebound from a 0.7 percent decline in October. The October result was revised up from a much bigger 1.3 percent drop previously reported. Strength in November was shown in a number of areas. Demand for machinery rose by 3.5 percent, orders for primary metals such as steel grew 1.4 percent and orders for computers and electronic products jumped 3.7 percent, the biggest gain since February. The report on durable goods, items expected to last at least three years, showed that demand for non-defense capital goods excluding aircraft rose by 2.9 percent in November, rebounding from a 2 percent drop in October. It was the best showing since a similar gain in September. This category is closely watched because it is considered a good proxy for business investment.
December 18, 2009
By Paul Fero
The slightly stronger U.S. dollar this past week illustrated the direction of the market which is the opposite direction. The S&P 500 lost a few points as well as gold lost a touch of its luster which highlight this has been a traders market and one not based on fundamentals. Oil was one of the only cross current items actually move up a bit. The S&P 500 closed the week at 1102, the price of oil closed at $73 a barrel, and gold closed at $1,110 an ounce. With the Christmas and New Year holidays over the next coming week, anything can happen. It looks to light trading which generally is a positive for the market. However, this could also be the opportunity for some fund managers to lock in profits for show a strong year, so that could be a negative. On whole, too close to call as we may see a bit of both over the next couple of weeks.
The Federal Reserve reported that industrial production rose a 0.8 percent in November. Stronger activity at mines led last month's increase, rising 2.1 percent. The manufacturing sector, the largest area within industrial output, reversed a one-month decline and rose 1.1 percent. Utilities did fall 1.8 percent. Overall industrial capacity in use rose to 71.3 percent in November, from 70.6 percent in October. It shows that factories, mines and utilities are using more of their plants as the recovery is taking shape.
The Labor Department report that the Producer Price Index for finished goods rose 1.8 percent in November. This increase followed a 0.3 percent advance in October and a 0.6 percent decrease in September. In November, at the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 1.4 percent, and the crude goods index rose 5.7 percent. On an unadjusted basis, prices for finished goods moved up 2.4 percent for the 12 months ended November 2009, their first 12-month increase since November 2008. As a reminder, oil prices had begun to drop significantly in July 2008. About three-fourths of the November advance in the finished goods index can be traced to higher prices for energy goods, which jumped 6.9 percent. The indexes for finished goods less foods and energy and for finished consumer foods also contributed to the finished goods increase, both rising 0.5 percent.
The Labor Department reported that the Consumer Price Index rose 0.4 percent on a seasonally adjusted basis after an unrevised 0.3 percent gain in October. A 4.1 percent jump in the energy index led the rise as gasoline, electricity, fuel oil, and natural gas prices rose. Prices rose 1.8 percent over the last 12 months, the first year-over-year gain since February. When food and energy costs were stripped away the so-called Core prices rose 1.7 percent over the 12-month period. November core prices were unchanged from the previous month, as declines in shelter costs offset gains in prices for vehicles, medical care and airline fares.
The National Association of Home Builders reported its housing market index fell by one point to 16 this month, reflecting concern that job losses and a slow economic recovery will continue to stifle demand for new homes despite the extension of a federal tax credit for buyers. The latest reading is the lowest since June, when it fell to 15. This was also the first monthly decline since October. New home sales got a lift this year from low mortgage interest rates and an $8,000 federal tax credit for first-time homebuyers. The incentive was set to expire on Nov. 30, but Congress extended it through April and expanded it to include $6,500 for existing homeowners. And builders' outlook for sales over the next six months fell by two points to 26.
The Commerce Department reported that construction of new homes and apartments rose 8.9 percent in November to a seasonally adjusted annual rate of 574,000 units. The gain represented strength in all areas of the country. Applications for new building permits were also up, rising 6 percent to an annual rate of 584,000 units. Again this increased is based on the expanded tax incentives for the housing sector.
About 1.7 million homeowners were on the verge of foreclosure in the fall, a looming "shadow inventory" of homes that will be put up for sale in the coming years and weigh down prices, a report by First American CoreLogic, a real estate research firm that released the study. The number, up from 1.1 million a year earlier, is likely to keep rising through the middle of next year or later, said Mark Fleming, chief economist of First American CoreLogic. Already, the foreclosure backlog is equal to nearly half the 3.8 million unsold new and existing homes currently on the market, First American said. Other reports have come up with larger estimates. But FirstAmerican assumes that fewer delinquent borrowers, only about one-third, will wind up losing their homes. It also estimates that nearly 30 percent of bank-owned properties have already been listed for sale. Source: www.yahoo.com
The Labor Department reported that initial claims for state unemployment benefits climbed 7,000 to a seasonally adjusted 480,000 in the week ended Dec. 12 from a slightly downwardly revised 473,000 in the prior week. It was the second straight week initial claims rose. The four-week moving average for new claims fell 5,250 to 467,500 last week, the lowest level since September 2008, and dropping for the 15th week in a row. The four-week moving average is viewed as a better gauge of underlying trends as it irons out week-to-week volatility. The number of workers still collecting benefits after an initial week of aid rose 5,000 to 5.19 million in the week ended Dec. 5. The expanded employment claims rose by 98,000 to 4.23 million for the week ending November 28. That brings the total collecting unemployment to about 9.42 million.
The Conference Board's gauge of future economic conditions rose in November, for its 8th straight monthly increase, boosted by improving financial conditions, employment and housing. The Leading Economic Index increased 0.9 percent to 104.9 after rising an unrevised 0.3 percent in October. The index "has been on an uptrend for more than half a year and it is now slightly higher than its latest peak in July 2007," according to Conference Board Economist Ataman Ozyildirim. He noted that in November the employment level held steady, making this the first month since December 2007 that it did not drag on the index. The coincident index, a measure of current economic conditions, also rose, by 0.2 percent, in November. But the lagging index fell 0.4 percent. Source: www.yahoo.com
December 11, 2009
By Paul Fero
The S&P 500 fell the first half of the week on a stronger U.S. dollar and recovered by the end of the week with some better economic news to close the week flat at 1106. The bond market also so a volatile week with the 10 year U.S. Treasury hitting a low yield of 3.35 percent to close the week at 3.54 percent. Also in the volatile camp was oil and gold which both dropped significantly on the strong the U.S. dollar. Oil lost nearly $5 to close the week at nearly $70 a barrel. Gold lost about $40 to close the week at $1,119 an ounce. The key to movement in these markets the past three months or so has been purely the decline value of the U.S. dollar. Look for that to continue for the remainder of the year and into early 2010.
According to the Federal Reserve, consumer credit fell at an annual rate of $3.51 billion in October for a record ninth straight month. Demand for revolving credit, the category that includes credit cards, fell 9.3 percent, while borrowing in the category that includes auto loans rose at an annual rate of 2.6 percent. The 1.7 percent fall in overall consumer borrowing left the total at an annual rate of $2.48 trillion in October. The $3.51 billion fall in October followed a decline of $8.77 billion in September. The 9.3 percent plunge in the credit card category followed drops of 10.5 percent in September, and 10.6 percent in August. In all, credit card borrowing has fallen for a record 13 straight months. The 2.6 percent rise in the category that includes auto loans followed a 0.6 percent drop in September.
A quarterly survey from the Business Roundtable found that 19 percent of the CEOs expect to expand their work forces, while 31 percent predict a decrease in the next six months. That's slightly better than the 13 percent expected to increase hiring three months earlier. At that time, 40 percent forecast cuts. The CEOs also expect the overall U.S. economy to grow by 1.9 percent in 2010. That would mark a slowdown from the 2.8 percent pace in the third quarter of 2009. In more positive news, the group's economic outlook index, a combination of expectations for spending, sales and hiring, rose to 71.5, from 44.9 in the third quarter. Numbers above 50 represent economic growth. It was the first time the index rose above 50 since the third quarter of
The Commerce Department reported that businesses increased their inventories 0.2 percent in October, halting a slide of 13 consecutive declines. The small gain, along with a fifth straight increase in sales, is raising hopes that businesses will continue and help support the economic recovery. Total business sales rose 1.1 percent. The increase in October inventories followed a 0.5 percent September decline. The biggest gain was a 0.4 percent rise in manufacturing inventories. Wholesale inventories rose 0.3 percent, while stockpiles held by retailers were flat in October. Factories hold about one-third of all inventories, wholesalers hold 25 percent and retailers hold the rest. The 13 consecutive declines in overall inventories was the longest stretch of weakness since a record 15 straight drops during a period that covered the last recession in 2001. But the total decline of 13.9 percent in the current slump is larger than the 7.6 percent drop that occurred during the last downturn. The 1.1 percent rise in total business sales in October followed a 0.2 percent September increase.
The Commerce Department reported that wholesale inventories rose 0.3 percent in October. Inventories dropped 0.8 percent in September. Sales at the wholesale level rose 1.2 percent in October. It followed a 1.3 percent increase in September and marked the seventh straight month that sales at the wholesale level have risen. Businesses added to inventories at the wholesale level in October, breaking a record string of 13 straight declines. Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories and retailers hold the rest. Even with the slight rise, wholesale inventories were still 13.5 percent below the year-ago level. Still, the October increase marked the first gain since a 0.7 percent rise in August 2008. With the rise in sales outpacing the rise in inventories, the inventory to sales ratio slipped to 1.16. That means it would take 1.16 months to deplete existing inventories at the October sales pace. It marked the seventh straight month that the inventory-to-sales ratio has fallen.
The Commerce Department reported retail sales rose 1.3 percent in November, after a 1.1 percent gain for the month of October. It was the biggest advance since sales jumped 2.4 percent in August, when the Cash for Clunkers program was a big hit. Excluding autos, retail sales rose a strong 1.2 percent. A 6 percent surge in sales at service stations, partly reflecting higher gasoline prices, led the overall gain. But even excluding that jump, retail sales posted a respectable 0.8 percent rise in November. The November retail sales report showed that auto sales rose 1.6 percent, a solid performance after a 7.1 percent surge in October. Sales at department stores increased 0.7 percent, and the broader category that includes big retailers such as Wal-Mart and Target posted a 0.8 percent increase. Sales also jumped 2.8 percent at electronics and appliance stores, and 1.5 percent at hardware stores. Sales did fall 0.7 percent at furniture stores.
The Mortgage Bankers Association reported that total mortgage applications rose 8.5 percent last week which is the highest level since early October. Nearly three of every four loan requests last week was for a refinancing, not surprising given the record low rates. Demand for loans to buy a home increased by 4 percent, while refinancing applications jumped 11.1 percent.
According to RealtyTrac, nearly 307,000 households, or one in every 417 homes, received a foreclosure-related notice in November, down 8 percent from a month earlier. Banks repossessed about 77,000 homes last month, down slightly from October. Foreclosure filings were still up 18 percent from a year ago, and a new wave is expected next year as unemployment remains high and borrowers fall out of loan modification programs. Nevada posted the nation's highest foreclosure rate, followed by Florida, California, Arizona and Idaho. Rounding out the top 10 were Michigan, Illinois, Utah, Maryland and New Jersey.
Nationwide, only about 10,000 homeowners received permanent loan modifications this fall under the Obama administration's mortgage relief plan, more evidence of serious failings in the government's effort to prop up the housing market. The Treasury Department’s data through October showed that fewer than 5 percent of homeowners who completed the trial periods had their mortgage payments permanently lowered to more affordable levels. Under the program, eligible borrowers who are behind or at risk of default can have their mortgage interest rate reduced to as low as 2 percent for five years. They are given temporary modifications, which are supposed to become permanent after borrowers make three payments on time and complete the required paperwork, including proof of income and a hardship letter.
The Labor Department reported initial claims for unemployment insurance rose by 17,000 to a seasonally adjusted 474,000. Claims were partly inflated by a surge following the Thanksgiving holiday week, when many state unemployment offices are closed according to a Labor Department analyst. Seasonal layoffs in the construction industry also played a role. The four-week average of claims, which smoothes fluctuations, fell to 473,750, its 14th straight decline and the lowest level since September 2008. The number of people continuing to claim benefits fell by 303,000 to 5.16 million, the lowest level since February. The total unemployment benefit rolls have fallen in 11 of the past 12 weeks. About 4.6 million people were receiving extended benefits in the week ended Nov. 21, the latest data available. That's an increase of about 130,000 from the previous week, and is partly due to an extension of benefits that Congress enacted last month.
December 4, 2009
By Paul Fero
The S&P 500 index got a bit of bump this past week on the back of a weaker U.S. dollar the first half of the week and some “improvement” in some labor market. Just remember that less bad is still bad. Cheerleading with unemployment at 10 percent and likely to stay in the 9 percent range for all of 2010 is a bit sick, in my opinion. This is a tale of two economies. Those unaffected by the recession and everyone else. Look for more details in my upcoming Economic and Financial Forecast for 2010.
Volatility once again in the commodities market that are more directly affected by changes in the U.S. dollar. The gold market has been particular volatile with prices hitting an all time high over $1,220 earlier in the week and reversed course to close the week at $1,169 an ounce. While the U.S. dollar strengthened the later part of the week, the trend is pretty clear. The U.S. dollar will remain weak for some time, as the perception of better opportunities abroad persists. The price of oil was slightly volatile as well this past week and finished at $75.50 a barrel. The U.S. Treasury market also saw its share of volatility with the yield on the10 year Treasury hitting a recent low of nearly 3.20 percent to close the week at nearly 3.50 percent based on the positive economic numbers.
The ISM Manufacturing Index decreased to 53.6 in November from the 55.7 level in October, which is the 4th consecutive month of expansion in the manufacturing sector, as indicated by an index value above 50, following 18 months of contraction below 50. While the manufacturing sector continues to grow at a slower rate, 12 of 18 industries reported growth: Apparel, Leather & Allied Products; Printing & Related Support Activities; Petroleum & Coal Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Transportation Equipment; Chemical Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Paper Products; Fabricated Metal Products; and Machinery. Five industries reported contraction: Wood Products; Furniture & Related Products; Nonmetallic Mineral Products; Primary Metals; and Plastics & Rubber Products.
The Institute for Supply Management's service sector index dropped to 48.7 from 50.6 in October. Any reading below 50 signals contraction however the trend of the indication is more relevant. The service sector had begun growing in September for the first time in 13 months. The ISM measure tracks more than 80 percent of the country's economic activity, including such diverse industries as health care, retail, financial services and transportation. The trade group said employment shrank for the 22nd time in the last 23 months, although at a slightly slower pace, and business activity shrank again after growing for the past three months. New orders, a sign of future growth, continued expanding, however.
The Commerce Department reported that construction spending edged up 0.04 percent in October following five straight drops including a 1.6 percent fall in September that was the largest since January. The September drop originally was reported as an increase of 0.8 percent. The strength in October came from a 4.4 percent jump in residential construction, the largest advance in home building since March 1998. The increase pushed residential activity is still 23.6 percent below the year-ago level. Nonresidential construction fell 2.5 percent in October, the seventh consecutive decline and 20.6 percent below the year-ago level as spending on office buildings, hotels and the category that includes shopping centers all showed weakness. This illustrates the severe credit crisis affecting the commercial sector. Spending on government construction dipped 0.4 percent in October with a 0.9 percent drop in spending on state and local government projects offset a 4.6 percent rise in federal spending.
The auto delinquency rate, the rate at which payments fell behind 60 days or more, edged up in the July-to-September quarter to 0.81 percent, from 0.80 in the same period last year, according to credit reporting agency TransUnion. The increase from the second quarter to the third quarter of this year was far greater, reflecting both the weak economy and seasonal trends. Car loan payments that are 60 days or more late are considered a precursor to default because of the difficulty consumers’ face in getting caught up. TransUnion forecasts the fourth-quarter auto delinquency rate will rise to almost 0.9 percent. Fourth-quarter rates are typically higher, as consumers divert money to holiday spending. The auto loan figures follow results that showed mortgage delinquencies hit a new high in the third quarter, but the rate of increase from the second quarter slowed. Meanwhile, credit card delinquencies dipped in the third quarter from the second, where a seasonal increase was expected.
According Autodata, auto sales overall were flat compared to last November. Even higher incentives couldn't push the needle much beyond the dismal lows seen a year ago, when a credit freeze and the financial meltdown kept car buyers away. Sales were down 11 percent from October. The adjusted rate was 10.9 million in November compared with 10.5 million in October. Carmakers continued to rely on discounts and other incentive spending to sell cars and trucks last month. Sales incentives rose 2 percent to $2,713 per vehicle, according to the auto Web site Edmunds.com. But those offers lacked the desperation of last November, when car makers boosted incentives by 15 percent. General Motors reported sales fell 2 percent in November, though sales of its core Buick, Cadillac, Chevrolet and GMC brands rose. Ford's sales were essentially flat compared to last November, although sales of its crossovers rose 26 percent and car sales rose 14 percent. Trucks and SUVs saw double-digit declines. Toyota reported its U.S. sales rose 2.6 percent led by standbys like the Camry sedan and the RAV4 crossover. Hyundai sales soared 46 percent on the back of its top-selling Sonata sedan. Honda's U.S. sales fell 2.9 percent in November on slower sales of small cars like the Fit and the Civic. Chrysler reported a decline of 25 percent, and it announced an array of sales incentives including zero percent financing and cash rebates designed to draw buyers into its showrooms. Chrysler said that despite the decrease, its market share rose to 8.4 percent from 7.9 percent in October. Chrysler's sales dropped 38 percent in the first 11 months of the year, steeper than the 24 percent drop for the industry overall. Nissan's U.S. sales rose 21 percent. Sales at Infiniti luxury line dropped 26 percent. Chrysler continued to underperform the industry, selling only 63,560 vehicles last month, a decline of 25 percent.
The National Association of Realtors reported its seasonally adjusted index of sales agreements rose 3.7 percent from September to October to 114.1. It was the highest reading since March 2006 and almost 32 percent above a year ago, the largest annual increase ever for the index. Every region saw year-over-year gains in pending sales. And compared with September, every region but the West saw an increase. Typically there is a one to two month lag between a contract and closing, so the index is a barometer of future sales.
The Commerce Department reported that orders to U.S. factories rose 0.6 percent in October, the sixth gain in the past seven months. Orders for durable goods, items expected to last three years, rose 0.6 percent. Orders for nondurable goods rose 1.6 percent, propelled by gains in demand for petroleum, chemicals, plastics and food. The demand for transportation products rose 1.6 percent, led by a 50.1 percent surge in new orders for commercial aircraft, an extremely volatile category. Demand for motor vehicles and parts rose 0.4 percent, while orders for defense aircraft and parts fell 8.1 percent. Excluding transportation, factory orders would have risen 0.5 percent following a 1.5 percent increase in September. Outside of transportation, demand for primary metals such as steel rose 4.3 percent, but orders for machinery fell 8.5 percent, reflecting a 30 percent plunge in demand for heavy construction equipment.
The Fed's new snapshot of business barometers nationwide found that conditions have generally improved since the last report in late October. Eight of the Fed's 12 regions surveyed reported some pickup in activity or improved conditions, according to the Federal Reserve. Those regions were: Boston, New York, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco. The four other regions, Philadelphia, Cleveland, Richmond and Atlanta, described conditions as little changed or mixed. Many manufacturers said they were "optimistic about the near-term outlook." But makers of construction-related materials were still pessimistic, mostly because of expectations that problems in the commercial real estate industry will be prolonged. In fact, commercial real estate conditions continued to deteriorate according to the Fed report. Most regions were plagued by rising vacancy rates, downward pressure on rents and little, if any, new development.
The Labor Department reported the economy shed 11,000 jobs last month and the unemployment rate fell to 10 percent in November from 10.2 percent in October. Also additional revisions included 159,000 fewer jobs lost in September and October than first reported. The economy has now lost jobs for 23 straight months. Temporary help services added 52,000 jobs, the fourth straight increase. That's positive news, as companies are likely to hire temporary workers before adding permanent ones. The services sector gained 58,000 jobs last month, while manufacturing and construction shed 69,000 positions. Education and health services added 40,000 jobs, and government employment rose 7,000. The unemployment rate or (U-3) rate fell because the number of jobless Americans dropped by 325,000 to 15.4 million. The jobless rate is calculated from a survey of households, while the number of jobs lost or gain is calculated from a separate survey of business and government establishments. The two surveys can sometimes vary. The rate also dropped because fewer people are looking for work. The size of the labor force, which includes the employed and those actively searching for jobs, fell by nearly 100,000, the third straight decline. That indicates more of the unemployed are giving up on looking for work. The rate also dropped because fewer people are looking for work. The participation rate, or the percentage of the population employed or looking for work, fell to 65 percent, the lowest since the recession began. Once laid-off people stop hunting for jobs, they are no longer counted in the unemployment rate. The amount of unemployed, underemployed or marginally employed, a broader measure of unemployment, commonly referred to as the (U-6) rate as defined by the Labor department account for a rate of 17.2 percent down slightly from October’s 17.5 percent. The average work week rose to 33.2 hours, from a record low of 33 hours. Additionally, the average weekly earnings jumped $4.08 to $622.17.
November 27, 2009
By Paul Fero
The usually uneventful holiday week for the market was interrupted with a big positive move in early in the week and big negative move ending the week to end up at the same place where it started at 1091 for the S&P 500. However, given Friday’s short and extremely light trading, move negative moves may follow suit at least at the beginning of the week. This could be a short term game changer in that this could be providing a perfect opportunity for fund managers to lock in profits for the year. What this means for the rest of us, sidelined money could have a much better entry point such as 1000 or lower on the S&P 500. Just to clarify, the only difference between winners and losers is entry points and exit points, period. As a result of the Dubai World news, gold and oil came off their respective highs for the week, with oil closing down a touch from last week to close at $76 a barrel. Meanwhile gold is still the overall power trade to close higher for the week at $1,178 an ounce. However, there could still be some “carry trade” weakness going into December. The U.S. dollar has continued to lose ground this week hitting 15 year lows with the yen and approaching lows reached in 18 months against the Euro. However, some of weakness may diminish somewhat with the ripple effect of Dubai World.
For the first time in a decade, more people paid their credit card bills on time in the third quarter this year than in the second quarter. The delinquency rate on bank-issued cards like those bearing MasterCard and Visa logos fell to 1.1 percent for the June-to-September period, from a rate of 1.17 percent in the prior three months, according to credit reporting agency TransUnion. The 6 percent drop is significant not just for its size but also for its timing, since delinquency rates usually increase in the third quarter from the prior period. The 2009 third-quarter delinquency rate was basically flat with the 2008 third quarter, when 1.09 percent of card payments were 90 days or more past due. TransUnion measures credit card delinquencies at 90 days because three months is considered an indicator that the card holder will default, since it is difficult to make up that many missed payments. Credit card delinquencies were highest in Nevada (1.98 percent), Florida (1.47 percent), Arizona (1.35 percent) and California (1.33 percent). TransUnion figures showed the average balance on outstanding bank cards drifted down to $5,612 from the previous quarter's $5,719, and from $5,710 in the 2008 third quarter.
National Association of Realtors reported sales of existing homes rose 10.1 percent to a seasonally adjusted annual rate of 6.1 million in October, from a downwardly revised pace of 5.54 million in September. The median sales price was $173,100. That's down 7 percent from a year earlier and off roughly 2 percent from September. Home sales are now nearly 37 percent above their bottom in January, though still 16 percent below their peak in 2005. At the current sales pace, there's a modest seven-month supply for sale. Nearly a third of sales were distressed sales of either foreclosed or short sales. Also, an additional third were first time home buyers which added to the frenzy with the anticipation of the $8,000 first time home buyers credit which was set to expire at the end of November, which forced many into buying before they knew the program would be extended and expanded.
The Commerce Department reported that new home sales rose 6.2 percent to a seasonally adjusted annual rate of 430,000 from an upwardly revised 405,000 in September. There were 239,000 new homes for sale at the end of October, the lowest inventory level in nearly four decades. At the current sales pace, that's a 6.7 months of supply, down from last winter's peak of more than a year. The surge in sales was driven entirely by a 23 percent increase in the South. Sales fell about 5 percent in the West and Northeast, and fell 20 percent in the Midwest. Despite the lack of certainty about the tax credit that buyers faced in October, sales were up 5.1 percent from a year ago, the first yearly increase since November 2005. The median sales price of $212,200 was almost even with $213,200 a year earlier, but up almost 1 percent from September's level of $210,700.
The Standard & Poor's/Case-Shiller index increased 0.3 percent from the prior month on a seasonally adjusted basis, after a 1.1 percent rise in August. The 20 city index fell 9.4 percent from September 2008 and marked the narrowest year-over-year decline since the end of 2007. The national index for the third quarter increased 3.1 percent from the prior quarter, the same as in the second quarter, resulting in an 8.9 percent annual drop. That was a significant improvement from the 14.7 percent annual downturn reported in the prior quarter and 19 percent slump in the first quarter. The 10-city composite index rose 0.4 percent in September after a 1.3 percent August gain. The annual drop was 8.5 percent.
The Federal Reserve Bank of Chicago reported its gauge of the national economy fell further into negative territory in October, in a report that suggested the economic recovery could be in trouble. The Chicago Fed reported its National Activity Index slid to -1.08 from a revised -1.01 in September. September's reading was originally reported at -0.81. The index's three-month moving average, CFNAI-MA3, decreased to -0.91 in October from -0.67 in September, declining for the first time in 2009. The Chicago Fed said that a move below -0.70 in the index's three-month moving average following a period of economic expansion indicates an increasing likelihood that a recession has begun. The 85 economic indicators that comprise the Chicago Fed's index are drawn from four categories: production and income; employment, unemployment and hours; personal consumption and housing; and sales, orders and inventories. Thirty-two of the 85 individual indicators made positive contributions to the index in October, and 53 made negative contributions. Forty-three indicators improved from September to October, while 42 indicators deteriorated. Values of zero in the National Activity Index indicate a national economy expanding at historical trends; negative values indicate below-trend growth and positive values signal growth above trend.
The Conference Board reported its’ Consumer Confidence Index which had declined in October, increased slightly in November. The Index now stands at 49.5 (1985=100), up from 48.7 in October. The Present Situation Index was virtually unchanged at 21.0 versus 21.1 last month. The Expectations Index increased to 68.5 from 67.0 in October. Consumers' appraisal of present-day conditions was virtually unchanged in November. Those claiming business conditions are "bad" decreased to 45.7 percent from 46.7 percent, while those claiming conditions are "good" increased to 8.1 percent from 7.8 percent. Consumers' assessment of the labor market deteriorated moderately. Those claiming jobs are "hard to get" increased to 49.8 percent from 49.4 percent, while those claiming jobs are "plentiful" decreased to 3.2 percent from 3.5 percent. Those anticipating more jobs in the months ahead declined to 15.2 percent from 16.8 percent, but those expecting fewer jobs decreased to 23.1 percent from 26.1 percent. The proportion of consumers expecting an increase in their incomes decreased to 10.0 percent from 10.7 percent. Consumers' short-term outlook improved slightly in November. The percentage of consumers expecting an improvement in business conditions over the next six months decreased slightly to 20.0 percent from 20.8 percent, but those expecting conditions to worsen decreased to 15.1 percent from 18.2 percent.
The Commerce Department reported that orders for costly manufactured goods dropped 0.6 percent last month, following a 2 percent gain in September. It marked the first decline since August. But much of October's weakness came from an 18.4 percent drop in orders for goods related to defense. Excluding those, orders for other types of manufactured goods rose 0.4 percent in October, following a 1.8 percent rise in September. Orders for electrical equipment, commercial airplanes and parts, primary metals including steel and fabricated metals all rose last month. Orders for cars, machinery, computers and communications equipment fell.
The Commerce Department reported that consumer spending rose a brisk 0.7 percent last month, following a pullback in September when spending plunged by 0.6 percent. It was the best showing since a big 1.3 percent jump in August when the government's Cash for Clunkers program enticed people to buy cars. Incomes rose 0.2 percent for the second straight month. With spending outpacing income growth, Americans' personal savings rate, savings as a percentage of after-tax income, dipped to 4.4 percent in October from 4.6 percent in September. Consumers spent more on costly "durable" manufactured last month. Such spending rose 2.1 percent, compared with an 8.5 percent drop in September. Consumers also increased spending last month on "nondurables," such as food and clothing, and on services.
The Commerce Department's new reading on gross domestic product was weaker than the 3.5 percent growth rate for the July-September period estimated just a month ago. The GDP, which measures the value of all goods and services produced in the United States, was 2.9 percent for the third quarter. The main reasons for the reduction were revised estimates that consumers remain reluctant to spend, commercial construction has slipped and imports are dampening U.S. growth. Spending on homes and other residential projects soared at an annualized pace of 19.5 percent last quarter, a little slower than the 23.4 percent rate first estimated. Spending on big-ticket "durable" goods -- including cars -- jumped at a pace of 20.1 percent, down from 22.3 percent. The large spending components are a direct result of the government’s efforts to turnaround the economy through the home buyer credit and the Cash for Clunkers program.
The Labor Department reported that the number of people filing first-time claims for jobless benefits fell by 35,000 to 466,000 from last weeks revised amount of 501,000. That was the lowest level for initial claims since the week of Sept. 13, 2008. The 4-week moving average of claims was 496,500, a decrease of 16,500 from the previous week's revised average of 513,000. The number of workers receiving benefits also fell sharply, dropping 190,000, to 5.42 million, from last week’s revised level of 5.61 million and the lowest level for continuing claims since February. The 4-week moving average was also 5.61 million and a decrease of 98,500 from the preceding week's revised average of 5,712,250. The number collecting the extending benefits rose by 16,000 for the week ending November 7, the latest data is available with roughly 9.04 million receiving some type of benefits.
November 20, 2009
By Paul Fero
The stock market edged down a touch with the S&P 500 closing at 1091 as the U.S. dollar hit a two week high. Also seeing impacts from the U.S. dollar was a decline in the price of oil to about $77.50 a barrel. Bucking the downward trend however, has been the price of gold which is seeing more and more momentum buying and pushing the price up to $1,146 an ounce.
However, the biggest market news this week is in the U.S. Treasury market with the short term maturities near zero. That’s right; Friday’s three month treasury auction at one point had a yield of 0.005 percent and concluded to yield just 0.01 percent. We haven’t seen yields this low since the peak of the credit crisis. From a point of comparison, a month ago the three month treasury had a yield of 0.30 percent. It would appear that global money is moving back to the U.S. as seen in the gains in the U.S. dollar and the high demand for short term treasuries. That is an early indication that the markets are looking for a turnaround. Perhaps as the year ends global investors wish to lock in gains with the 65 percent gain in the stock market from the March lows. Perhaps it’s the recent negative economic news not convinced the initial appearance of recovery is sustainable. While it could be any number of things creating this momentum, one thing is for sure, you don’t want to be in the way when you have the money equivalent of someone screaming “Fire!”
The Commerce Department reported that retail sales rose 1.4 percent last month. But excluding auto sales, retail demand rose 0.2 percent. The government also revised the September performance down to show a 2.3 percent decline, from the 1.5 percent drop initially reported. For October, auto sales jumped 7.4 percent, recouping about half of the 14.3 percent drop in September. Automakers already reported that their sales rebounded last month to an annual rate of 10.5 million units, from 9.2 million in September. The 0.2 percent increase in retail sales excluding autos was down from a 0.4 percent rise in September and was the weakest showing since a 0.5 percent drop in July. Sales also fell 0.8 percent at furniture stores and 0.6 percent at electronics and appliance stores. Sales were flat at gasoline service stations and posted a modest 0.2 percent rise at grocery stores. Department store sales also grew 0.3 percent although the broader category that includes such big retail chains as Wal-Mart and Target posted a 0.8 percent rise.
The Commerce Department reported that businesses reduced inventories for the 13th consecutive month by 0.4 percent in September and improved from a 1.6 percent decline in August. Sales also fell 0.3 percent in September and the first setback since May. The ratio of sales to inventories held steady in September at 1.32. That means that it would take 1.32 months to deplete stockpiles at the September sales pace. The September decline reflected a 1 percent drop in inventories held by manufacturers and a 0.9 percent fall in stockpiles held by wholesalers. Retail inventories rose 0.6 percent. Factories hold about one-third of all inventories, wholesalers hold about 25 percent and retailers hold the rest.
For the three months ended Sept. 30, 6.25 percent of U.S. mortgage loans were 60 or more days past due, according to credit reporting agency TransUnion. That's up 58 percent, from 3.96 percent, a year ago. Being two months behind is considered a first step toward foreclosure, because it's so hard to catch up with payments at that point. The rate was up 7.6 percent from the second quarter. That's a much smaller jump than the 11.3 percent rise in the second quarter from the first, and the 14 percent leap seen in the quarter before that. The statistics, which are culled from TransUnion's database of 27 million consumer records, show that mortgage delinquencies remain highest in the four states where the crisis has hit the worst. In Nevada, the rate reached 14.5 percent, up from 7.7 percent a year ago. In Florida, the rate was 13.3 percent, up from 7.8 percent last year. In Arizona, the rate hit 10.4 percent, up from 5.5 percent in 2008. In California, the rate jumped to 10.2 percent, from 5.8 percent last year. TransUnion expects delinquency to rise to just short of 7 percent for the fourth quarter, compared with 4.6 percent for the 2008 fourth quarter. Those states with the highest delinquency and foreclosure rates will likely continue to see depressed housing prices. Also, the Mortgage Bankers Association reported more than 14 percent of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of September.
The Commerce Department reported housing starts dropped 10.6 percent to a seasonally adjusted annual rate of 529,000 units, the lowest level since April and the percentage drop was the biggest since January. New U.S. housing starts in October fell to their lowest level in six months. September's housing starts were revised upwards to 592,000 units from the previously reported 590,000 units. Groundbreaking for single-family homes fell 6.8 percent last month to an annual rate of 476,000 units, the lowest since May. Starts for the volatile multifamily segment tumbled 34.6 percent to a 53,000 annual pace, extending the previous month's decline. Compared to October last year, housing starts dropped 30.7 percent. This recent decline will offset the residential investment contributions to economic growth in the July-September period the first time since 2005. The recovery in the housing market has been led by the popular $8,000 tax credit for first-time buyers, which has since been extended and expanded by the government. It had been due to expire by end of November. In October, it was unclear whether the incentive would be extended and this could have contributed to the slide in construction activity last month. New building permits, which give a sense of future home construction, fell 4 percent to 552,000 units in October. That compared to analysts' forecasts for 580,000 units. Compared to the same period a year-ago, building permits fell 24.3 percent. The inventory of total houses under construction dropped to a record low 560,000 units last month while the total number of permits authorized but not yet started tumbled to an all-time low of 93,900 units.
The Labor Department reported that its Producer Price Index rose 0.3 percent last month, after falling 0.6 percent in September. The index tracks the prices of goods before they reach store shelves. In the 12 months ending in October, producer prices fell 1.9 percent, the 11th straight decline. Excluding volatile food and energy costs, the core index dropped 0.6 percent in October. In the past year, the core index rose 0.7 percent, the smallest increase in more than five years. Food prices last month rose 1.6 percent, driven by a 24.2 percent jump in vegetable prices, the most in two years. Egg, fruit and milk costs also rose. Energy costs also increased 1.6 percent, as gas prices rose 1.9 percent. Oil prices rose as high as $81 per barrel in October before finishing the month at about $77, up from about $70 in September. The 1.9 percent annual drop in producer prices compared with a 4.8 percent decline in September. The 6.8 percent drop in July was the largest on records dating to 1947. Those declines reflected lower oil prices compared with last summer, when oil reached a record $147 a barrel. Falling auto prices helped hold down the core index last month. Light truck prices dropped 5.2 percent, the most in three years, while passenger car prices fell 0.5 percent.
The Labor Department reported that consumer prices rose 0.3 percent in October. Core inflation, which excludes energy and food, rose 0.2 percent. For October, energy prices rose 1.5 percent, the biggest increase since a 4.6 percent jump in August. A 6.3 percent rise in home heating oil and a 1.6 percent increase in gasoline prices drove the advance. Crude prices have been hovering around $79 a barrel for more than a month, an increase from the lows around $32 hit last December, but still below the record-high of $147 per barrel hit in July 2008. Food prices edged up 0.1 percent in October as a big jump in prices of dairy products was partially offset by a drop in the category that includes meats, poultry and fish. Outside of food and energy, a 1.6 percent surge in the cost of new autos drove the 0.2 percent rise in core inflation. The price of used cars and trucks also rose sharply, increased 3.4 percent in October, the biggest rise since September 1980. The jump in used car prices partially reflected the government's Cash for Clunkers program, which has reduced the stockpile of used vehicles since cars which qualified for that program were junked and therefore not available for resale. The advance in both new and used car prices accounted for 90 percent of the increase in core inflation last month. Airline fares rose 1.7 percent, reflecting higher fuel costs, but clothing costs dropped 0.4 percent drop in October.
The Labor Department reported first-time jobless claims amounted to a seasonally adjusted 505,000 last week. That was the same as the previous week's revised figure. A year ago, there were 533,000 initial claims. The four-week average, which smoothes out volatility, fell for the 11th straight week to 514,000, the lowest level in nearly a year. The number of people continuing to claim benefits, meanwhile, dropped by 39,000 to 5.6 million for the week ending Nov. 7. The figures on continuing claims lag behind initial claims by a week. Those receiving the extending jobless benefits amount to nearly 4.2 million people in the week ended Oct. 31, an increase of 120,000 from the previous week. The total number of people receiving some form of jobless benefits amount to nearly 9.8 million.
The Conference Board reported its index of leading economic indicators rose 0.3 percent last month. The index forecasts activity by measuring consumer expectations, building permits and other data. A gauge of consumer expectations, which are dropping as unemployment continues to rise, weighed down the index. The index climbed 1 percent in September. The companion "coincident" index, which measures the current state of the U.S. business cycle, was unchanged in October from September. That measure has been essentially flat since June.
November 13, 2009
by Paul Fero
The S&P 500 powered ahead once again this week to briefly hit a new high ended the week just off the highs at 1094. From a technical analysis viewpoint, this also looks like a double top so brief pullback may be in order to re-test support at around 1050. Gold has also hit a record high closing the week at $1,116. With its momentum, it wouldn’t be a surprise to see gold at $1,300 within four to six weeks. Look for this to be fairly volatile with somewhat large positive and negative swings as well. Oil retreated from its recent highs to drop to $76 a barrel. Also retreating were yields on the 10 year U.S. Treasury, dropping to 3.43 percent.
According to the National Association of Realtors, the median sales prices of existing homes declined in 123 out of 153 metropolitan areas compared with the same period a year ago. Prices rose in the other 30 cities. The national median price clocked in at $177,900, or 11 percent below the third quarter last year.
Foreclosure filings are up 19 percent from a year ago, according to RealtyTrac as rising job losses continue to threaten the stabilizing trend. More than 332,000 households, or one in every 385 homes, received a foreclosure-related notice in October, such as a notice of default or trustee's sale. That's down 3 percent from September. Banks repossessed more than 77,000 homes last month, down from nearly 88,000 homes in September. The number of homeowners on the brink of losing their homes dipped in October, the third straight monthly decline, as foreclosure prevention programs helped more borrowers.
The Labor Department reported first-time jobless claims dropped to a seasonally adjusted 502,000 from an upwardly revised 514,000 the previous week. That's the fewest claims since the week ending Jan. 3. The four-week average, which smoothes fluctuations, dropped to 519,750. The number of people continuing to claim benefits dropped by 139,000 to 5.6 million. The number receiving the extended emergency unemployment benefits rose by 22,390 to 3.52 million for the week ending October 24, for a total receiving some form of benefits totaling 9.12 million.
November 6, 2009
By Paul Fero
The stock market powered ahead off the recent lows contrary to some of the key economic numbers this week, mainly unemployment levels. Once again the gains are primarily technical in nature as the advances of late have been purely a “carry trade” that is the weakening US dollar and next to free financings is fueling the gains that will ultimately be pulled out. Without any meaningful US economic recovery, the market will drift sideways for about a year. (More in the 2010 Economic and Financial forecast to be released in early December). The S&P 500 ends the week at 1067. Gold continued to set record highs to close at $1,105 an ounce and oil closed the week at $77.50 a barrel.
The National Association of Realtors reported its seasonally adjusted index of sales agreements rose 6.1 percent from August to 110.1. It was the highest reading since December 2006 and more than 21 percent above a year ago. Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer of future sales. Completed home re-sales rose in September to the highest level in more than two years as buyers scrambled to complete their purchases before the tax credit of up to $8,000 for first-time owners expires on Nov. 30. Pending sales were up 10 percent in the West and 8 percent in the Midwest. They were up 5 percent in the South and were down 2 percent in the Northeast. (Note: the first time home buyer program has been extended and expanded, so look for me more activity.)
The U.S. manufacturing sector grew in October for the third consecutive month. The Institute for Supply Management reported its index of national factory activity rose to 55.7 in October from 52.6 in September. The October reading was the highest since 56.0 in April 2006. A reading above 50 generally indicates expansion in the sector, while a number below that means contraction. The ISM report also said its employment index for the manufacturing industry jumped to 53.1 in October, its strongest showing since April 2006, from 46.2 a month ago. The employment index has not been above the 50 mark since July 2008, when it was at 51.
The Commerce Department reported that total construction spending was up 0.8 percent in September. The August performance was revised down to show a 0.1 percent drop rather the 0.8 percent gain first reported. The overall increase reflected a 3.9 percent rise in spending on residential construction, the biggest jump in housing activity since July 2003. This sector is starting to rebound and should help support an economic recovery. There is a worry, however, that a big part of the activity in recent months may have reflected a rush by builders to start projects that could qualify for a tax credit of up to $8,000 offered by the government to first time home buyers. The 3.9 percent rise in housing pushed activity in this category to an annual rate of $255.97 billion, still 27 percent below the pace of a year ago. Total construction spending grew to $940.28 billion at an annual rate in September. It was the first increase after four straight declines but still left construction spending 13 percent below the level of a year ago. The strength in housing was offset somewhat by a continued slump in nonresidential construction activity which fell 1.8 percent in September to an annual rate of $357.9 billion, marking the fifth straight decline in this category. Spending for hotels, office buildings and commercial developments such as shopping centers all fell. Nonresidential construction is being hurt by a credit squeeze as banks, have tightened up on loan standards in reaction to soaring loan defaults in the commercial sector. Public construction rose 1.3 percent to an all-time high of $326.4 billion in September. Federal construction was up 0.7 percent while state and local building activity rose 1.4 percent. Government construction is being supported by the $787 billion economic stimulus bill passed by Congress last February to jump-start the economy.
The Commerce Department reported that orders rose 0.9 percent in September. Demand increased for both durable goods, and nondurable goods. New orders for durable goods, items expected to last at least three years, advanced 1.4 percent. Demand for heavy machinery jumped 7.9 percent, the biggest gain in 18 months. There also was strong demand for military aircraft, which helped offset a second straight drop in orders for commercial airplanes. Orders for nondurable goods rose 0.6 percent following a 0.9 percent increase in August, led by petroleum, chemicals and food products. The fifth increase in six months as a revival in manufacturing will help support an overall economic recovery. The worry is that if consumer spending falters in coming months, orders will slump again.
The Institute for Supply Management reported that its service index dipped to 50.6 last month from 50.9. Any reading above 50 generally signals growth as the index that tracks the country's hospitals, retailers, financial services companies and truckers. But new orders for future activity rose to 55.6, from 54.2 in September. Business activity also rose. Still, the decline in employment worsened. The employment tracker has contracted for 21 of the past 22 months. In the ISM's survey, nine industries reported their businesses grew last month, with real estate, construction, corporate management and support services showing the biggest gains. Seven sectors contracted. The index tracks more than 80 percent of the country's economic activity.
The Commerce Department reported that businesses reduced inventories at the wholesale level 0.9 percent in September. Sales by wholesalers rose 0.7 percent, slightly better than the 0.6 percent gain economists expected. Steady gains in sales should help convince businesses to stop slashing inventories, which has been a severe drag on growth. A switch to rebuilding stockpiles would trigger higher factory production and economic growth. Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories and retailers hold the rest. The decline in inventories is the longest stretch on government records that date to 1992. The previous record was nine straight declines during a period that covered the nation's last recession in 2001.
The Labor Department reported that productivity rose at an annual rate of 9.5 percent in the July-September quarter. Unit labor costs fell at a 5.2 percent rate. The 9.5 percent productivity rise followed a 6.9 percent surge in the second quarter and was the fastest since a 9.7 percent increase in the third quarter of 2003. The 5.2 percent drop in unit labor costs marked the third straight decline and was larger than the 4 percent decrease economists were expecting. The gain in productivity is mostly attributable to more work completed by less people. Look for business to continue this mode until the economy is on a stronger footing.
Sales for October show an improvement from last years numbers as the free-falling stock market last paralyzed the economy. So with that back drop, in the Auto sector, GM's sales rose 4.7 percent, while Ford notched a 3-percent gain. Toyota said its sales edged up less than one percent. Less rosy news came from Chrysler, whose sales fell 30 percent. Hyundai said its sales jumped 49 percent, and Subaru also topped the winner's list with a 41-percent surge. While sales at stores open at least a year rose 2.1 percent in October, according to a report by the International Council of Shopping Centers-Goldman Sachs. This compared with a 4.2 percent drop in October 2008. This followed a surprising 0.6 percent increase in September.
In the week ending Oct. 31, the initial jobless claims were 512,000, a decrease of 20,000 from the previous week's revised figure of 532,000. The 4-week moving average was 523,750, a decrease of 3,000 from the previous week's revised average of 526,750. The number collecting unemployment benefits during the week ending Oct. 24 was 5,749,000, a decrease of 68,000 from the preceding week's revised level of 5,817,000. The 4-week moving average was 5,886,250, a decrease of 79,500 from the preceding week's revised average of 5,965,750. The extended employment benefits amount increased by 90,239 at 3,459,148 from last week’s 3,368,909. The total collecting some type of unemployment benefits total 9,208,148.
The Labor Department reported that the unemployment rate spiked to 10.2%, up from 9.8% in September. It is the highest that this rate has been since April 1983. There was also a net loss of 190,000 jobs in October, an improvement from a revised estimate of 219,000 job losses in September. This was the 22nd straight month of job losses. The jump in the unemployment rate was driven up by a large drop in the number of people who describe themselves as self-employed, as well as the number of teenagers who have jobs. The unemployment rate for teenagers in the labor force soared to 27.6%, up 1.8 percentage points and hitting a third straight record high. For those with college degrees, the unemployment rate fell to 4.7% from 4.9% in September, as the unemployment rate for those in management, professional, and related occupations slipped to 4.7% from 5.2%. But the unemployment rate for production jobs, such as factory workers, jumped to 14.5% from 14.1%. The jobless rate for workers in construction, maintenance or natural resources industries such as mining rose to 15.5% from 14.3%. A total of 7.3 million jobs have been lost since the start of 2008.
October 30, 2009
By Paul Fero
The S&P 500 had a volatile second half of the week with the index losing nearly 4.1 percent for the week to close at 1036. The recent pull back from the highs total 5.7 percent and might likely continue the recent downward trend. The next level of support is the 1025-1030 level on the S&P 500. The S&P 500 also closed below its 50-day moving average for the first time since mid-July. A stronger dollar and weak consumer environment contribute to the weakness in the stock market. Additionally, the stronger dollar and weak consumer environments contributed to weakness in the commodities areas. The CRB Commodity Index was down 3.5% this week, of which the price of oil dropped to $77 a barrel and gold fell to $1,040 an ounce.
The big economic news of the week came from GDP which expanded at an annual rate of 3.5 percent in the third quarter, the first increase after a record four straight declines. A 3.4 percent rise in consumer spending, which accounts for 70 percent of total economic activity, powered the gain. Motor vehicle output added 1.66 percentage points to the third-quarter change in GDP after adding 0.19 percentage point to the second-quarter as a result of the “Cash for Clunkers” program. The change in inventories added 0.94 percentage point to the third-quarter change in GDP after subtracting 1.42 percentage points from the second-quarter change as business inventories which are relatively low began to replace and stockpile inventories. The federal government contributed to an increased of 7.9 percent in the third quarter, compared with an increase of 11.4 percent in the second. National defense increased 8.4 percent, compared with an increase of 14.0 percent in the second quarter. Nondefense increased 6.8 percent, compared with an increase of 6.1 percent from the second quarter. Conversely state and local government decreased 1.1 percent, in contrast to an increase of 3.9 percent second quarter as state and local governments struggle with finances as their fiscal year comes to an end. Exports increased 14.7 percent in the third quarter, in contrast to a decrease of 4.1 percent in the second as the falling U.S. dollar makes U.S. goods cheaper overseas while imports increased 16.4 percent, in contrast to a decrease of 14.7 percent in the second quarter as consumer spending increased.
The Commerce Department reported that consumer spending dropped 0.5 percent in September followed a 1.4 percent surge in August reflecting the end of the government's Cash for Clunkers auto sales program. Personal incomes were unchanged as workers contend with rising unemployment and a squeeze on wages. Last month's drop in spending resulted in a boost in the savings rate to 3.3 percent of after-tax incomes, up from 2.8 percent in August. Many analysts believe households will keep striving to increase savings in the months ahead to replenish nest eggs that were crushed by last year's stock market crash. That also would hold back consumer spending in the months ahead, weakening the recovery.
The Consumer Confidence Index, released by The Conference Board, sank to 47.7 in October, its second-lowest reading since May. A reading above 90 means the economy is on solid footing. Above 100 signals strong growth. The index has seesawed since reaching a historic low of 25.3 in February and climbed to 53.4 in September. Economists watch consumer confidence because spending on goods and services by Americans accounts for about 70 percent of U.S. economic activity by federal measures. While the reading doesn't always predict short-term spending, it's a helpful barometer of spending levels over time, especially for expensive, big-ticket items. The figures showed that shoppers have a grim outlook for the future, The Conference Board said, expecting a worsening business climate, fewer jobs and lower salaries. That's particularly bad news for retailers who depend on the holiday shopping season for a hefty share of their annual revenue.
The Reuters/University of Michigan Surveys of Consumers reported its final index of sentiment for October slipped to 70.6 from 73.5 in September. In spite of the decline, sentiment remained well above where it was a year ago. In November 2008, the index had collapsed its worst reading since mid-1980 at 55.3. The index of consumer expectations fell to 68.6 from 73.5, with half of those surveyed expecting the unemployment rate to remain around its current level of 9.8 percent, a 26-year high. The current conditions index edged up to 73.7 from 73.4, its highest level since September 2008, when it stood at 75. Inflation expectations picked up, with the 1-year inflation outlook rising to 2.9 percent from 2.2 percent in September. Consumers' five-year inflation expectations edged up to 2.9 percent in October from 2.8 percent the prior month.
U.S. companies are expected to hire and invest more in the next six months, according to a survey report from the National Association for Business Economics. The group's latest Industry Survey reinforces the view that a recovery is underway. Firms were confident of economic growth in the next year, with 73% of respondents expecting the real GDP to expand between 1% and 3% in 2010, a fairly broad based forecast. The NABE Industry Survey was conducted between October 2 and October 12 and presents the responses of 78 NABE members regarding business conditions in their firm or industry. Industrial demand grew for the first time in five quarters in the July to September period, with the goods producing sector, services sector and the finance, insurance & real estate sector, all reporting a rise in demand. Further, profit margins were on the rise for the first time in seven quarters, albeit at a modest pace. Unemployment levels appeared to be easing, the NABE said, with the percentage of firms cutting payrolls declining to 31% from 36% in the last survey. The percentage of firms adding jobs stood at 12%, doubling from the all-time low of 6%. Moreover, the number expecting their firms to add more jobs exceeded the number expecting job cuts, for the first time since the recession began. Survey respondents reported a rise in capital spending over the prior quarter for the first time since October 2008. Expectations for future spending improved for the fourth straight quarter and the balance turned positive for the first time in a year. A reduction in inventories was indicated by 46% of the respondents in the third quarter, with firms attributing it to cost cutting measures. On the other hand, 18% of firms reported replenishing inventories in anticipation of higher sales. Prices are expected to rise, with the share of respondents expecting price increases in the next three months exceeding those expecting cuts by 15 percentage points, a margin not seen since July 2008.
The Commerce Department reported that orders for items expected to last at least three years increased 1 percent last month. The biggest jump in demand for machinery in 18 months offset weakness in commercial aircraft and autos. The second advance in three months for durable goods orders is a hopeful sign for the manufacturing sector, which has helped lead the early stages of the fledgling economic recovery. Excluding the monthly volatile transportation sector, orders rose 0.9 percent. A 7.9 percent rise in orders for machinery, the best showing since March 2008, led the overall increase. Orders for non-defense capital goods, considered a good proxy for businesses' investment plans for new equipment, rose 2 percent, the strongest advance since June. Last month's rise in orders followed a 2.6 percent decline in August and a 4.8 percent surge in July, indicating that any recovery from the recession likely will proceed in fits and starts. Demand for transportation equipment rose 1.1 percent after a 9.1 percent plunge in August. Orders for defense aircraft rose 12.5 percent last month, offsetting a 2.1 percent drop in demand for commercial aircraft and a 0.1 percent dip in orders for autos and auto parts. Besides the surge in demand for machinery, orders for primary metals such as steel rose 0.3 percent. Orders for computers and related products increased 0.4 percent in September.
The Standard & Poor's/Case-Shiller home price index, which studies real estate transactions in 20 major cities, showed home prices rose in August, the third straight monthly increase and a sign that a housing recovery might be taking hold. The measure showed the home price index climbed 1 percent from July to a seasonally adjusted reading of 144.5. While prices are down 11.4 percent from August a year ago, the annual declines have slowed since February. Prices are at levels not seen since August 2003 and have fallen almost 30 percent from the peak in May 2006. The latest index shows a widespread turnaround with prices rising month-over-month in 15 metro areas since June.
The Commerce Department reported that home sales fell 3.6 percent to a seasonally adjusted annual rate of 402,000 from a downwardly revised 417,000 in August. It was the first decline since March. Sales in September were down 7.8 percent from a year ago. The median sales price of $204,800 was off 9.1 percent from $225,200 a year earlier, but up 2.5 percent from Augusts’ level of $199,900. The drop in sales was driven by a nearly 11 percent decline in the West and a 10 percent drop in the South. Sales rose 35 percent in the Midwest and were unchanged in the Northeast. The data reflect contracts to buy homes, not completed sales. Many new homes are sold while they are still under construction, and buyers may be worried that they won't be able to complete the deal before the Nov. 30 deadline to take advantage of a tax credit of up to $8,000 for first-time buyers. There were 251,000 new homes for sale at the end of September, down 3.8 percent from August and the lowest inventory in nearly 17 years. At the current sales pace, that represents 7.5 months of supply.
The Labor Department reported that the cost of wages, health care and other benefits increased by 1.5 percent in the year ending in September, the smallest increase since such records began in June 1982. That's down from a 2.9 percent rise in the 12 months ending in September 2008, and lower than the 1.8 percent yearly increase reported in the second quarter. The department's Employment Cost Index rose by a seasonally adjusted 0.4 percent in the July-September quarter, the same increase as the second quarter. The report showed that health care costs for employers are rising. The cost of health benefits increased by 4.7 percent in the 12-month period, more than the 3.9 percent rise in the year ending in September 2008
The Labor Department reported the number of U.S. workers filing new claims for jobless benefits dipped by 1,000 to a seasonally adjusted 530,000 in the week ended October 24. The continuous claims of people still on jobless aid after an initial week of benefits slid by 148,000 to 5.797 million in the week ending October 17, the latest for which data is available. It was the lowest reading since March. The 4-week moving average for ongoing claims fell by 48,750 to 5.961 million from the previous week's revised average of 6.040 million and is the smallest reading since January. States reported 3.367 million persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending Oct. 10, a decrease of 21,713 from the prior week. All told, the total collecting benefits stand at 9.164 million people.
October 23, 2009
By Paul Fero
The stock market saw another week of volatility with the one step back, one step forward to one step back again. That brings the S&P 500 down just less than 1 percent for the week to close at 1080. Oil prices have crossed over the $80 a barrel level earlier this week and pull off the highs to close at just under that level as the U.S. dollar continues to come under pressure and add to volatility in the commodities market. Gold also this week has set all time highs and it too has been fairly volatile throughout the week and closed at $1,054 an ounce. Next week could be another volatile week as earnings season begins to wind down and the much anticipated third quarter GDP number comes out. With economist’s estimates in the positive three percent area, almost any number to prove to add volatility as expectations that the recession is over becomes overshadowed by continued weak labor markets.
The Commerce Department reported that construction of new homes and apartments rose 0.5 percent in September to a seasonally adjusted annual rate of 590,000 units. That followed a 1 percent drop in August that was revised down from an initial estimate of a 1.5 percent gain. Construction of new homes edged up slightly in September, helped by a rebound in single-family construction. New applications for building permits, considered a good sign of future activity, fell 1.2 percent in September and fell by the largest amount in five months. Construction of single-family homes rose 3.9 percent last month to an annual rate of 501,000 units, reversing a 4.7 percent drop in August. Multifamily construction, a much smaller and more volatile segment, posted a 15.2 percent drop following a 20.7 percent rise in August. Construction rose 7.1 percent in the South, but all other regions showed weakness. Building activity fell 5.5 percent in the Northeast, 1.8 percent in the Midwest and 8.8 percent in the West.
The Labor Department reported that the Producer Price index fell 0.6 percent last month. The drop comes after a steep rise in August. In the 12 months ending in September, the index dropped 4.8 percent. Excluding volatile food and energy costs, the core index fell 0.1 percent in September. In the year ending last month, the core index rose 1.8 percent. The PPI tracks the prices of goods before they reach store shelves and is considered an early read on price trends. It has been fairly volatile in recent months, reflecting wide swings in energy costs. The index fell 6.8 percent in the year ending in July, the largest decline on records dating to 1947. The decline in September wholesale prices was largely driven by gasoline, which fell 5.4 percent, and heating oil, which dropped 9.8 percent. Those changes followed steep rises in August, when wholesale gas prices jumped 23 percent. Energy prices have fallen steeply over the past year. Wholesale gasoline prices have plummeted 37.5 percent from record heights reached last summer, when prices at the pump topped $4. That has driven down the broader index.
The Federal Reserve released it’s regional economic survey known as the Beige Book providing a snapshot of business conditions nationwide. The survey found improvements in housing and manufacturing are driving the early stages of the U.S. economic recovery, and “many sectors" of the economy either stabilized or logged modest improvements over the last six weeks. The pickups, though, often were from "depressed" levels of activity. An $8,000 credit for first-time homebuyers boosted the housing sector. Meanwhile, factories increased production as businesses restocked depleted inventories. Part of that restocking was due to the "Cash for Clunkers" rebate program, which caused a brief burst in car sales. Both housing and manufacturing continued a "pattern of improvement that emerged over the summer.” By contrast, the Fed said the weakest link in the recovery was commercial real estate. Conditions were described as "either weak or deteriorating" across all 12 regions surveyed. Consumer spending also remained weak.
The Labor Department reported that new jobless claims rose to a seasonally adjusted 531,000 last week, from an upwardly revised 520,000 the previous week. The four-week average of claims, which smoothes out fluctuations, fell slightly to 532,250, the lowest since mid-January and about 125,000 below the peak for the recession, reached this spring. The number of people continuing to claim benefits did drop for the fifth straight week to 5.9 million, from just over 6 million. The figures on continuing claims lag initial claims by a week. Many recipients are moving onto extended benefit programs approved by Congress in response to the recession. Those extensions add up to 53 weeks of benefits on top of the 26 typically provided by the states. When those programs are included, the total number of recipients dropped to 8.8 million in the week ending Oct. 3, the latest data available, down about 50,000 from the previous week. That decline is likely due to recipients running out of benefits, rather than finding jobs. The National Employment Law Project, an advocacy group, estimates that about 1.3 million people will exhaust their benefits by the end of this year. Congress is considering adding another 14 to 20 weeks of support, but that bill has been delayed in the Senate and is view in part to an overall second stimulus package being considered.
The Conference Board reported that its index of leading economic indicators rose 1 percent last month after a 0.4 percent gain in August. The group said the indicators' 5.7 growth rate in the six months through September was the strongest since 1983, but joblessness is weighing on the rebound. Dips in manufacturing hours worked and building permits, a gauge of future construction, were the only two measures out of 10 that weighed down the index. It is meant to project economic activity in the next three to six months.
The National Association of Realtors reported that existing home sales rose 9.4 percent, nearly double the advance that had been expected. It was the highest level in more than two years as buyers raced to complete purchases before a tax credit expires at the end of November. Nationwide sales are up nearly 24 percent from their bottom in January, but are still down 23 percent from four years ago. Prices, however, continued to be dragged down by foreclosures and short sales, where the mortgage balance exceeds the sales price. The median price last month was $174,900, down almost 9 percent from $191,200 a year earlier, and slightly lower than Augusts’ median of $177,300. The inventory of unsold homes on the market fell about 7 percent to 3.63 million. That's less than an eight-month supply at the current sales pace, and the lowest level since March 2007. Sales rose around the country, especially in the West, where they grew 13 percent from a month earlier. Foreclosure sales are booming in cities like Los Angeles, San Diego and Las Vegas according to the Association.
October 16, 2009
By Paul Fero
It was another powerful week for all the markets once again. With the market saw some additional volatility this past week as earnings season began in earnest. Some reported better earnings fueled by lower costs and better trading profits from the financial sector. Also, some saw increased losses from underperforming loans that also highlight that the weak economy is taking it’s toll on financial firms as well. The Dow Jones Industrial Average crossed the psychological 10,000 level and closed the week just under that and a level not seen in just in a year. The S&P 500 index powered ahead as well nearly reaching 1100 but closed the week 1088. Oil rocketed higher this week by about 10 percent to close the week at nearly $79 a barrel as the dollar weakened once again. All the while, the bond market saw yields climbed a bit higher at the long end as the 10 year U.S. Treasury closed at 3.42 percent.
The Commerce Department reported that retail sales dropped 1.5 percent last month. Car sales plunged 10.4 percent following the end of the government's Cash for Clunkers program. However excluding autos, retail sales rose 0.5 percent. A late Labor Day and delayed school openings helped retailers last month because consumers purchased some items in September that they would normally have bought in August. The 1.5 percent drop in retail sales in September followed a 2.2 percent surge in August, which was revised down from an initial estimate of 2.7 percent. Outside of autos, demand at gasoline stations rose 1.1 percent September, partially reflecting higher prices. Excluding gas and auto sales, retail sales rose 0.4 percent in September. Other areas of strength included demand at furniture stores, which jumped 1.4 percent, reflecting the some improvements in the housing industry. Sales at general merchandise stores, a category that includes big retailers such as Wal-Mart and Target, rose 0.9 percent. Sales at department stores edged up 0.4 percent.
The Labor Department reported that consumer prices rose 0.2 percent last month. Prices excluding energy and food were also up 0.2 percent. Over the past 12 months, consumer prices are actually down 1.3 percent. The 0.2 percent September rise in the Consumer Price Index followed a bigger 0.4 percent jump in August. Prices had been flat in July. Energy prices were up 0.6 percent in September after a much bigger 4.6 percent jump in August. Last month, gasoline prices on a seasonally adjusted basis rose by 1 percent. But over the past year, gasoline prices are down 21.6 percent, reflecting the retreat that has occurred since last year's surge in energy costs which had pushed gasoline above $4 per gallon. Food costs slipped by 0.1 percent in September reflecting lower costs for meat and vegetables. The 0.2 percent rise in prices excluding food and energy left core inflation rising a modest 1.5 percent over the past 12 months. While food prices were down in September, new car prices rose by 0.4 percent, a rebound from a big 1.3 percent drop in August that had reflected the government's incentives from the Cash for Clunkers program. Airline tickets jumped 3.4 percent, reflecting the fare increases as airlines try to boost their bottom lines. Clothing prices edged up 0.1 percent in September and are up just 1.1 percent for the whole year.
The Commerce Department reported that businesses slashed their inventories 1.5 percent in August, the 13th straight decline. Still, businesses soon may begin rebuilding depleted store shelves after more than a year of cuts. If that occurs, factory production will begin to rise and help bolster a broader recovery.
The Federal Reserve reported that industrial production rose 0.7 percent last month. August output also was revised higher, to 1.2 percent from 0.8 percent. Industrial output increased at a 5.2 percent annual rate in the July-September quarter. It's the first quarterly increase since the beginning of 2008. Production is increasing as automakers and other companies are restocking inventories that were cut sharply during the recession to bring them in line with plummeting sales. Once the rebalancing is complete, industrial production and the broader economy will likely slow, particularly if consumer demand remains weak. Factory output, the single largest slice of industrial production, rose for the third straight month, increasing 0.9 percent. Much of that improvement was fueled by higher auto manufacturing, which rose 8.1 percent. Excluding motor vehicles, factory output rose 0.5 percent. The production of steel and other metals rose 3.4 percent, while computer and electronic products, and aerospace equipment also saw higher output. Mining production, meanwhile, rose 0.7 percent last month. Utility output dropped 0.7 percent. Despite September's gain, industrial production is 6.1 percent below year-ago levels.
The number of households caught up in the foreclosure crisis rose more than 5 percent from 2nd to 3rd quarter as a federal effort to assist struggling borrowers was overwhelmed by a flood of defaults among people who lost their jobs. The foreclosure crisis affected nearly 938,000 properties in the July-September quarter, compared with about 890,000 in the prior three months, according to a report released by RealtyTrac. That puts foreclosure-related filings on a pace to hit about 3.5 million this year, up from more than 2.3 million last year. According to the RealtyTrac report, there were nearly 344,000 foreclosure-related filings last month, down 4 percent from a month earlier but still the third-highest month since the report started in early 2005. It was the seventh-straight month in which more than 300,000 households receiving a foreclosure filing, which includes default notices and several other legal notices that homeowners receive before they finally lose their homes. Banks repossessed nearly 88,000 homes in September, up from about 76,000 a month earlier. On a state-by-state basis, Nevada had the nation's highest foreclosure rate in the July-September quarter. Arizona was second, followed by California, Florida and Idaho. Rounding out the top 10 were Utah, Georgia, Michigan, Colorado and Illinois.
The number of newly laid-off U.S. workers filing claims for unemployment insurance has fallen to the lowest level since early January. The Labor Department reported that first-time claims for jobless benefits dropped to a seasonally-adjusted 514,000 from an upwardly revised 524,000 the previous week. The fifth decline in six weeks. The four-week average, which smoothes fluctuations, fell for the sixth straight time to 531,500. That's the lowest since January and about 105,000 below the peak reached in early April. The tally of people continuing to claim benefits dropped by 75,000 to 5.99 million, its first time below 6 million since the week of March 28. Continuing claims data lags initial claims by a week. Many of those recipients have moved onto extended benefit programs. Congress has added about 53 weeks of emergency benefits on top of the 26 weeks typically provided by states. When extended programs are included, a total of 8.87 million people received benefits in the week ending Sept. 26, the latest week data is available. That's down about 40,000 from the previous week.
There are about 6.3 unemployed workers competing, on average, for each job opening, according to a recent Labor Department report. That's the most since the department began tracking job openings nine years ago, and up from only 1.7 workers when the recession began in December 2007. The highest point after the 2001 recession was 2.8 workers per opening in July 2003, as the economy suffered through a jobless recovery. Employers have cut a net total of 7.2 million jobs during the downturn. While layoffs are slowing, the report shows the other critical piece of a labor market recovery, that being hiring, has yet to begin. The department's Job Openings and Labor Turnover survey found less than 2.4 million openings in August, the latest data available. That may seem like a lot of jobs, but it's down from 3.7 million a year ago and half its peak in June 2007. It's the lowest tally on nine years of government records. At the same time, the number of unemployed Americans doubled from the beginning of the recession to 14.9 million in August.
October 9, 2009
By Paul Fero
It was another big week in the all the markets. The S&P 500 reversed course and added about 50 points or about 5 percent for the week. Certainly not the direction I had expected last week given all the “latest” economic statistics. One positive ISM stat followed by some surprise positive earnings or more aptly put, not as bad as anticipated, proved too much to overcome for the bears that had to scramble to cover their shorts. Add to that a weakening U.S. dollar and that becomes the play of the day. Which leaves another important safety tip, when the money train is moving, whether up or down, don’t be standing on the tracks, as you will be run over. Now that puts the S&P 500 at another important level of overhead resistance area of around 1075. With earnings season underway, earnings and more importantly earnings outlooks will dictate positive and/or negative momentum for the remainder of the month which could go either way. When it comes to earnings, generally speaking, most positive earnings have come from reduced expenses, namely through layoffs. Top line revenue growth will be the key to maintaining the positive course which at best lately has been difficult to non-existent.
The bond market saw a fair amount of volatility this week with yields on the 10 year U.S. Treasury hitting a recent low of 3.15 percent to close the week at 3.38 percent. Also seeing quite a bit of action this week was gold after hitting record highs during the week to close at $1,050 an ounce, an increase of about 5 percent. Oil also has seen some increase this week to close at over $72 a barrel. The commodity increases are due to a weaker U.S. dollar that has seen additional lows from a U.S. index perspective, a basket index of foreign currencies. A weakening U.S. dollar makes U.S. goods, services as well as stocks and bonds cheaper. The flip side is foreign goods become more expensive and adds to the inflation component. Given the U.S. is a net importer of all kinds “stuff” we thereby also import our inflation. Not too much as of yet to overly concerned, but the current weakening U.S. dollar is certainly one supported by the Federal Reserve. Another of the “it’s what they do or don’t do versus what they say” propositions.
The Institute for Supply Management reported that its service index hit 50.9 last month, up from 48.4 in August. The index, which tracks more than 80 percent of the country's economic activity, including hospitals, retailers, financial services companies and truckers, hadn't grown since August 2008. The good news within the index is that the new orders index, an indicator of future activity, jumped to 54.2 in September from 49.9 a month before, the first growth reading in a year. Also, businesses' backlog of orders grew for the first time in 14 months. The present business activity rose to 55.1 from 51.3 in August, growing for the second straight month after 10 straight contractions. The ISM report is based on a survey of the institute's members in 18 industries and covers indicators such as new orders, employment and inventories. Five industries grew last month: utilities, health care, retail, construction and wholesale trade. And while activity is rising, only three areas reported an increase in jobs: health care, support services for companies and educational services. Overall, service-sector employment shrank in September, though at a slightly slower pace than in August.
Australia became the first G20 country to raise interest rates since the onset of the financial crisis. The rate hike by Australia's central bank was perceived as a signal the global economy was recovering. However, given Australia’s mostly export commodity driven economy; this shouldn’t be interpreted as the beginning of a global initiative. The dollar weakened anew after Australia's surprise rate hike heightened interest rate differentials and improved the appeal of the carry trade (whereby fund managers borrow low-yielding dollars to invest in higher-yielding assets.) The 25 basis point rate hike brings the rate to over 3 percent.
The Mortgage Bankers Association said rates on 30-year fixed-rate mortgages, the most widely used loan, were below 5 percent for a third straight week, reaching a four-month low. Demand for home refinancing loans was the highest since mid-May. The MBA reported its’ seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week to October 2 increased 16.4 percent to 756.3, the highest since the week ended May 22. The MBA's seasonally adjusted purchase index rose 13.2 percent to 306.1, its highest since the week ended January 2. The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 4.2 percent. The Mortgage Bankers seasonally adjusted index of refinancing applications increased 18.2 percent to 3,377.1, with the index at its highest since the week ended May 22. The refinance share of applications increased to 66.3 percent from 65.3 percent the previous week, but remained significantly lower than the peak of 85.3 percent in the week of January 9. The adjustable-rate mortgage share of activity decreased to 6.1 percent, down from 6.2 percent the prior week.
The number of newly laid-off Americans filing first-time claims for jobless benefits fell to the lowest level since early January, as layoffs eased a bit. The Labor Department reported that new claims for unemployment insurance dropped last week to a seasonally adjusted 521,000 and down from 554,000 the previous week. The four-week average, which smoothes fluctuations, fell to 539,750, the lowest since Jan. 17. The number of people continuing to claim benefits declined by 72,000 to 6.04 million. When federal emergency programs are included, the total numbers of jobless benefit recipients dropped by about 90,000 to 8.9 million in the week that ended Sept. 19, the latest data available. Congress has added up to 53 extra weeks of benefits on top of the 26 typically provided by the states, and is considering adding another 13 weeks.
October 2, 2009
By Paul Fero
It appears some volatility is moving back into the market as it struggles with the latest economic news and upcoming earnings season. The S&P 500 ended the week at 1025 as it is likely to continue the downward trend to under 1000, likely testing the 950 support level over the next few weeks. This level is also the 100 day moving average and technically significant. With this past weeks news the momentum is likely shifting to the bears. The 10 year U.S. Treasury is now at 3.22 percent, a level not seen in since late Spring. This will help the last wave of mortgage refinances and new purchases before the first time home buyer credit expires. Oil is still stubbornly holding near the $70 a barrel range along with gold hover just over the $1,000 an ounce level, all based on the weak U.S. dollar.
There’s been some talk this week of a double dip recession, as if we barely got of the first part to worry about returning back into recession. Sure the third quarter GDP will be positive and may cause some to say the recession is over. Whether technically in or out of the recession, won’t matter. It will still seem like we are in a recession so in this case, perception and fact are interchangeable.
The IMF reduced its estimate of likely losses from the financial crisis in the three years to 2010, by $600 billion to $3.4 trillion, as the world economy grows faster than previously expected. "Systemic risks have been substantially reduced following unprecedented policy actions and nascent signs of improvement in the real economy," the IMF said in its half-yearly Global Financial Stability Report. It added, "there is growing confidence that the global economy has turned the corner, underpinning the improvements in financial markets".
The Commerce Department reported the U.S. economy shrank less than expected in the second quarter as businesses and consumers trimmed their spending at a slower pace, to a negative 0.7 percent from the previous reading of negative 1 percent. Gross domestic product measures the value of all goods and services produced in the U.S. It is the best estimate of the nation's economic health. A main reason for the second-quarter improvement was due to businesses didn't cut back spending on equipment and software nearly as deeply as the government had thought. Consumers also didn't trim their spending as much. The economy has now contracted for a record four straight quarters for the first time on records dating to 1947, underscoring the toll the recession has taken on consumers and businesses. Economic activity shrank 3.8 percent since the second quarter of last year, marking the worst recession since the 1930s. In the second quarter, consumers trimmed their spending at a rate of 0.9 percent. That was slightly less than the 1 percent annualized drop estimated a month ago, but marked a reversal from the first quarter when consumers boosted spending 0.6 percent. Businesses trimmed spending on equipment and software at a pace of 4.9 percent. That wasn't as deep as the 8.4 percent annualized drop previously estimated for the second quarter, and marked a big improvement from an annualized plunge of 36.4 percent in the first quarter. A key area where businesses did cut more deeply in the spring was inventories. They slashed spending at a record pace of $160.2 billion. However, with decreases in inventory levels businesses have started to boost production to satisfy customer demand, one of the forces that should lift GDP in the third quarter. The report also showed that after-tax profits of U.S. corporations rose 0.9 percent in the spring, the second straight quarterly gain. Spending on housing projects fell at a rate of 23.3 percent in the second quarter, also not as deep as the annualized drop of 38.2 percent in the first quarter.
Consumer spending, which accounts for 70 percent of total economic activity, jumped in August by the largest amount in nearly eight years even though personal incomes continued to lag. The Commerce Department reported that consumer spending rose 1.3 percent in August. Incomes edged up 0.2 percent, the same as in July. The surge in consumer spending is a strong signal that the economy was returning to growth this summer. But any rebound from the recession could falter if income growth does not improve.
U.S. home prices rose for the third month in a row in July. The Standard & Poor's/Case-Shiller home price index of 20 major cities rose 1.2 percent from June to a reading of 143.05. Though home prices are still 13.3 percent below July a year ago, the annual declines have slowed in all 20 cities for the sixth straight month. However, the index is down about 33 percent from the peak in mid-2006. Home prices are now at levels not seen since the third quarter of 2003. And prices in Las Vegas, Detroit and Seattle are still falling. Prices in Las Vegas, one of the most speculative markets during the boom, are down more almost 55 percent from their peak. In August, almost 80 percent of home re-sales in Nevada were either a foreclosure or a sale below the value of the mortgage, according to a survey by the National Association of Realtors. The Detroit housing market is reeling from layoffs in the automotive industry. Seattle, by contrast, was one of the last areas to enter the downturn so prices there have yet to hit bottom. Still, there are clear positive trends, 13 metro areas posted at least three straight months of price gains. The biggest gains in July were in Minneapolis, San Francisco and Chicago. The Case-Shiller indexes measure home price increases and decreases relative to prices in January 2000. The base reading is 100; so a reading of 150 would mean that home prices increased 50 percent since the beginning of the index.
U.S. mortgage applications fell last week despite the lowest loan rates in four months according to the Mortgage Bankers Association. Home loan applications fell a seasonally adjusted 2.8 percent in the September 25 week, driven down by a 6.2 percent drop in demand for purchase loans and a 0.8 percent decline in refinancing requests. Borrowing costs inched closer to record lows, with average 30-year rates dipping 0.03 percentage point to 4.94 percent. The 30-year rates were the lowest since the week ended May 22, at 4.81 percent, after hitting an all-time low of 4.61 percent in March. A year ago, before intensive government interventions, 30-year rates averaged 6.33 percent.
Pending sales of existing U.S. homes rose sharply in August, for a seventh consecutive month of gains, reaching the highest since March 2007. The National Association of Realtors Pending Home Sales Index, based on contracts signed, was up 6.4 percent to 103.8, the longest consecutive month-on-month gain in the history of the series, which began in 2001. The index rose from a reading of 97.6 in July and is 12.4 percent above August 2008's level of 104.5.
The Conference Board reported that its Consumer Confidence Index dipped to 53.1 in September, down from the revised 54.5 reading in August. The index had enjoyed a three-month climb fueled by signs that the economy might be stabilizing. That followed a historic low in February of 25.3 and a bumpy road after June as rising unemployment has caught up with shoppers. A reading above 90 means the economy is on solid footing. Above 100 signals strong growth. While the confidence index has doubled from the historic low in February, it's still about half of the historic average of 94.8, and below the 61.4 level right before the collapse of Lehman Brothers last fall. The Conference Board's Present Situation Index, which measures consumers' current assessment of the economy, declined to 22.7 from 25.4. The Expectations Index, which measures consumers' outlook over the next six months, dipped to 73.3 from 73.8 last month. Those claiming business conditions are "bad" increased to 46.3 percent from 44.6 percent, while those claiming conditions are "good" increased to 8.7 percent from 8.5 percent. Consumers' appraisal of the job market was also less optimistic. Those claiming jobs are "hard to get" increased to 47.0 percent from 44.3 percent, while those claiming jobs are "plentiful" decreased to 3.4 percent from 4.3 percent.
The Institute for Supply Management reported its index of manufacturing activity in September slipped to 52.6 from 52.9 in August. It was the second month in a row the reading came in above 50, a level many view as indicating growth, after contracting for 18 months.
The automotive industry reported August sales results with General Motors reported the steepest drop, 45 percent, when compared with September of last year. Chrysler was down 42 percent and Ford had a much smaller decline of 5.1 percent. But Hyundai bucked the trend, reporting a 27-percent rise in sales last month over a year earlier. Automakers got a big lift in July and August from the government sponored Cash For Clunkers program, which spurred sales of nearly 700,000 new cars and trucks. The government program's big discounts lured in many customers who otherwise would have waited until later in the year or next year to make purchases.
The Commerce Department reported that demand for manufactured goods dropped 0.8 percent. The August decline reflected plunging demand for commercial aircraft, a category that surged in July. For August, the 0.8 percent drop in new orders followed four consecutive gains, including a 1.4 percent jump in July. A 42.6 percent plunge in demand for commercial aircraft, a category that had soared 98.1 percent in July, led the overall decline in August. Transportation orders overall fell 9.1 percent, after a 17.8 percent July increase. Orders for motor vehicles and parts did rise 2 percent, but demand is expected to slip in coming months as car sales plunged in September following the end of the cash for clunkers program. Excluding transportation, orders would have risen 0.4 percent, after falling 0.6 percent in July. Demand for durable goods, products expected to last at least three years, fell 2.6 percent in August. Demand for nondurable goods rose 0.8 percent after a 1.5 percent drop in July.
The Labor Department reported that initial claims for unemployment insurance rose to a seasonally adjusted 551,000 from 534,000 in the previous week. The four-week average, which smoothes out fluctuations, dropped to 548,000, about 110,000 below its peak in early April. But when federal emergency programs are included, the total number of jobless benefit recipients was nearly 9 million in the week that ended Sept. 12.
The Labor Department reported the economy lost a net total of 263,000 jobs last month, from a downwardly revised 201,000 in August. This lifted the unemployment rate to 9.8 percent. The Labor Department said the unemployment rate was the highest since June 1983 and payrolls had now dropped for 21 consecutive months. Since the start of the recession in December 2007, the number of unemployed people has risen by 7.6 million to 15.1 million. Manufacturing employment fell by 51,000 in September, while construction industries payrolls dropped. The service-providing sector cut 147,000 workers in September, while goods-producing industries shed 116,000 positions. Education and health services added a mere 3,000 jobs, while government primarily state and local government employment fell 53,000. The government revised job losses for July and August to show 13,000 more jobs lost than previously reported. Preliminary annual benchmark revisions, released together with September's employment report showed that total non-farm payroll employment for March would have to be revised down about 824,000. If laid-off workers who have settled for part-time work or have given up looking for new jobs are included, the unemployment rate rose to 17 percent, the highest on records dating from 1994. More than a half-million unemployed Americans gave up looking for work last month. Had they continued searching, the official jobless rate would have been higher. All told, 15.1 million Americans are now out of work. More than 7.2 million jobs have been eliminated since the recession began in December 2007. Hourly earnings rose by a penny last month, while weekly wages fell $1.54 to $616.11. The average hourly work week fell back to a record low of 33 in September. That figure is important as companies add more hours for current workers before they hire new ones.
September 25, 2009
By Paul Fero
The stock market had a brief pull back this week as the S&P 500 closed the week at 1044 and just below support level at 1050. This coming week may likely determine the direction of the market for next few months. Either as a regrouping for the next push forward or a pull back after the huge gains seen since the market bottom in March. For months, the stock market is clearing not trading based on the fundamentals of both the economy and firms comprising the indexes. This essentially leaves this a traders market based on technical indicators. This brings to the common caveat, “buyer beware”.
According a recent article in the Wall Street Journal, rarely has the stock market seen a six-month rally just experienced. The Dow Jones Industrial Average's 46% surge was one of just six of that magnitude in the last 100 years. All previous rallies of this magnitude took place in the 1930s and the 1970s. Those were periods of turbulence for both the economy and the markets, and none of the gains was sustained.
Other markets also have seen a pull back as well including gold and oil. Oil had lost about 10% over the past week so after reaching over $72 a barrel to close the week at $66 a barrel. Gold also has seen a pull back from nearly $1,020 an ounce to close the week at $990 an ounce. All of the moves in the commodities are based on the weakening U.S. dollar which has hit yearly lows among many currencies as of late. A weakening U.S. dollar drives up the prices of commodities based in U.S. dollars. Generally speaking, the weakening dollar lowers the return of from an exchange viewpoint which is made up by the increasing price of the commodity and thereby maintaining a similar level of return overall.
A helpful note in the U.S. bond market as the U.S. Treasury auctioned off hundreds of billions of dollars worth of bills, notes and bonds this week. The 10 year U.S. Treasury bond yield has pulled back some this past week to yield 3.33%. The lower yields help support the mortgage and corporate bond market. Mortgage rates once again are nearing all time lows, but are not likely to re-test those given the we are nearing an end technically to the recession. The mortgage market seems to have priced in an additional 25 basis or so in rate as a cushion against rising rates versus just four months ago given the same treasury yield curve. Mortgage rates generally move along the same as the long end of the treasury yield curve but it is not a precise one for one move. Mortgage rates do move independently.
The Conference Board reported its index of leading indicators rose 0.6 percent in August. That follows a 0.9 percent gain in July revised up from 0.6 percent. The leading indicators index jumped 4.4 percent -- an 8.9 percent annual rate -- in the six months through August. That's the fastest six-month growth rate since March 2004. The increase in the six months through July was 3.3 percent. The indicators are designed to project economic activity in the next three to six months. The August results support projections that the economy started growing again in the current July-September quarter and will continue to gain in the fourth quarter. The gain is the index is a result of increases in the areas of supplier deliveries, rising stock prices, an increase in consumer expectations, a jump in building permits and the "interest rate spread". That spread is the difference between yields on 10-year Treasury bond and the federal funds rate, which the Fed is keeping at a record low near zero. The funds rate is the interest banks charge each other for loans. A big difference between it and the 10-year Treasury is viewed as positive because investors are willing to lend for longer periods. An accompanying index meant to measure the current state of the business cycle was flat in August. The July reading was revised up to a 0.1 percent gain from zero, making it the first increase in nine months. According to Wells Fargo Securities economist Sam Bullard the current indicators index has bottomed in the same month as the U.S. economy for six out of the past seven recessions.
The Federal Housing Finance Agency reported prices rose 0.3 percent in July from the prior month, but June's price increase was revised down to 0.1 percent from 0.5 percent. The index is still 4.2 percent below last year's levels and 10.5 percent off its peak from April 2007. It is based on loans owned or guaranteed by mortgage finance companies Fannie Mae and Freddie Mac. The index has declined less than other housing market measurements because it excludes the most expensive homes and some of the subprime loans that have fallen into foreclosure.
Home re-sales dipped unexpectedly last month after a four-month streak of gains, providing evidence that the U.S. housing market recovery remains fragile. The National Association of Realtors reported that sales dropped 2.7 percent to a seasonally adjusted annual rate of 5.1 million in August, from a pace of 5.24 million in July. Sales are still up 3.4 percent from a year earlier. First-time buyers purchased almost one in three homes last month. New homeowners may qualify for an $8,000 tax credit if they complete the transaction by Nov. 30, in which the credit expires. Nationwide sales are up nearly 14 percent from their bottom in January, but are still down nearly 30 percent from their peak nearly four years ago. The median sales price was $177,700, down 12.5 percent from $203,200 in the same month last year. Foreclosures and other financially distressed sellers accounted for about 30 percent of the market. In the West, sales of homes under $100,000 were up 150 percent from a year ago. Sales of homes priced at over $250,000 were down nationally, with the biggest drop of nearly 40 percent coming among homes priced over $2 million. In one positive sign, the current inventory of unsold homes on the market fell to 3.6 million, from 4 million in July. That's an 8.5 month supply at the current sales pace, and the lowest level in more than two years. However, given the current housing market many have postponed putting their homes on the market which adds to moderating inventory level.
The Labor Department reported that initial claims for unemployment insurance dropped to a seasonally adjusted 530,000 from an upwardly revised 551,000 the previous week. The four-week average of jobless claims which smoothes out fluctuations dropped to 553,500 and the lowest level since late January. The four-week average has fallen by about 100,000 since reaching a peak for the current recession in early April. The number of people continuing to claim benefits for more than a week dropped 123,000 to a seasonally adjusted 6.14 million. But when federal emergency programs are included, the total number of jobless benefit recipients was about 9 million in the week that ended Sept. 5, down slightly from the previous week. Congress has added up to 53 extra weeks of benefits on top of the 26 typically provided by the states. The House this week approved legislation that would add another 13 weeks in high-unemployment states.
September 18, 2009
By Paul Fero
The S&P 500 powered through the 1050 resistance level to close at 1068, as it moves toward a stronger overhead resistance level at 1100. The movement this week is based on statistics and comments that the economy will likely be officially declared over this quarter. All the while the economy is still in a somewhat teetering situation, the stock market powers ahead anyway. I’m more than surprised as I’ve been expecting a pull back for some time. So I got this part wrong and it reminds me of two key points. The trend is your friend and never fight the tape. Also the S&P 500 moved across its 200 day moving average which is a technically important indication and it appears to be positive sign of continued uptrend. Don’t get me wrong, I still believe the greater risk is to the downside, just not sure when that might happen. But since the sentiment is to the positive that is likely to be the current direction.
Commodities also powered ahead with Gold hitting some highs this week to retreat a bit and close $1,009 an ounce. Also, the cost of oil continues to bounce around and close at nearly $72 a barrel. The movement in commodities is based on the decreasing value of the U.S. dollar and not based on supply and demand from an expanding economy. The 10 year U.S. Treasury closed out the week at 3.47 percent and also has be fairly active.
The Commerce Department reported that retail sales rose a seasonally adjusted 2.7 percent last month, after falling 0.2 percent in July. Excluding autos, sales rose 1.1 percent. Excluding autos and gas, sales rose 0.6 percent. The Commerce Department report showed that auto sales soared 10.6 percent last month, the most in almost eight years due mainly to the clunkers program. Gas station sales rose 5.1 percent, as prices at the pump rose. Sales also rose at electronics and appliance stores, department and sporting goods stores. The later segments attributed to the back to school seasons. Even sporting goods see a back to school season with school related and after school related sporting activities.
The Labor Department reported wholesale prices rose 1.7 percent in August. Wholesale prices had fallen by 0.9 percent in July. Both months were heavily affected by energy prices. Excluding volatile energy and food costs, core inflation as measured by Producer Price Index posted a more modest 0.2 percent increase. The index tracks the prices of goods before they reach store shelves. Energy prices were up 8 percent in August after having fallen 2.4 percent in July. The big surge last month was led by a 23 percent rise in gasoline costs, the biggest one-month gain since a 28.8 percent rise in April 1999. Food costs edged up 0.4 percent last month after having fallen 1.5 percent in July. The August increase was led by big increases in the cost of fresh fruits, eggs and cheese. The 0.2 percent rise in core inflation, which excludes food and energy, left core inflation over the past 12 months rising by 2.3 percent. The gain last month was led by a 0.7 percent rise in the cost of passenger cars.
The Labor Department reported that on the consumer inflation front, the CPI rose 0.4 percent in August, after a flat reading in July. Prices fell 1.5 percent in the past year, as gas prices dropped sharply from record levels last summer. Excluding the volatile food and energy prices, the core price index rose 0.1 percent. It rose 1.4 percent in the 12 months ending in August, the smallest increase in more than five years. A 1.3 percent drop in the price of cars last month, the steepest fall in nearly 37 years, held back the core index. Discounts stemming from the clunkers program -- which provided rebates of up to $4,500 to consumers who traded in older cars for newer, more fuel-efficient models -- caused the decline. Gas prices rose 9.1 percent in August on a seasonally adjusted basis and accounted for 80 percent of the rise in the consumer price index. Still, gas prices are 30 percent below last year's record levels, when prices at the pump topped $4 a gallon.
The Commerce Department reported that inventories dipped 1 percent in July. Businesses slashed their inventories for the 12th straight month in July, but sales posted a second consecutive gain, providing hope that companies soon will switch from trimming stockpiles to increasing their orders. Sales rose 0.1 percent in July after a 1.1 percent increase in June, the first back-to-back gains in a year. The rebound reflected a 0.5 percent increase in sales at the wholesale level, which offset a flat reading on sales by manufacturers and a 0.2 percent decline at the retail level.
The Federal Reserve reported that output at the nation's factories, mines and utilities rose 0.8 percent in August. Last month's gain marked the second straight increase. Industrial production rose in a fairly broad-based pickup in August. Production jumped 1 percent in July, twice as much as originally reported. Car manufacturing drove that gain. Factory output, the single-biggest slice of overall industrial activity, also rose for the second straight month. It posted a 0.6 percent gain in August, following a 1.4 percent rise in July. Auto production led the way, rising 5.5 percent last month due mainly to the government's Cash for Clunkers program. That followed a whopping 20.1 percent gain in July as General Motors and Chrysler reopened many plants that had been closed in May and June as the companies restructured and emerged from bankruptcy. Even with production of autos and parts stripped out, manufacturing activity increased 0.4 percent last month. With production rising, industrial companies idled less of their plants and equipment in August. The overall operating rate rose to 69.6 percent in, up from 69 percent in July. Industrial companies are still operating well below capacity. The operating capacity in August was 11.3 percentage points below its average between 1972 and 2008. A healthy level is around 80 percent.
The Federal Reserve’s Philadelphia area reported in its latest survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 4.2 in August to 14.1 this month. This is the highest reading since June 2007 and the second consecutive positive reading. The percentage of firms reporting increases in activity 33 percent exceeded the percentage reporting decreases of 19 percent. Other broad indicators also suggested some growth this month. The current new orders index also remained positive for the second consecutive month, although it edged one point lower, to 3.3. The current shipments index increased eight points and has now increased 18 points over the last two months. Firms reported declines in inventories this month: The current inventory index declined 18 points, from 0.3 in August to 18.1. Indicators for unfilled orders and delivery times remained negative, suggesting continued weakness.
Housing construction rose in August to the highest level in nine months as a big surge in apartment building offset a decline in single-family activity. The Commerce Department reported that construction of new homes and apartments rose 1.5 percent to an annual rate of 598,000 units last month. The increase pushed building activity to the highest level since last November and left home construction 24.8 percent above the record low hit back in April. Applications for building permits, a good forecaster of future activity, posted a 2.7 percent rise in August to an annual rate of 579,000 units. Permits for single-family homes dipped by 0.2 percent while multifamily units rose by 15.8 percent. The 1.5 percent rise in housing starts followed a small 0.2 percent dip in July. The August strength came from a 25.3 percent surge in construction of multifamily units, a volatile sector which had fallen by 15.2 percent in July. The larger single-family sector dipped by 3 percent last month to an annual rate of 479,000 units, the first setback following five straight monthly gains. By region of the country, construction shot up by 23.8 percent in the Northeast and 0.9 percent in the Midwest. Activity was flat in the West and fell by 2.4 percent in the South.
The Labor Department reported that initial claims for state unemployment insurance declined to a seasonally adjusted 545,000 in the week ended September 12 from 557,000 the week before. It was the lowest reading since early July. Continued claims of people still on jobless aid after an initial week of benefits increased by 129,000 to 6.230 million in the week ending September 5, the latest for which data is available. It was the largest one week gain since late June. The 4-week moving average for new claims fell 8,750 to 563,000.
The Commerce Department reported the deficit in the current account dropped to $98.8 billion in the April-June quarter. That represented 2.8 percent of the total economy as measured by the gross domestic product, the smallest percentage since the first quarter of 1991. The deficit in the broadest measure of foreign trade shrank in the spring to the lowest level in relation to the total economy in 18 years, another dramatic sign of how much the recession had reduced our appetite for foreign goods.
Foreigners purchased $15.3 billion more assets than they sold in July. Still, that's a steep decline from June, when they purchased $90.7 billion more than they sold. The Treasury is auctioning record amounts of debt to cover a budget deficit it estimates will hit $1.58 trillion this year. China, the largest foreign holder of U.S. Treasury securities, boosted its holdings to $800.5 billion, from $776.4 billion in June. Japan, the second-largest holder of the securities, increased its holdings to $724.5 billion in July from $711.8 billion in June. And the United Kingdom, the third-largest holder of Treasuries, increased its holdings to $220 billion from $214 billion in June. Russian holdings fell 1.6 percent, to $118 billion from $119.9 billion in June. Foreign governments purchased $15.8 billion of Treasury bonds and notes after buying $22.5 billion in June. Overseas governments sold $7.2 billion in bonds issued by mortgage giants Fannie Mae, Freddie Mac and other government agencies. That's more than the $5.9 billion they sold in June. Private foreign investors purchased $14.6 billion in Treasury bonds and notes in July a sharp drop from the $77.6 billion they bought in June.
September 12, 2009
By Paul Fero
Another short commentary due to my traveling end of last week. It seems the S&P 500 ran up to its overhead resistance level near 1050 and pulled back a tad. More pull backs for the market could be in store. Third quarter earnings season is just around the corner and with the continued run up in stock prices any disappointments could turn prices around. Also, the VIX, the S&P 500 Volatility Index, a year long low. Remember, when the VIX is low it’s time to go, as the say goes. We’ve been here before, just because it is low, doesn’t mean the market turns on a dime. As mentioned last week, the great risk is towards the downside than the upside. Oil has pulled back from its recent highs to just below $70 a barrel and gold hit the over $1,000 price level last week and pulled back a tad. Lastly the 10 year U.S. Treasury pulled back in yield for the week to 3.34 percent.
A gauge of the strength of the U.S. job market fell slightly in August and pointed to a flat employment market for the rest of the year, according to the Conference Board. Its Employment Trends Index inched lower to 88.1 in August from a revised 88.2 in July, originally reported at 88.3. The index is now down 18.5 percent from a year ago. "The flatness of the Employment Trends Index in recent months suggests that we won't see job growth until the end of the year," according to Gad Levanon, economist at the Conference Board. I would still suggest that is wishful thinking and any growth won’t be until middle of 2010.
Consumers slashed their borrowing in July by the largest amount on record as job losses and uncertainty about the economic recovery prompted Americans to rein in their debt. The Federal Reserve that consumers ratcheted back their credit by a larger-than-anticipated $21.6 billion from June, the most on records dating to 1943. Economists expected credit to drop by $4 billion. Demand for non-revolving credit used to finance cars, vacations, education and other things fell by $15.4 billion, also a record decline. That 11.7 percent pace was on top of an 8 percent annualized decline in June. Consumers' desire for revolving credit, primarily credit cards, declined by $6.1 billion in July, an annualized rate of 8 percent that followed a 6.4 percent drop in June. July's retreat translated into an annualized decline of 10.4 percent. That followed a cut of $15.5 billion in June, or a 7.4 percent annualized drop and the most since a 16.3 percent decline in June 1975.
The Mortgage Bankers Association reported rates on 30-year fixed-rate mortgages tumbled to a 3-month low, spurring a surge in demand for home refinancing loans. Applications to buy a home, a tentative early indicator of sales, also climbed, hitting their highest since early January. The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week to September 4 increased 17.0 percent to 648.3, the highest since the week ended May 29. The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 7.0 percent. The Mortgage Bankers seasonally adjusted index of refinancing applications increased 22.5 percent to 2,651.2, the biggest jump since mid-March, with the index at its highest since the week ended May 29. The refinance share of applications increased to 59.8 percent from 56.5 percent the previous week, but remained significantly lower than the peak of 85.3 percent in the week to January 9. The adjustable-rate mortgage share of activity increased to 5.8 percent, up from 5.6 percent the prior week.
The Federal Reserves report on regional activity referred to as the Beige Book, reported that economic activity is stabilizing or improving in the vast majority of the country. The findings indicate that the worst recession since the 1930s may be over. In the new survey, all but one of the Fed's 12 regions indicated that economic activity was "stable," showed "signs of stabilization" or had "firmed." The one exception was the St. Louis region, which continued to report that the pace of decline in economic activity appeared to be "moderating." The Dallas region indicated that economic activity had "firmed." The Fed regions of Boston, Cleveland, Philadelphia, Richmond and San Francisco mentioned "signs of improvement." The Atlanta, Chicago, Kansas City, Minneapolis and New York regions described activity as "stable or showing signs of stabilization." Most of that growth should come from more spending from businesses, which had slashed investments, often by double-digits, during the recession. Consumer spending, however, is expected to turn up only because of the binge-buying of automobiles generated by the short-lived Cash-for-Clunkers program. Buyers were given cash rebates to trade in less efficient gas guzzlers. The Fed's survey found that the majority of regions did report that the government's clunkers program "boosted traffic and sales." But aside from brisk businesses at auto dealerships, other merchants struggled. Consumer spending remained "soft" in most Fed regions. Manufacturing, meanwhile, reported "modest" improvements. Residential real-estate markets, which were clobbered during the downturn, also flashed signs of improvements. But the commercial real-estate market continued to be a drag in most markets.
Based on some of the recent statistics and the Fed survey, economic activity most likely has pulled into the positive territory for the third quarter, likely in the 2 percent area. This will be bring many to say the economy is out of the recession. It will take many months afterwards before it is determined to be “officially” over, but it definitely appears to have turned the corner. Don’t get too excited because since 70 percent of economic activity is based on consumer spending and consumers have continued to cut back, any recovery will be extremely tentative at best.
September 4, 2009
By Paul Fero
The stock market had a rocky week but the perceived reduction in job losses had a somewhat positive tone to the market and recovered the week’s losses for the S&P 500 to close at 1016. The bond market also saw similar action with the 10 year US Treasury hitting a recent low of 3.30 percent during the week only to close the week at 3.44 percent. I was asked this week, what I thought of the current market and my continuing theme persists. There is a greater propensity of risk to the downside than there is the propensity of opportunity to the upside. Given current market valuations look for a more volatile September and October.
Pending U.S. home sales rose more than expected in July to the highest level in more than two years as first-time buyers rushed to take advantage of a tax credit that expires this fall. The National Association of Realtors reported its seasonally adjusted index of sales contracts signed in July for previously occupied homes rose 3.2 percent to 97.6. It was the sixth straight increase and 12 percent above the same month last year. The U.S. housing market is rebounding, as low prices and the looming expiration on Nov. 30 first-time homebuyers tax credit of up to $8,000 have spurred sales. Home prices in most of the country have started to rise from the depths of the housing slump. But sales will most likely drop off when the tax credit expires, or if mortgage rates rise from near-record lows. Foreclosures also continue to rise, and banks are forced to sell those properties at deep discounts, pushing prices down.
U.S. sales of cars and light trucks rose to 1.3 million in August, a roughly 30 percent increase from July. It also was the first monthly year-over-year gain since October 2007. Ford, Toyota, Hyundai and Honda were the big winners as consumers snapped up their fuel-efficient cars. Rivals Chrysler Group LLC and General Motors Co. endured another month of falling sales, although their high-mileage vehicles did better. August sales at Ford Motor Co. up 17 percent from a year earlier, when high gas prices and growing economic uncertainty kept car buyers at home. Toyota Motor Corp. and Honda Motor Co. also posted gains year-over-year in August. Toyota sales rose 6.4 percent lifted by small cars like the Corolla, the best-selling cash for clunkers vehicle. Honda sales rose 9.9 percent while sales at Nissan Motor Co. slipped 2.9 percent. At General Motors Co., sales fell 20 percent. GM said its inventory levels hit an all-time low during August, but like Ford will be replenished this month thanks to production increases. Chrysler sales fell 15 percent. Now that the cash for clunkers program is over sales will likely drop considerably for September and October.
A monthly compilation of 31 retailers' results by The International Council of Shopping Centers and Goldman Sachs showed sales in established stores fell 2.1 percent in August compared with the same month in 2008. About half of the 30 retailers reporting August results missed expectations, but half topped them, according to a poll by Thomson Reuters. The winners were mainly discounters, but declines were less than expected in the specialty apparel and department store sectors as well.
The U.S. manufacturing sector grew in August for the first time in 19 months as new orders from customers jumped. The Institute for Supply Management showed the highest number for its manufacturing index since June 2007. The ISM, reported its manufacturing index rose to 52.9 in August, from 48.9 in July. It's the first reading above 50 since January 2008. New orders jumped nearly 10 percentage points to 64.9 in August. With strong new orders for two straight months, production should grow at reasonable rates for the rest of the year. A weaker dollar also helped exports grow for the second straight month, after shrinking for nine, according to ISM. The current growth in the U.S. manufacturing sector has been historically equivalent to a 3.7 percent increase in gross domestic product. The ISM index, which includes new orders, production, employment, inventories, prices and more, is based on a survey of the group's members.
The Institute for Supply Management reported that its service index, which covers hospitals, retailers, financial services companies and more, came in at 48.4, up from 46.4 in July. It was the best reading in 11 months. The survey of purchasing executives in 18 industries tracks more than 80 percent of the country's economic activity. It covers indicators such as new orders, employment, business activity and inventories. Business activity grew last month for the first time since last September, while measures tracking new orders and employment also improved from July. Still, only six sectors reported growth as consumer spending, the key to a strong recovery because it accounts for 70 percent of economic activity, remained subdued. Real estate, health care and social assistance, and transportation and warehousing were the biggest gainers in the ISM survey. The 12 other industries contracted, led by companies that offer management and support services to other businesses.
The Labor Department reported that productivity, the amount of output per hour of work, rose at an annual rate of 6.6 percent in the April-June quarter. Labor costs fell at an annual rate of 5.9 percent. The 6.6 percent rate of increase in productivity in the second quarter compared with a 0.3 percent rise in the first quarter. The 5.9 percent drop in unit labor costs followed a 5 percent decline in the first quarter. Businesses producing more with fewer employees means that unemployed Americans continue to face a dismal job market.
The Labor Department reported the number of laid-off workers applying for benefits dipped to 570,000 last week from an upwardly revised 574,000. The number of Americans receiving jobless benefits totaled 6.23 million, up 92,000 from the previous week, which had been the lowest level since early April. The four-week average of initial jobless claims edged up to 571,250 last week, compared with 567,250 the previous week. Even with the rise in continuing claims to 6.23 million for the week ending Aug. 22, that four-week average dipped slightly to 6.22 million. When federal emergency programs are included, the total number of jobless benefit recipients was 9.14 million people in the week that ended Aug. 15, down from about 9.18 million the previous week.
The Labor Department reported that the unemployment rate rose to 9.7 percent in August, the highest since June 1983, as employers eliminated a net total of 216,000 jobs. The number of job cuts for August is less than July's upwardly revised total of 276,000 from 247,000 and the lowest in a year. If laid-off workers who have settled for part-time work or have given up looking for new jobs are included, the so-called underemployment rate reached 16.8 percent, the highest on records dating from 1994. But earnings rose and the number of hours worked stayed above a recent record-low. Average hourly wages increased to $18.65 from $18.59. Average weekly earnings increased to $617.32. The number of weekly hours worked remained at 33.1, above the low of 33 reached in June. The weekly hours figure is important because as companies will add more hours for current workers before they hire new ones. The recession has eliminated a net total of 6.9 million jobs since it began in December 2007. There are now 14.9 million Americans unemployed. Job losses averaged 691,000 in the first quarter and fell to an average of 428,000 in the April-June period. While an improvement from previous months and quarters these are still not very good numbers and will be the underlying drag on the economy well into 2010. So even while the broadest measures of the economy show improvement, there will be a painfully slow recovery to the labor market.
August 28, 2009
By Paul Fero
Another shortened commentary due to vacationing for second half of the week. So here's what we have for the first part of the week. With summer ending and no significant retreat from recent highs, September and October could be the pull back period. As the saying goes, nothing goes up (or down) in a straight line.
President Barack Obama reappointed Ben Bernanke to a second term as chairman of the Federal Reserve. Widely credited with taking aggressive action to avert an economic catastrophe after the financial meltdown last year. This would be a safe bet as anyone other than Ben would have had huge political and Wall Street implications. While not perfect, not a horrible choice. Just more of the same.
Home prices posted their first quarterly increase in three years, signaling the housing market started to stablize. The Standard & Poor's/Case-Shiller's U.S. National Home Price Index rose nearly 3 percent from the first quarter to 133, though that reading is still down almost 15 percent from the second quarter last year. Home prices are at levels not seen since early 2003. Prices have fallen 30 percent from the peak in the second quarter of 2006. The monthly index of 20 major cities increased 1.4 percent from May to June to 142, the second straight month the index registered a gain. All but two cities, Las Vegas and Detroit, saw home prices rise, and Dallas and Denver clocked their fourth-straight monthly increase. Prices, however, have a long way to go to recover completely. Every metro showed annual declines, with fifteen reporting double-digit drops. The Case-Shiller index is a composite of home price indexes for the nine U.S. census divisions. The 20-city index measures home price increases and decreases relative to prices in January 2000. The base reading is 100; so a reading of 150 would mean that home prices increased 50 percent since the beginning of the index.
The White House budget office expects a cumulative $9 trillion deficit from 2010-2019, $2 trillion more than the administration estimated in May. The figures show the public debt doubling by 2019 and reaching three-quarters the size of the entire national economy. The revised estimates project that the economy will contract by 2.8 percent this year, more than twice what the White House predicted earlier this year. Obama economic adviser Christina Romer projected that the economy would expand in 2010, but by 2 percent instead of the 3.2 percent growth the White House predicted in May. By 2011, Romer estimated, the economy would be humming at 3.6 percent growth. The Obama administration did tout one number in its budget review: The 2009 deficit was expected to be $1.58 trillion, $263 billion less than projected in May. That's largely because the White House removed a $250 billion item that it had inserted as a "place holder" in case banks needed another bailout.
The Conference Board reported its Consumer Confidence index rose to 54.1 from an upwardly revised 47.4 in July. The index is well below 90, the minimum level associated with a healthy economy. Anything above 100 signals strong growth. Economists closely monitor confidence because consumer spending accounts for about 70 percent of U.S. economic activity. Consumer sentiment fueled by signs the economy is stabilizing somewhat since hitting a record-low of 25.3 in February. Consumers' expectations for the economy over the next six months rose to 73.5 from 63.4 in July, the highest level since December 2007, when the recession began.
The Commerce Department reported new orders for manufactured durable goods in July increased 4.9 percent. This was the third increase in the last four months. This followed a 1.3 percent June decrease. However, compared to the same period last year, new orders were still down 25.8 percent. Excluding transportation, new orders increased 0.8 percent. Excluding defense, new orders increased 4.3 percent. Shipments of manufactured durable goods in July are up two consecutive months, with an increase of 2.0 percent. This followed a 0.7 percent June increase. Unfilled orders for manufactured durable goods in July are now down ten consecutive months, with a decrease of 0.1 percent. This followed a 0.8 percent June decrease. Inventories of manufactured durable goods in July, are down seven consecutive months, with a decrease of 0.8 percent and followed a 1.5 percent decrease in June.
The Mortgage Bankers Association reported its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Aug 21 increased 7.5 percent to 566.4. The Mortgage Bankers seasonally adjusted index of refinancing applications increased 12.7 percent to 2,233.5, the highest level since the week ended June 5.The refinance share of applications increased to 56.5 percent from 53.3 percent the previous week, but remained significantly lower than the peak of 85.3 percent in the week ended January 9. The adjustable-rate mortgage share of activity remained unchanged from the previous week at 6.5 percent.
August 21, 2009
By Paul Fero
The stock market as measured of the S&P 500 has broken through a big technical resistance level of about 1005 as it moves towards the next big hurdle at around 1050. While the economic fundamentals don't quite support such a dramatic rise over the past couple of months, that's the whole basis of technical analysis - that is the fundamentals don't matter. That is why I'm a firm believer in technical analysis. However, with my training and forecasting of fundamental analysis, I've come to the ultimate of crossroads. Until the "market movers" start to believe in the economy is weaker that the market has valued, the market will drift towards the positive. Look for a volatile fall period as these different viewpoints converge and come to a head. It looks to be more ugly than positive. This could be a good time to be an observer.
The price of oil currently around $74 will likely move to the over $100 level once the economy does begin to turn around. That will continue to drain the recovery and make it more tepid into 2010.
Another key is the Federal Reserve continuing the TALF program to June 2010 from December. If the Fed truly believed we are on the edge of recovery, they would have let the program end in December. It's not just what the Fed says but more importantly what it does. And it hasn't done anything to support a we are on the edge of recovery.
The Labor Department reported initial claims for state unemployment insurance benefits rose 15,000 to a seasonally adjusted 576,000 in the week ended August 15 from an upwardly revised 561,000 from the prior week. The four-week moving average for new claims climbed 4,250 to 570,000 last week. The four-week moving average is considered a better gauge of underlying trends as it irons out week-to-week volatility. The number of people collecting long-term unemployment benefits edged up 2,000 to 6.24 million in the week ended August 8, the latest week for which the data is available. However, the four-week moving average declined 2,500 to 6.27 million. The number of people collecting extended unemployment benefits rose 92,390 to 2.88 million. The total number of people collecting employment benefits are 9.12 million people.
The Conference Board reported that its index of leading indicators rose 0.6 percent in July, its fourth straight gain. The measure is meant to project economic activity in the next three to six months. The indicators suggest the recession has bottomed out and that seems pretty clear that the worst has past. An accompanying index meant to measure the current state of the business cycle was flat in July, after dropping for eight straight months. Meanwhile, the six-month growth rate rose to 3 percent through July, up from 2.1 percent through June. However, July's 0.6 percent growth was slower than the 0.8 percent rise in June and 1.2 percent gain in May. Six of the 10 indicators that comprise the index increased in July, including employment data and stock prices.
Sales of previously owned U.S. homes in July notched their fastest pace in nearly two years. The National Association of Realtors said that sales jumped 7.2 percent to an annual rate of 5.24 million units, the highest since August 2007. Sales were at a 4.89 million pace in June. July's percentage increase was the largest monthly gain since the series started in 1999 and marked the fourth straight monthly advance. Given the rapid rise in interest rates that begin in May could have given individuals to hurry up and lock in rates if anticipated to go higher. Since then, rates have dropped somewhat so this looks to continue for the next few months. Other contributing factors include the large number of foreclosed properties on the market. Also, with the $8,000 tax credit coming to end in November, this looks to provided a bump in sales. The ultimate question is without the incentive and normalizing rates, will sales continue?
With the recession throwing thousands of people out of work daily, more than 13 percent of American homeowners with a mortgage have fallen behind on their payments or are in foreclosure. The record-high numbers released by the Mortgage Bankers Association are being driven by borrowers with traditional fixed-rate mortgages, rather than the shady subprime loans with adjustable rates that kicked off the mortgage crisis. As of June, more than 4 percent of all borrowers were in foreclosure, while about 9 percent had missed at least one payment.
August 14, 2009
By Paul Fero
The summer doldrums are starting to kick in with a light news week only highlighed by weak retail sales by consumers excluding the government subsidized Cash for Cluckers program.
The Commerce Department reported retail sales fell 0.1 percent last month. While autos, helped by the start of the Cash for Clunkers program, showed a 2.4 percent jump, the biggest in six months, there was widespread weakness elsewhere. Gasoline stations, department stores, electronics outlets and furniture stores all reported declines. The July dip was the first setback following two months of modest sales gains. Excluding autos, sales fell 0.6 percent. Gas station sales plunged 2.1 percent, due more to falling pump prices than weak demand. Excluding that drop, retail sales would have posted a modest 0.1 percent increase. Department store sales fell 1.6 percent and the broader category of general merchandise stores, which includes big chains such as Wal-Mart and Target, posted a decline of 0.8 percent. Consumer spending accounts for about 70 percent of total economic activity.
The Labor Department reported that productivity, the amount of output per hour of work, rose at an annual rate of 6.4 percent in the April-June quarter, while unit labor costs dropped 5.8 percent. Productivity can help boost living standards because it means companies can pay their workers more, with those wage increases financed by rising output. However, in this recession, companies have been using their productivity gains from layoffs and other cost cuts not to hire again but to bolster their profits. The result is many companies have been reporting better-than-expected second-quarter earnings despite falling sales. Businesses producing more with fewer employees means millions of unemployed people likely will continue to face a difficult job market. The 6.4 percent jump in productivity followed a 0.3 percent increase in the first three months of the year that was revised downward from an earlier estimate of a 1.6 percent gain. The revision partially reflected the annual benchmark revisions of economic data connected to the gross domestic product.
The Labor Department reported initial claims increased to a seasonally adjusted 558,000, from 554,000 the previous week. The number of people remaining on the benefit rolls, meanwhile, fell to 6.2 million from 6.34 million the previous week. The continuing claims data lags initial claims by one week. The four-week average of initial claims, which smoothes out fluctuations, rose by 8,500 to 565,000. That reverses six straight weeks of decline. Including federal emergency benefit programs, 9.25 million people received unemployment compensation in the week ending July 25, the latest data available. That's down from a record of 9.35 million the previous week.
The Commerce Department reported businesses slashed inventories at the wholesale level for a record 10th consecutive month in June as wholesale inventories declined 1.7 percent in June. In an encouraging sign, sales rose 0.4 percent for a second straight month, the first back-to-back increase in a year. The 1.7 percent drop in June inventories followed a 1.2 percent reduction in May and marked the 10th straight decline. That record stretch surpassed the old mark of nine straight declines from June 2001 to February 2002, during the last recession. The government's records go back to 1992. The latest inventory drop left the inventory to sales ratio at 1.26, meaning it would take 1.26 months to exhaust stockpiles at the June sales pace. That was slightly lower than the 1.28 ratio in May, but still well above the 1.11 inventory to sales ratio of a year ago. Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories and retailers hold the rest.
The Commerce Department reported that businesses cut stockpiles 1.1 percent in June. The reductions have translated into sharp production cutbacks at factories. But in an encouraging sign for the future activity, business sales at all levels rose 0.9 percent in June after being flat in May. It marked the first increase in total sales since July 2008. The 1.1 percent decline in inventories marked the 10th consecutive month that businesses have drawn down their stockpiles, the longest stretch since a run of 15 straight months in 2001-2002, a period that covered the last recession. The inventory decline in June reflected weakness at all levels of the supply chain. Manufacturers cut inventories 0.8 percent, wholesalers saw a drop of 1.7 percent while inventories held by retailers declined 1 percent. With overall sales in June registering an increase, the ratio of inventories to sales edged down to 1.38 from 1.41 in May. That means it would take 1.38 months to exhaust inventories at the June sales pace. Even with the declines, the inventory-to-sales ratio is still above the 1.26 of a year ago. Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories and retailers hold the rest.
August 7, 2009
By Paul Fero
No expansive commentary this due to my extended weekend. Suffice it to say the jobs report on Friday provided some positive news that worst for the economy seems to finally be behind us. This recession is one where near as "predictable" as previous recessions and for the reasons that put us here is also the reasons this will be one of the longest recessions.
In short while the economy isn't quite improving, its weakening has slowed which is a positive. When the economy puts in a bottom, it's a process and not an event.
July 31, 2009
By Paul Fero
The stock market continued its rally ways corporate earnings turned in better than expected results with the S&P 500 ending the week at 987. Generally seen as a good sign, however, as a generalization, many have been as a result of reduced costs, namely employment costs. A better sign would be as a result of better revenues, which aren’t there. So you take what you get. The bond market as ended the week with lower yields with the 10 year US Treasury at 3.50 percent. Also of note, oil prices are moving upward a bit too just under the $70 a barrel level.
The Commerce Department reported the economy sank at a pace of just 1 percent in the second quarter of the year. It was a better-than-expected showing that provided the strongest signal yet that the longest recession since World War II is finally winding down. While improvement for the second quarter, the headline number just screams to revised downward in coming months. The basis for this is after two revisions for the first quarter GDP which were essentially the same, the Commerce Department in with significant revision of a negative 6.4 percent GDP in the first three months of this year. The economy has now contracted for a record four straight quarters. The Commerce Department also reported that the recession inflicted even more damage on the economy last year than the government had previously thought. It now estimates that the economy grew just 0.4 percent in all of 2008. That's much weaker than the 1.1 percent growth the government had earlier calculated.
The Conference Board reported that its Consumer Confidence Index, which retreated last month, fell to 46.6, down from 49.3 in June. The second straight month of decline follows an upswing in confidence this past spring fueled by a stock market rally and some signs that the economy was improving. According to the Conference Board, The Present Situation Index, which measures shoppers' current assessment of the economy, declined to 23.4 from 25.0 last month. The Expectations Index, which measures shoppers' outlook over the next six months, fell to 62 from 65.5 in June.
On a positive note, the value of U.S. homes grew on a monthly basis in May for the first time in nearly three years, according to 20-city index by Standard & Poor's and economists Case-Shiller. The S&P Case-Shiller Index had a month-over-month increase was 0.5%. It was the first increase in the monthly index since July 2006. On an annual basis, home prices in the 20 cities fell 17.1%, but it was the fourth straight month that the year-over-year decline lessened. Robert Shiller, the Yale economist who co-founded the index and who's famous for warning that the housing boom was, in fact, a bubble, said the decrease in foreclosure sales does show up in the index statistics as a plus for home prices. That's one reason he did not want to sound too optimistic; foreclosures could take off again. As employment area continues to remain weak, many more areas are showing weakness and increasing the rates of foreclosure. The improvement this month with 13 metro areas showing gains, compared with eight in April. Two, New York and Tampa, Fla., showed no change. The biggest winner was long-suffering Cleveland, where prices rose 4.1%. The city still falling the most was Las Vegas, where prices declined 2.6%.
The Commerce Department reported sales of new one-family houses in June 2009 were at a seasonally adjusted annual rate of 384,000 This is 11.0 percent above the revised May rate of 346,000, but is 21.3 percent below the June 2008 estimate of 488,000. The median sales price of new houses sold in June 2009 was $206,200; the average sales price was $276,900. The seasonally adjusted estimate of new houses for sale at the end of June was 281,000. This represents a supply of 8.8 months at the current sales rate.
The Commerce Department reported that orders for durable goods fell 2.5 percent last month. Much of the weakness reflected a 38.5 percent decline in orders for commercial aircraft. Orders for motor vehicles and parts fell by 1 percent in June after an even larger 8.7 percent drop in May. Excluding the volatile transportation sector, orders for durable goods were actually up by 1.1 percent in June. The strength last month came in demand for primary metals such as steel, which rose by 8.9 percent, and industrial machinery, which was up 4.4 percent. The strength outside of transportation could be an indication of better days ahead for manufacturing.
The Labor Department reported new claims for unemployment aid increased by 25,000 to a seasonally adjusted 584,000. A department analyst said the increase comes after claims were artificially depressed earlier this month by the timing of temporary auto factory shutdowns, which happened earlier this year than in most years. Still, this week's total is below the 617,000 initial claims reported in late June before the seasonal distortions began. The four-week average of unemployment claims which smoothes out fluctuations, fell to 559,000, its lowest level since late January. The total number receiving benefit during the week ending July 18 was 6,197,000, a decrease of 54,000 from the preceding week's revised level of 6,251,000. The 4-week moving average was 6,416,250, a decrease of 131,750 from the preceding week's revised average of 6,548,000. States reported 2,656,879 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending July 11, an increase of 24,518 from the prior week. The total number collecting unemployment benefits total are about 8.9 million.
July 24, 2009
By Paul Fero
No commetary this week as I'm on vacation and moving. I see the market rebounded, that's a bonus.
The all important big news for next week is the GDP report for the 2nd quarter due out on Friday, July 31st. Expectations are for a negitive 1 percent to negitive 3 percent. I'm more the in the lower end of the range at minus 3 percent at best.
July 17, 2009
By Paul Fero
The stock market rallied this past week to close at the highest level in a month with the S&P 500 closing at 940. The 10 year U.S. Treasury started the close to 3.25 percent only to see yields climb during the week to close at 3.65 percent. Once again, this had an initial positive impact on mortgage rates at the beginning of week only to those rates climb as well by week’s end. Again the market to heart some of the better reports for the week while ignoring the bad news. Some weeks, you’ll have that.
The Commerce Department reported that retail sales rose 0.6 percent last month. It marked the second consecutive increase. While much of the strength came from a price-driven surge at gasoline stations, there was also strength in a number of other areas, including the best showing at auto dealerships since January. In June, sales of autos and auto parts jumped by 2.3 percent, the best showing since January. However, even with the gain, auto sales are 14.5 percent below the level of a year ago, underscoring the troubles in the industry. Excluding autos, retail sales rose by 0.3 percent in June. Much of the strength outside of autos reflected the big jump in gasoline prices during the month, a rise that pushed sales at gasoline stations up by 5 percent, after a similarly big jump in May. Excluding gasoline, retail sales would have risen by 0.3 percent last month, just half the overall gain. Sales also showed strength for electronics and appliance stores and at sporting goods stores. Sales at general merchandise stores, the category that includes nationwide department store chains and giant retail chains such as Wal-Mart Stores Inc., fell by 0.4 percent following an even bigger 1.7 percent decline in May. Sales at specialty clothing stores were flat last month.
The Labor Department reported a 1.8 percent jump in the Producer Price Index, which tracks the costs of goods before they reach store shelves, and came after wholesale prices rose 0.2 percent in May. Over the past 12 months, wholesale prices have actually fallen 4.6 percent. Remember, last year oil did hit an all time high of over $147 a barrel. Stripping out volatile food and energy prices, all other prices rose by 0.5 percent in June, the most since October. In May, the core prices dipped 0.1 percent For the 12 months ending in June, core prices rose 3.3 percent. In June, energy prices jumped 6.6 percent. Gasoline prices increased 18.5 percent, home-heating oil 15.4 percent and liquefied petroleum gas, such as propane, went up 14.6 percent. Also, a 21.8 percent jump in the price of vegetables led the way. Prices for eggs and young chickens also fed the increase in overall food prices as did a record 3.6 percent increase in the price of bottled carbonated soft drinks.
The Commerce Department reported that inflation at the consumer level rose by 0.7 percent last month. Underscoring the low threat of accelerating inflation, prices in June compared to a year ago were actually down by 1.4 percent. Again, based on last year’s record high prices of gasoline at over $4 a gallon. Core inflation, which excludes food and energy, posted a moderate 0.2 percent rise in June. The upward surge was driven by a 7.4 percent rise in energy prices, reflecting a 17.3 percent increase in gasoline prices. Food costs edged up a small 0.1 percent in June, held back by a big drop in the cost of dairy products. The 0.2 percent rise in core inflation left the core inflation rate rising by a moderate 1.7 percent over the past 12 months. For June, new car prices jumped by 0.7 percent and clothing costs were also up 0.7 percent. However, those gains are offset by a 0.6 percent drop in airline fares. Price increases were also moderate in the health area with medical care edging up by 0.2 percent, the smallest gain in three months.
The Federal Reserve reported Wednesday that production at America's factories, mines and utilities fell 0.4 percent last month as the recession crimped demand for a wide range of manufactured goods, including cars, machinery and household appliances. The decline, however, was not as bad as May. Industrial activity posted a revised 1.2 percent drop then, which turned out to be slightly worse than first reported. The contraction in industrial activity in June was less than the 0.6 percent decline that economists were projecting, although it marked the eighth month in a row of production cuts. For the second quarter as a whole, industrial production fell at an annual rate of 11.6 percent, not as sharp as the 19.1 percent annualized decline experienced during the first three months of this year. Production at factories, the biggest slice of the industrial sector, fell by 0.6 percent in June, compared with a 1.1 percent decline in May. Troubles in the auto sector probably factored into June's weakness. Makers of cars and parts cut production 2.6 percent last month, following a deeper 8.2 percent cut in May. Meanwhile, makers of machinery trimmed output by 1.9 percent in June, down from a 3.2 percent cut in May. Production of home electronics dipped 1.1 percent, after a 2.5 percent cut the previous month. Makers of appliances, furniture and carpeting sliced production by 1.9 percent last month, following a 1.6 percent cut in May. The pullbacks figured into a drop in the operating rate at factories, which fell to 64.6 in June, the lowest on records dating to 1948. The previous low was set in May. In other industrial sectors, the report showed that output at mines dipped 0.5 percent in June, versus a 1.9 percent decline in May. However, production at utilities rose 0.8 percent in June, following a 1.3 percent drop in the previous month.
The Labor Department reported new applications for unemployment insurance dropped by a seasonally adjusted 47,000 to 522,000, the lowest level since early January. A department analyst said the drop in new claims didn't point to improvements in economic conditions. The second straight weekly decline reflected problems adjusting layoffs for temporary shutdowns at General Motors and Chrysler plants to retool for new models. The unadjusted figures actually showed that new claims rose by 86,389 last week, which would push the total to 667,534. The department's seasonal adjustment process expected a large increase in claims from auto workers and some other manufacturers, the analyst said. Since that didn't happen, seasonally-adjusted claims fell. Those adjustment difficulties also were behind a big drop reported for people continuing to draw unemployment benefits, the analyst said. The number of people still collecting benefits fell by a seasonally adjusted 642,000 to 6.27 million, the lowest level since mid-April. The unadjusted figures for continued claims showed an increase of 63,714. The layoffs picture is expected to be muddied by the auto shutdowns in the weeks ahead, the department analyst said. Those collecting extended benefits rose by 6,241 to bring the extended benefit total to 2.25 million. The total of those collecting unemployment benefits is 8.52 million.
According to RealtyTrac, foreclosure filings rose more than 33 percent in June compared with the same month last year and were up nearly 5 percent from May. The foreclosure crisis affected more than 1.5 million homes in the first six months of the year. More than 336,000 households received at least one foreclosure-related notice in June. That works out to one in every 380 U.S. homes. It was the fourth-straight month in which more than 300,000 households receiving a foreclosure filing, which includes default notices and several other legal notices that homeowners receive before they finally lose their homes. Banks repossessed more than 79,000 homes in June, up from about 65,000 a month earlier. On a state-by-state basis, Nevada had the nation's highest foreclosure rate in the first half of the year, with more than 6 percent of all households receiving a filing. Arizona was No. 2, followed by Florida, California and Utah. Rounding out the top 10 were Georgia, Michigan, Illinois, Idaho and Colorado. As of early July, about 130,000 borrowers were enrolled in a three-month trial modifications under the government’s plan, and 25 mortgage companies have signed up to receive potential payments of up to $18.6 billion, according to the Treasury Department.
The Commerce Department reported that construction of new homes and apartments jumped 3.6 percent last month to a seasonally adjusted annual rate of 582,000 units, from an upwardly revised rate of 562,000 in May. That was the second straight increase after April's record low of 479,000 units. In another encouraging sign, applications for building permits, seen as a good indicator of future activity, rose 8.7 percent in June to an annual rate of 563,000 units. The jump in housing starts reflected a more than 14 percent rise in construction of single-family homes. Despite the rise in housing construction for June, activity still was 46 percent below the year-ago level.
The National Association of Home Builders said Thursday that its housing market index rose two points to 17 in July, the highest level in nearly a year. Readings below 50 indicate negative sentiment about the market. The last time it was above 50 was April 2006.
July 10, 2009
By Paul Fero
The S&P 500 rolled over and violated its 200-day moving average amid broad-based selling pressure this week. The S&P 500 closed the week at 879. The S&P 500 is now off some 7 percent from its recent peak and is look toward testing a support level around the 850-860 levels. A significant breach below that level could send the S&P ultimately to test the lows of March. That event would be hugely positive from a technical basis and would definitely be an indicative of a bottom. But we’re not there yet.
Oil prices too have pulled back from their recent highs of $73 a barrel a couple of weeks ago to end the week below the $60 a barrel level. A slightly saving grace at the gas pumps will ensue to bring gas to about $2.50 a gallon.
Another big week in bond market that saw the 10 year U.S. Treasury yield plummeting to close at 3.30 percent. Much of the treasury yield curve from the 2 year on out have had yields drop by some 50 basis points within the past couple of weeks. The 10 year treasury was nearly 4% a month ago. What we haven’t seen is as significant decline in mortgage rates.
The Institute for Supply Management reported that its services index read 47 in June, up from 44 in May. Its index is based on a survey of members which include purchasing executives in 18 industries and covers new orders, employment, inventories and other indicators. Service industries such as retailers, financial services, transportation and health care make up about 70 percent of the country's economic activity. Any turnaround in the sector requires improved consumer spending. Real estate, finance and insurance, and food and hotel companies were among the six industries that actually reported growth last month. The 11 sectors that posted declines included agriculture, retail, health care, educational services, and corporate support and management. Utilities were flat.
Consumer loan delinquencies edged up to another record high in the first quarter, according to data released by the American Bankers Association. The composite delinquency rate among eight types of closed-end installment loans rose to 3.23 percent in the January-March period. That is the highest recorded since the ABA began tracking the rate in the mid 1970s and tops the previous record of 3.22 percent set in the last quarter of 2008. The ABA said credit card delinquencies also moved higher, rising to 4.75 percent in the latest quarter from 4.52 percent in the fourth quarter last year. The credit card delinquency rate nearly reached the record high of 4.81 percent set in the second quarter of 2005. While the total number of delinquent credit card loans failed to hit a record, the percentage of all outstanding debt on cards hit a record high of 6.60 percent in the first quarter. The ABA defines a delinquent payment as one that is more than 30 days past due. Among the group of close-end loans, mobile home loans had the highest delinquency rate at 3.70 percent. Home equity loan delinquencies were the second highest with 3.52 percent of customers at least 30 days behind on repayment.
The Federal Reserve reported delinquency rates on commercial loans have doubled in the past year to 7 percent as more companies downsize and retailers close their doors. Small and regional banks face the greatest risk of severe losses from commercial real estate loans.
The IMF expects the world economy to shrink by 1.4 percent in 2009, slightly worse than its earlier estimate of 1.3 percent. But it boosted its estimate for global economic growth in 2010 to 2.5 percent, up from its April projection of 1.9 percent. Advanced economies such as the United States, Europe and Japan aren't expected to show sustained growth until the second half of next year. Central banks that still have room to cut interest rates should do so, the IMF said, and governments should continue to stimulate their economies through 2010 with measures such as greater spending or tax cuts. The IMF expects the U.S. economy to shrink by 2.6 percent this year, a slight improvement from its earlier estimate of a 2.8 percent decline and in line with many private forecasts. The U.S. will grow 0.8 percent in 2010, the IMF said, up from its expectation of no growth in April. China and India are both expected to grow faster than previously estimated, with China's growth forecast at 7.5 percent this year and India's economy to grow at a 5.4 percent pace.
The Commerce Department reported that inventories dipped 0.8 percent in May. Sales at the wholesale level posted a 0.2 percent rise in May. It was the best showing for sales since a similar rise in February. The further decline in inventories and the small rise in sales left the inventory to sales ratio at 1.29. That's slightly below the 1.31 reading in April, but above the 1.12 reading of a year ago. The May level means it would take 1.29 months to reduce stockpiles at the May sales pace. A 1.5 percent drop in inventories of durable goods, items such as autos expected to last at least three years, led the overall decline in May. Inventories of nondurable goods actually rose 0.3 percent.
The International Council of Shopping Centers-Goldman Sachs same-store sales tally for June was down 5.1 percent from June 2008. Of the major retailers reporting same store sales include: J.C. Penney Co. posted an 8.2 percent drop; Macy's Inc.'s sales declined 8.9 percent; Costco sales dropped 6 percent; Target reported a 6.2 percent decline. Other mall stores saw declines in sales too, including Children's Place and Limited Brands both down 12 percent, Wet Seal down 11.1 percent, Gap down 10 percent and Hot Topic down 7.9 percent and American Eagle Outfitters sales dropped 11 percent. On a positive note, TJX reported a 4 percent gain in same-store sales. Wal-Mart the world’s largest retailer stopped releasing monthly data in April.
The Reuters/University of Michigan Surveys of Consumers reported that U.S. consumer sentiment wilted in early July to the weakest since March, when confidence in the financial sector and economy were at a low. Consumers' rising concerns about a protracted economic downturn, job security and erosion of wealth were the main factors depressing sentiment, the survey said. Its preliminary index of confidence for July fell to a reading of 64.6 from the final reading for June of 70.8. July's preliminary reading was well below economists' median forecast for 70.5 and the first fall in the index since February. The survey's index of consumer expectations fell to 60.9 from June's final reading of 69.2. The index of current economic conditions slipped to 70.4 from June's final reading of 73.2.
Federal Reserve reported that consumer credit decreased at an annual rate of 1.5 percent in May 2009. Revolving credit decreased at an annual rate of 3.75 percent, and non-revolving credit decreased at an annual rate of 0.25 percent.
The Labor Department reported the number of newly laid off workers filing initial claims for jobless benefits last week fell to the lowest level since early January, largely due to changes in the timing of auto industry layoffs and shortened holiday week. Initial claims for state unemployment insurance fell 52,000 to a seasonally adjusted 565,000 in the week ended July 4 from 617,000 the prior week. But in a sign of ongoing employment weakness, so-called continued claims of people still on jobless aid after an initial week of benefits rose by 159,000 to a record 6.883 million in the week ending June 27, the latest for which data is available. The 4-week moving average for new claims declined by 10,000 to 606,000, the lowest reading since February. This measure is closely watched because it irons out weekly volatility, and it has now declined in four out of the last five weeks. States reported 2.519 million people collecting the Emergency Unemployment Compensation benefits for the week ending June 20, an increase of 81,276 from the prior week. That brings the total collection unemployment to 9.4 million.
July 3, 2009
By Paul Fero
The stock market ended the holiday shortened trading week on a low note and just down slightly from week closing at 896 on the S&P 500. Also tracking a lower slightly was the yield on the 10 year U.S. Treasury to yield 3.50%. Oil prices also some volatility as of late and closed the week down to $66 a barrel. Again the price of oil hasn’t had much to do with supply and demand lately as more as the changes in the value of the U.S. dollar.
Another week of anemic economic statistics point to a long and drawn out recession. So I’ll make the call that this will be referred to the Great Recession and that we are just now half-way through it. Yep, that’s half way. The problems plaguing the critical points of this crisis are still there won’t likely go away any time soon. So when the realization that the economy won’t be recovering in the second half as many economists have forecast, that will be bring the on the next significant downward move for the markets.
U.S. consumer confidence fell in June after two straight months of gains. The Conference Board, an industry group, said on Tuesday its index of consumer attitudes dropped to 49.3 from 54.8 in May. The Present Situation Index slid to 24.8 from 29.7. Americans saying jobs are "hard to get" increased to 44.8 percent from 43.9 percent the previous month, while those saying jobs are "plentiful" slid to 4.5 percent from May's 5.8 percent.
While the Standard & Poor's/Case-Shiller index of 20 major cities tumbled by 18.1 percent, it marked the third straight month the decline was not a record. And yearly losses in 13 metros improved compared to March. Eight of the 20 metro posted price gains from March. Still, a housing recovery is distant on the horizon. The 20-city index is off almost 33 percent from its peak in the second quarter of 2006, which means home values are now around 2003-levels. Hardest hit remain Phoenix and Las Vegas, where home prices have lost more than half their value since their peaks.
The Institute for Supply Management reported its manufacturing index registered 44.8 in June, up from 42.8 in May. This is the second straight month that the index has been above 41.2 after seven consecutive declines. The ISM says a reading above that level is consistent with expansion in the overall economy, even though the manufacturing sector itself is still shrinking.
The Commerce Department reported that construction spending fell 0.9 percent in May and activity in the past two months was revised lower. Construction rose 0.6 percent in April, down from the 0.8 percent increase originally reported. A March increase of 0.4 percent was replaced with a decline of 0.4 percent. That left the April gain as the only increase in the past eight months.
The June monthly auto sales saw some improvement for some as Ford Motor Co. saw a drop of only 10.7 percent. (It helps when you’re not in bankruptcy.) Chrysler dropped 42 percent and General Motors Corp. sales slid 33.4 percent. Others reporting sales declines include, Mitsubishi sales dropped 41.7 percent, Toyota sales slid 27 percent, Honda sales fell 30 percent, Nissan sales fell 23.1 percent, Suzuki sales fell 78 percent, BMW sales declined 20.3 percent, Volkswagen sales fell 18 percent. Conversely, Subaru reported sales rose 3.4 percent AGAIN. Why? It’s a Subaru. (It’s their marketing tag line, relax.)
Unemployment in the 16 countries that use the euro spiked to a 10-year high in May, reinforcing concerns any recovery will take time with so many people out of work. Eurostat, the statistics office of the EU, reported the seasonally-adjusted unemployment rate for the euro zone in May stood at 9.5 percent, up from April's 9.3 percent. The unemployment rate was at its highest level since May 1999. Spain is the euro zone's biggest casualty. Its jobless rate rose to 18.7 percent in May from 18 percent in April. The lowest unemployment rate in the euro zone was in the Netherlands where only 3.2 percent of the working population were without a job in May, and Austria, where only 4.3 percent were jobless. The unemployment rate in Germany, Europe's biggest economy, was unchanged at 7.7 percent in May. As the U.S. economy weakens or doesn’t recovery with any meaningful gain, look to these larger exporting countries to reduce work forces in larger numbers in the coming months. (Yes, they believed the green shoots theory as well.)
Including the eleven countries that don't use the euro but are in the EU, such as Britain and Sweden, the unemployment rate rose to 8.9 percent in May from 8.7 percent in the previous month. May's rate was the highest since June 2005. The EU-wide rate has been swelled by the Baltic countries, which are in a deep recession following the collapse of debt-fueled economic boom. Latvia, whose economy slumped by a staggering 18 percent year-on-year in the first quarter, saw its unemployment rate, climb to 16.3 percent in May from 15.3 percent in April.
The Labor Department reported initial jobless benefit claims fell by 16,000 to a seasonally adjusted 614,000. The four-week average of claims, which smoothes out fluctuations, dropped to 615,250, the lowest in almost four months but well over the 600,000 symbolically significant level. The number of continuing claims for unemployment insurance dropped by 53,000 to 6.7 million. More than 2.4 million people received unemployment insurance under the federal program in the week ending June 13, the most recent data available. Another 282,000 are claiming benefits under a state-run extended benefits program, which adds up to 13 additional weeks. All told, about 8.8 million people received jobless benefits that week. The report also showed the average work week fell to 33 hours, the lowest level since records began in 1964, from 33.1 hours in May.
Employers cut 467,000 jobs in June, driving the unemployment rate up to a 26-year high of 9.5 percent up from last months 9.4 percent. If laid-off workers who have given up looking for new jobs or have settled for part-time work are included, the unemployment rate would have been 16.5 percent in June, the highest on records dating to 1994. The surprising note here is only the slight increase in the unemployment rate which I would have expected to reach 9.8 percent to even a 10 percent level. The way the unemployment rate is calculated is really just a broad estimate based on a sample. It does have its flaws but it still seems a bit low. With a large number of high school graduates entering the workforce, one would expect the number to rise just based on that. There could also be a large number of workers that stopped looking for work, for whatever reason and therefore are not considered part of the calculation. So I would imagine this rate will be subject to a bigger expected increase next month.
June 26, 2009
By Paul Fero
The stock market edged out the week about where it started with a couple of days of volatility of both positive and negative during the week with the S&P 500 index closing around 915. The 10 year U.S. Treasury on the on the other hand saw the yield fall again this week to close out with a yield of 3.51 percent. That brings the 10 year Treasury down from near the 4 percent level. Mortgage rates however have been slow to come down after rising since Memorial Day.
The World Bank has cut its 2009 global growth forecast to shrink by 2.9 percent. The bank's latest forecast is a sharp reduction from its March prediction of a 1.7 percent global contraction, which it said then would be the worst on record. "The global recession has deepened," according the report. Global trade is expected to plunge by 9.7 percent this year, while total gross domestic product for high-income countries will contract by 4.2 percent. Growth in developing countries should slow to 1.2 percent, but excluding relatively strong China and India, developing economies will contract by 1.6 percent. Eastern Europe and Central Asia have been hit hardest and the region's gross domestic product is expected to plunge by 4.7 percent this year and growth should recover next year to 1.6 percent. GDP in Latin America and the Caribbean will likely shrink by 2.3 percent this year before rebounding to expand by 2 percent in 2010. In the Middle East and North Africa, growth is expected to fall by 3.1 percent, while that of sub-Saharan Africa will drop to 1 percent from an annual average of 5.7 percent over the past three years.. East Asia should post a 5 percent expansion, supported in part by China's stimulus-fueled growth.
The National Association of Realtors reported that sales of previously occupied homes rose 2.4 percent to a seasonally adjusted annual rate of 4.77 million from April to May, the third monthly increase this year. About one out of every three homes sold was a foreclosure or distressed sale which brought the median sales price to $173,000 up from $166,600 in April. However, that’s a drop of 16.8 percent from a year ago where prices were $207,900.
The Commerce Department reported that new U.S. home sales fell slightly last month with a drop of 0.6 percent in May to a seasonally adjusted annual rate of 342,000, from a downwardly revised April rate of 344,000. Sales were down nearly 33 percent from May last year. The median sales price of $221,600 was up 4.2 percent from April, but down 3.4 percent from a year ago. There were 292,000 new homes for sale at the end of May, down more than 2 percent from April. With this rate of sales, that's about a 10 month supply.
U.S. chief executives took a slightly less grim view of the economy in the second quarter, but still plan to cut jobs and capital spending, according to a Business Roundtable survey released on Tuesday. The quarterly CEO Economic Outlook Index rebounded to 18.5 in the second quarter from a record low of negative 5 in the first quarter. But it was still the third-lowest reading in the survey's six-year history. A reading below 50 means CEOs expect economic contraction rather than growth. Corporate chieftains still plan to cut costs for the next six months, with 51 percent intending to reduce capital spending and 49 percent expecting to cut U.S. jobs. Forty-six percent anticipate a decline in sales. Those plans indicated a less grim outlook than in April, when two-thirds of CEOs were planning to cut jobs and capital spending.
The Labor Department reported that those filing new jobless claims rose last week by 15,000 to a seasonally adjusted 627,000. The four-week average of claims, which smoothes out fluctuations, remained relatively unchanged, at 616,750. The number of people continuing to receive unemployment insurance rose by 29,000 to 6.74 million. For the week ending June 6, more than 2.4 million people received benefits under the extension, which adds 20 to 33 weeks on top of the 26 weeks typically provided by states. About 288,000 people also are receiving benefits under state emergency programs, bringing the total jobless benefit rolls to nearly 8.8 million that week.
The Reuters/University of Michigan Surveys of Consumers said its final index of confidence for June was at 70.8 from 68.7 in May, equaling February 2008's reading. The index of consumer expectations edged lower, though, to 69.2 in June from 69.4 last month. Since the November 2008 low of 55.3, the sentiment index has gained 15.5 points, recouping about one-third of the loss posted since the peak in January 2007.
Households pushed their savings rate to the highest level in more than 15 years in May as a big boost in incomes from the government's stimulus program was devoted more to bolstering nest eggs than increased spending. The Commerce Department says consumer spending rose 0.3 percent in May, in line with expectations. But incomes jumped 1.4 percent, the biggest gain in a year and easily outpacing the 0.3 percent gain that economists expected. The savings rate, which was hovering near zero in early 2008, surged to 6.9 percent, the highest level since December 1993.
June 19, 2009
By Paul Fero
The stock market end down a bit for the week. I’ve been saying for a while that market has gotten a bit ahead of itself, especially given the large run-up since the March lows. Even the bond market once again some additional volatility in terms of yield as the 10 year U.S. Treasury yield closes around 3.79 percent with a 25 basis point swing during the week.
On Tuesday, the 50-day moving average on the S&P 500 topped the 200-day moving average for the first time since December 2007, according to data supplied by FactSet Research. The jump follows a bounce in the 20-day moving average beyond the 200-day - a first since Nov. 2007. And it follows a break of the day-to-day index's levels atop the 200-day earlier this month.
The Treasury Department reported that net purchases of stocks, notes and bonds obtained by foreigners fell to $11.2 billion in April, from $55.4 billion in March. China, the largest holder of U.S. Treasury securities, trimmed its holdings to $763.5 billion in April, from $767.9 billion in March. Japan, the second largest holder of Treasury securities, reduced its holdings to $685.9 billion, from $686.7 billion a month earlier. China's holdings of Treasury securities represent about 10 percent of America's publicly held debt.
The New York Fed's "Empire State" general business conditions index fell to minus 9.41 in June from minus 4.55 in May. The fall in the main index came as shipments dropped into negative territory, coming in at minus 4.84 in June from positive 1.29 in May. New orders remained negative at minus 8.15 but not quite as bad as May's 9.01. Inventories fell further, hitting 25.29 versus May's 21.59, continuing a liquidation of stockpiles. Looking ahead, the six-month business conditions rose to its highest since July 2007.
The Federal Reserve reported that industrial production dropped 1.1 percent in May as demand for a wide range of manufactured goods including cars, machinery and household appliances declined. The Federal Reserve's report showed production at the nation's factories, mines and utilities has fallen for seven straight months. Output also turned out to be a bit weaker by 0.7 percent in April than the Fed initially reported. The overall operating rate fell to 68.3 percent in May, a record low dating to 1967. The previous low was set in April, when operating capacity dropped to a revised reading of 69, slightly weaker than first reported. The pullbacks factored into a drop in the operating rate at factories, which fell to 65 percent in May, the lowest on records dating to 1948. The previous low was set in April. Production of appliances, furniture and carpeting fell 1.1 percent, partly reversing a 1.5 percent increase in April. Production of home electronics declined 1.9 percent, following a 1.4 percent decline in the previous month.
The National Association of Home Builders reported its housing market index slipped by one point in June, reflecting uncertainty about when prospects might improve. The index fell to 15, the first decline since January, when the index dropped to an all-time low of 8. Index readings lower than 50 indicate negative sentiment about the market. The index readings for current sales conditions and traffic by prospective buyers remained unchanged from May. The reading on expectations for sales over the next six months dropped by a point.
The Commerce Department reported that construction of new homes and apartments jumped 17.2 percent last month to a seasonally adjusted annual rate of 532,000 units and came after construction fell in April to a record low of 454,000 units. Applications for building permits, seen as a good indicator of future activity, rose 4 percent in May to an annual rate of 518,000 units. The 17.2 percent rise in housing construction for May still left activity 45.2 percent below where it was a year ago. The jump reflected a 7.5 percent rise in construction of single-family homes. Construction of multifamily units rose 61.7 percent in May to an annual rate of 131,000 units. This volatile part of the market plunged 49.4 percent in April.
The Labor Department reported that the Producer Price Index increased by a seasonally adjusted 0.2 percent from April. Despite the increase, wholesale prices fell 5 percent in the past 12 months. That's the largest annual drop in almost 60 years. Excluding volatile food and energy prices, the core PPI dropped 0.1 percent in May. A 2.9 percent rise in energy prices, including a 13.9 percent jump in the cost of gas, drove the May increase. Pump prices reached about $2.50 a gallon by the end of last month. Food prices, meanwhile, fell 1.6 percent, reversing a similar rise in April. Egg prices plummeted 27 percent, after jumping 43.7 percent in April.
The Labor Department reported that the consumer price index rose a seasonally adjusted 0.1 percent last month. Excluding volatile food and energy costs, core prices also increased 0.1 percent. Gasoline prices rose 9.6 percent in May, before seasonal adjustment, but are still much lower than last year, when prices at the pump topped $4 a gallon during the summer. Due to that decline, consumer prices fell 1.3 percent in the 12 months ending in May, the steepest drop in 59 years. The core CPI has increased 1.8 percent since last year. Food prices in the U.S. fell for the fourth straight month in May as costs fell for all six of the major grocery food groups, including fruits and vegetables, meats and poultry, and dairy products. Tobacco prices fell 0.3 percent after two months of large increases. Cigarette makers increased prices in the spring ahead of a steep tax increase.
Borrowers should accept a new world of tighter, more expensive credit as financial institutions recover from months of bad loans, failed banks and foreclosed homes, Citigroup Inc.'s CEO, Vikram Pandit said Monday at the National Summit in Detroit. During the past few years, "U.S. consumption and credit creation were the two main drivers of growth and…the world needs new drivers of growth — and a new business model." Source: www.yahoo.com
Liz Ann Sonders, Charles Schwab's chief investment strategist says the recession has ended, and believes second quarter GDP could be marginally positive. Improvements in the components of the index of leading economic indicators, as well as new orders in the ISM data, and other technical indicators provide the basis for Sonders' call. Source: www.yahoo.com Ok, Liz, I have four words for you…Good luck with that. At best it’s more like a negative 3 percent and up to a negative 5 percent. We’ll see who’s closer at the end of July.
The Conference Board reported that its index of leading economic indicators, designed to forecast activity in the next three to six months, rose 1.2 percent. The activity in the six-month period through May also rose 1.2 percent. The April reading was revised up to a 1.1 percent gain from 1 percent. Seven of the Conference Board index's 10 components grew in May, including money supply, building permits, consumer expectations, stock prices and vendors' deliveries of supplies to companies. But employment factors, claims for jobless aid and weekly manufacturing hours, bringing down the index, as did the level of manufacturers' orders for consumer goods.
The Labor Department reported initial jobless claims rose 3,000 to a seasonally adjusted 608,000 last week, from slightly upwardly revised estimate of 605,000 last which was previously stated at 601,000. The four-week average, which smoothes fluctuations, fell by 7,000 to 615,750, from an upwardly revised amount by 1,000. Continuing claims data lags initial claims by one week. The Department said the total unemployment insurance rolls fell by 148,000 to 6.69 million in the week ending June 6. The drop also breaks a string of 21 straight increases in continuing claims, the last 19 of which were records. It’s difficult to determine the factors that reduced the claims. The optimistic side is that these individuals found some form of employment, whether full, part-time or seasonal. The pessimistic side could be that that as continuing claims have rising, as some point these individuals fall off the reporting as their claims are exhausted. Or some combination of both which could be more likely. Finally, about 2.36 million people received benefits under extended unemployment program in the week ending May 30, an increase of more than 102,000 from the previous week. That brings the total collection unemployment claims to 9.05 million.
June 12, 2009
By Paul Fero
The stock market remained relatively flat this week. However, our big movers last week are the same for this week. The 10 year U.S. Treasury yield hit a level not seen since last September after the Lehman Bros, failure. While the 10 year yield pulled back a bit by weeks end, the mortgage market is also hitting some highs not seen in 9 months or so. A 30 year mortgage rate is generally around 6 percent while a 15 year rate is about 5.375 percent. These are up 1 percent and 0.875 percent, respectively within a three week period. If these rates hold, that will essentially snuff out any meaningful recovery in the real estate market.
Adding to these pressures are rising oil prices after reaching $72 a barrel. Also increasing is the price gas, which locally (Pittsburgh) area hit $2.65 a gallon. All of which has been caused by a weaker dollar as opportunities for investment dollars are seen outside the U.S. and therefore reduced the demand for dollars.
The Commerce Department reported total retail sales rose 0.5 percent after falling by a revised 0.2 percent in April, previously reported as a 0.4 percent drop. Excluding motor vehicles and parts, sales rose 0.5 percent in May, compared to a 0.2 decline the prior month. Vehicles and parts sales rose 0.5 percent after a 0.4 percent fall in April. Gasoline sales jumped 3.6 percent in May after dropping 0.8 percent the previous month. Excluding gasoline, retail sales rose 0.2 percent. Sales of building materials climbed 1.3 percent in May, the biggest advance since April last year, after falling 0.6 percent in April. A weak spot reported included s ales of electronic goods, which fell 0.5 percent in May after declining 0.9 percent the previous month.
The Commerce Department reported that wholesale inventories fell 1.4 percent in April. It marked the eighth straight month that inventories dropped. Sales at the wholesale level fell 0.4 percent in April following a 2.4 percent drop in March. Sales by wholesalers have fallen in nine of the last 10 months. The ratio of inventories to sales stood at 1.31, meaning it would take 1.31 months to exhaust total stockpiles at the April sales pace. That ratio had stood at 1.32 in March and was 1.12 in April 2008. The 1.4 percent fall in wholesale inventories followed a 1.8 percent drop in March which was revised from an original estimate of a 1.6 percent decline. Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories and retailers hold the rest.
According to credit reporting agency TransUnion, the delinquency rate for bank-issued credit cards rose 11 percent in the first three months of the year,. The delinquency rate jumped to 1.32 percent this year, from 1.19 percent in the first three months of 2008. The statistic measures the percentage of card holders who are three months or more past due on their payments for credit cards. (These include MasterCard and Visa branded credit cards, along with American Express and Discover cards.) The average total debt on bank cards also rose, jumping to $5,776 from $5,548 last year. Balances typically rise in the first quarter, as holiday spending comes due. That said the credit card delinquency rate remains well below the 5.22 percent for mortgages in the first quarter, meaning card holders are trying hard to keep their payments current, even when other debts go unpaid. TransUnion measures credit card delinquencies at 90 days, but tracks mortgage delinquencies at 60 days. Not surprisingly, bank card delinquency rates remained the highest in the states hardest hit by the mortgage and housing crisis: Nevada, Florida, Arizona and California. North and South Dakota and Alaska, the states with the lowest rate of mortgage delinquencies, are also the states with the lowest credit card delinquencies.
According to RealtyTrac Inc., foreclosure filings fell 6 percent in May from April. More than 321,000 households received at least one foreclosure-related notice last month, 18 percent more than a year earlier, but the smallest annual gain since June 2006. Despite the drop from April, it was the third-highest monthly rate since RealtyTrac began its report in January 2005 and the third straight month with more than 300,000 households receiving a foreclosure filing. One in every 398 U.S. homes received a foreclosure filing last month. Banks repossessed about 65,000 homes in May, up from 64,000 in April, due to big increases in several states including Michigan, Arizona and Nevada. On a state-by-state basis, Nevada had the nation's highest foreclosure rate in May with one every 64 households receiving a filing. California took the No. 2 slot previously occupied by Florida. California's rate was one in every 144 households. In Florida, one in every 148 households received a foreclosure filing. Rounding out the top 10 were Arizona, Utah, Michigan, Georgia, Colorado, Idaho and Ohio. Among large cities, Las Vegas led the way with one in every 54 households receiving a filing.
The Labor Department reported there were 601,000 initial jobless claims filed in the week ended June 6, down 24,000 from 625,000 the previous week. The 4-week moving average of initial claims was 621,750, down 10,500 from the previous week's revised-upward average of 632,250. The 4-week moving average for continuing claims was 6,816,000, an increase of 59,000 from the prior week's upwardly-revised average of 6,757,000. Those filing for extended benefits rose 66,950 to 213,650 for the week ending May 30, that latest data is available with a total receiving extending benefits declining 158,900 to 2,188,350. In total those receiving benefits total 9,004,350.
The Reuters/University of Michigan Surveys of Consumers reported its preliminary index of confidence for June rose to 69.0 from May's 68.7. U.S. consumer confidence rose to a nine-month high in June but failed again to surpass its level of September 2008. For the third month, the overall consumer sentiment reading was at its highest since the Lehman failure last September, which caused severe strains in financial markets, while not breaking through that month's level of 70.3. Reflecting ongoing worries, consumers' assessment of the 12-month economic outlook fell, with that gauge declining to 61 in June from 75 in May.
June 5, 2009
By Paul Fero
The stock market moved slightly higher this week. The broader market came up against critical resistance this week as the S&P 500 hit a key technical milestone, finishing above its 200 day moving average for the first time since December 2007.
But the bigger action was seen in the bond market that brought the 10 year U.S. Treasury up to 3.85 percent. The resulting higher Treasuries are fueling higher mortgage rates, as much as .75 percent for a 30 year over the past couple of weeks. This will most certainly put a damper on a barely recovering real estate market.
The National Association of Realtors said its seasonally adjusted index of sales contracts signed in April surged 6.7 percent to 90.3, far exceeding analysts' forecasts.
Construction spending in the U.S. rose 0.8 percent in April. An encouraging note, private builders increased spending on housing projects by 0.7 percent, contributing to the overall improvement in April. It marked the first time since August that private home builders boosted such spending. Private spending on all other construction projects other than residential ones went up a strong 1.8 percent in April, following a 2.6 percent gain in March. Builders increased spending in April on projects including hotels and motels, factories, power plants and health care facilities. That more than offset reductions in spending on office buildings, amusement and recreation projects and on other projects. Spending by the government, however, dipped 0.6 percent in April. That reflected spending cuts on schools, hospitals and other health-care buildings, and sewer and water-supply projects.
Also making some big moves over the past couple of weeks is the price oil after hitting $70 a barrel this week. Gas prices have increase 45 cents nationally just in the month of May with most of the movements coming the last couple of weeks. One item to note here is that the price of oil is not moving based on supply and demand as the conventional wisdom or news stories portray. The price of oil is climbing as the U.S. dollar is falling in value. The dollar is falling as the U.S. looks a little less attractive compared to other countries around the world. As the credit crisis is thawing the funds that flowed to the U.S. are returning. This too is adding to the increase in long term treasuries.
The Commerce Department reported that consumer spending dipped 0.1 percent in April and marked the second straight month that consumers cut back. The pullback came after a burst of buying at the start of the year as shoppers took advantage of deeply discounted merchandise and other promotions. With 70 percent of GDP dependant on consumers, this adds to the sentiment that this quarter’s results won’t be all that great. With income growth far outpacing spending, Americans' personal savings rate zoomed to 5.7 percent, the highest since February 1995. The improvement in April was due to tax cuts and benefit payments from the stimulus package. Wages and salaries, however, were flat in April. In April, consumers trimmed spending on big-ticket "durable" goods like cars and appliances, and on "non durables" such as clothes and food by 0.6 percent each. That was a little less than how much was spent on those categories in March. Consumers increased spending on services by 0.3 percent in April, up from 0.1 percent in March. In the first quarter, consumer spending rose at a 1.5 percent pace.
The Federal Reserve reported borrowing by consumers fell by $15.7 billion in April as U.S. households continued to trim spending and put away their credit cards amid a severe recession. The April decline was the second largest ever in dollar terms following March's drop of $16.6 billion. March's decline originally was reported as $11.1 billion, which had been the most on records dating to 1943. In percentage terms, consumer credit fell at an annual rate of 7.4 percent in April, following a 7.8 percent drop in March. The two declines were the largest since an 8.1 percent drop in December 1990. The level of savings at $620.2 billion reflecting the personal savings rate of 5.7 percent was the most on records dating to January 1959. Again without consumers spending, the economy will continue to be weak and subpar.
According to a preliminary tally a tally by Goldman Sachs and the International Council of Shopping Centers same-store sales fell 4.6 percent. Same-store sales, or sales at stores open at least a year, are a key indicator of retailer performance because they measure growth at existing stores rather than newly opened ones. As consumer spending accounts for about 70 percent of U.S. economic activity. This again contributes to the notion that the second quarter GDP numbers will be weak. Notably, Wal-Mart Stores Inc., the world's largest retailer did not report results this month. Ken Perkins, president of retail consulting firm Retail Metrics LLC. said Wal-Mart accounts for about 10 percent of retail sales. Target same-store sales fell 6.1 percent as non-discretionary items such as healthcare and baby products and food were the best sellers, while apparel and home products were weaker. Warehouse club operator Costco Wholesale Corp. reported same-store sales slipped 7 percent in May, mainly due to lower year-over-year gas prices. Its strongest categories included fresh food and other food products. Meanwhile BJ's Wholesale Corp. said same-store sales fell 6.8 percent, also hurt by lower gas prices. Department-store operator Macy's Inc. said same-store sales slipped 9.1 percent. Clothing discounter TJX said same-store sales rose 5 percent. The teen sector continued to be among the best performing sectors, with low-price stores doing the best. The Buckle Inc. and Aeropostale Inc. both known for good deals on trendy fashions, reported double-digit increases. However, Abercrombie & Fitch, which has kept prices high despite competitors' markdowns, said same-store sales fell 28 percent. Last month, Abercrombie finally bowed to pressure and said it has started to reduce prices. Limited Brands, which operates Victoria's Secret and Bath & Body Works stores, said same-store sales fell 7 percent. Luxury retailers continued to struggle. Saks Inc.'s same-store sales fell 26.6 percent, while Nordstrom reported a 13.1 percent drop. American Eagle Outfitters said same store sales fell 7 percent in May. Source: www.yahoo.com
The Commerce Department reported that orders to U.S. factories rose 0.7 percent in April, the second increase in three months and providing some evidence that manufacturers may be recovering.. The department also sharply marked down the March figure to a 1.9 percent drop, compared with the 0.9 percent decline previously reported. A 5.8 percent jump in transportation equipment, which includes a 2.2 percent rise in orders for motor vehicle parts, drove the overall increase. Orders for big-ticket durable goods, such as industrial machinery and appliances, rose 1.7 percent, down slightly from the government's initial estimate last week of a 1.9 percent rise. Orders for non-defense capital goods excluding aircraft, a measurement for business investment, fell 2.4 percent in April, a sign that businesses are still cutting back on spending amid the weak economy. In April, orders for machinery increased 0.6 percent, while electrical equipment and appliance orders rose 0.9 percent. Consumer goods, such as food, chemicals and paper products, dipped 0.1 percent.
General Motors Corp. reported its U.S. sales in May fell 30 percent from a year ago, but they improved 11 percent from April as consumers shrugged off concerns over its impending filing for bankruptcy protection and pushed the automaker to its best sales month this year. The Pontiac, Hummer, Saturn and Saab brands accounted for the company's biggest sales declines. GM has said it plans to get rid of those divisions as part of its restructuring and stick to four core brands: Chevrolet, Buick, Cadillac and GMC. Saturn sales fell 56 percent, and Pontiac sales were down 52 percent. While Ford said its May U.S. sales fell 24 percent from last year but rose 20 percent from April, and its share of the U.S. market rose to the highest level since 2006. Toyota Motor Corp. said its U.S. sales fell 40 percent from last year but climbed 21 percent from April. Honda Motor Co. reported its year-over-year volumes dropped 41 percent.
The Institute for Supply Management reported its index on manufacturing came in at 42.8, its highest level since September, compared with 40.1 in March. This increase is similar to increases in similar reports from Asia and Europe showing a slight improvement in the global manufacturing environment.
The Institute for Supply Management also reported its services index registered 44 in May, slightly up from 43.7 in April. It is the highest reading since last October, when the index was at 44.6. Service industries such as retailers, financial services, transportation and health care make up about 70 percent of the country's economic activity. It was the eighth straight monthly decline.
The Labor Department reported first-time claims for jobless benefits declined to a seasonally adjusted 621,000 from the previous week's revised figure of 625,000. The number of Americans collecting unemployment insurance fell slightly for the first time in 20 weeks, while the tally of new jobless claims also dipped. The total jobless benefit rolls fell by 15,000 to 6.7 million, the first drop since early January. However, the 4-week moving average was 6.7 million, an increase of about 89,000 from the preceding week's revised average of 6.6 million. Continuing claims had set record highs every week since the week ending Jan. 24. The continuing claims data lag initial claims by one week. The four-week average of claims which smoothes out fluctuations, rose by 4,000 to 631,250. An additional 2.35 million are collecting emergency unemployment benefits and is an increase of 161,000 from the previous week and would bring the total number of unemployed collecting benefits to over 9 million.
The U.S. unemployment rate jumped to 9.4 percent in May, the highest in more than 25 years. The number of unemployed persons increased in May by 787,000 to 14.5 million. Since the start of the recession in December 2007, the number of unemployed persons has risen by 7 million. But the pace of layoffs eased, with employers cutting 345,000 jobs, the fewest since September. If laid-off workers who have given up looking for new jobs or have settled for part-time work are included, the unemployment rate would have been 16.4 percent in May, the highest on records dating to 1994. The number of long-term unemployed (those jobless for 27 weeks or more) increased by 268,000 over the month to 3.9 million and has tripled since the start of the recession. The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in May at 9.1 million. The number of such workers has risen by 4.4 million during the recession. Job losses were widespread. Construction companies cut 59,000 jobs, down from 108,000 in April. Factories cut 156,000, on top of 154,000 in the previous month. Retailers cut 17,500 positions, compared with 36,500 in April. Financial firms cut 30,000, down from 45,000 in April. Even the government reduced employment, by 7,000 after bulking up by 92,000 in April as it added workers for the 2010 Census. The previous month’s revision includes a total of net loss of jobs of 504,000 compared to the initially reported 539,000 in jobs lost.
As the recession continues to hamper business sales and profits, companies have turned to layoffs and other cost-cutting measures to survive the fallout. Those include holding down workers' hours and freezing or cutting pay. In May, the average workweek for production and non-supervisory workers on private non-farm payrolls edged down by 0.1 hour to 33.1 hours, seasonally adjusted and the lowest on records dating to 1964. The manufacturing workweek decreased by 0.2 hour to 39.3 hours, and factory overtime was unchanged at 2.7 hours.
May 29, 2009
By Paul Fero
The stock market had a somewhat volatile week with some big losses and then big gains to net out just a bit higher from last week. The bigger action this week was in the bond market that saw the 10 year U.S. Treasury yield to climb up to 3.75 percent on Thursday only to fall back to 3.47 percent on Friday.
As an example of how the current financial predicament facing financial institutions and more precisely Fannie Mae and Freddie Mac only prolong the financial quagmire lets use this week’s numbers to illustrate the point. A 15 year mortgage this week was going for 4.50 percent. While at the same time Fannie Mae was raising money by issuing debt for a 15 year (non-call 3 month) debt at 5.50 percent. So Fannie Mae pays out 5.50 percent while earning 4.50 percent. That would be a lose-lose for the government the now owner of Fannie Mae. You may think these are extreme examples, but I assure you they are not although I’ll admit they aren’t quite apples to apples but close enough. As for the mortgage, that was my lock in rate on Tuesday and the Fannie Mae debt was one of many issues that came out on Tuesday as well. For the week, the 15 year mortgage rate peaked at 4.875% while the Fannie Mae debt went to 5.75% for the same structured note. That is just going to make Fannie Mae a next permanent U.S. governmental department. Any hope of these going back to private entities will be gone after this interest rate cycle.
The Standard & Poor's/Case-Shiller National Home Price index reported home prices tumbled by 19.1 percent in the first quarter, the most in its 21-year history. Home prices have fallen 32.2 percent since peaking in the second quarter of 2006 and are at levels not seen since the end of 2002. The 20-city index fell by 18.7 percent in March from the year before and the 10-city index lost 18.6 percent. All 20 cities showed monthly and annual price declines, with nine setting annual records. Fifteen cities posted double-digit drops and three cities, Phoenix, Las Vegas and San Francisco, all recorded declines of more than 30 percent.
The National Association of Realtors said that existing home sales rose 2.9 percent to an annual rate of 4.68 million last month, from a downwardly revised pace of 4.55 million in March. The median sales price plunged to $172,000, down from $201,300 in the same month last year.
The Commerce Department said that new home sales rose 0.3 percent in April to a seasonally adjusted annual rate of 352,000. But the increase came from a downwardly revised rate of 351,000 in March. The median sales price fell to $209,700, a 14.9 percent drop from a year earlier, but up 3.7 percent from March. There were 297,000 new homes for sale at the end of April, down 4.2 percent from 310,000 in March. At the current sluggish sales pace, it would take more than 10 months to exhaust the supply of new homes on the market.
According to the Mortgage Bankers Association, a record 12 percent of homeowners with a mortgage are behind on their payments or in foreclosure as the housing crisis spreads to borrowers with good credit. And the wave of foreclosures isn't expected to crest until the end of next year. The foreclosure rate on prime fixed-rate loans doubled in the last year, and now represents the largest share of new foreclosures. Nearly 6 percent of fixed-rate mortgages to borrowers with good credit were in the foreclosure process. At the same time, almost half of all adjustable-rate loans made to borrowers with shaky credit were past due or in foreclosure. The worst of the trouble continues to be centered in California, Nevada, Arizona and Florida, which accounted for 46 percent of new foreclosures in the country.
The Conference Board said that its Consumer Confidence Index, which had dramatically increased in April to 54.9 from a revised 40.8 in April. The reading marks the highest in eight months when the level was 61.4. The levels are also closer to the year-ago reading of 58.1. The Present Situation Index, which measures how shoppers feel now about the economy, rose to 28.9 from 25.5 last month. But the Expectations Index, which measures shoppers' outlook over the next six months, climbed to 72.3 from 51.0 in April.
The Reuters/University of Michigan Surveys of Consumers said its final May reading on consumer sentiments was 68.7, higher than an early May figure of 67.9 and a final April reading of 65.1. U.S. consumer confidence improved in May to its highest level since last September, prompted by hopes the government's economic stimulus program will bring the economy out of recession.
The Commerce Department reported that orders for durable goods rose by 1.9 percent in April. But the government revised down its estimate for new orders in March to show a drop of 2.1 percent, a much bigger fall than the 0.8 percent decline previously reported. Excluding the volatile transportation sector, new orders posted a 0.8 percent increase, also much better than expectations. New orders excluding transportation fell by 2.7 percent in March. Transportation orders rose by 5.4 percent as orders for motor vehicles and parts jumped by 2.7 percent. Orders for commercial airplanes fell by 6.8 percent in April but orders for military aircraft were up 1 percent. Other areas of strength in April were defense capital goods which soared by 23.2 percent and machinery orders which were up 2.7 percent. Orders for primary metals such as steel rose by 1 percent and demand for communications equipment rose by 6.9 percent.
The Labor Department said the number of initial claims for unemployment insurance dropped to a seasonally adjusted 623,000, from a revised figure of 636,000 in the previous week. But the number of people continuing to receive unemployment benefits rose to 6.78 million -- the largest total on records dating back to 1967 and the 17th straight record week. The figures for continuing claims lag behind initial claims by one week. The four-week average of initial jobless claims which smooth out fluctuations, dropped slightly to 626,750. That figure is about 30,000 below the peak for the recession reached in early April. From a comparison perspective, weekly initial claims were 378,000 a year ago. An additional 2.19 million are still collected emergency unemployment benefits which brings to the total collection benefits to 8.97 million.
More than 90 percent of economists predict the U.S. recession will end this year according to a survey by the National Association for Business Economics. The recession which started in December 2007 and is already the longest since World War II. About 74 percent of the forecasters expect the recession to end in the third quarter. Another 19 percent predict the turning point will come in the final three months of this year, and the remaining 7 percent believe the recession will end in the first quarter of 2010. For those wondering which camp I’m in, that would be the very later to say the least. All this talk about the recession ending sooner than later is wishful thinking. And those green shoots…yea, let’s not go there. In a nutshell, the economy is still declining, just not as bad as it was during the fourth quarter of last year and the first quarter this year, but it’s still declining.
Lastly, the U.S. economy sank at a 5.7 percent pace in the first quarter according to the Commerce Department's updated reading on gross domestic product, which showed the economy's contraction from January to March was slightly less deep than the 6.1 percent annualized decline first estimated last month. Look for the second and third quarters to come in around minus 2 to 3 percent with the fourth quarter at a minus 1 to 2 percent. The first quarter of 2010 may be positive and again that’s maybe.
May 22, 2009
By Paul Fero
The stock market ended the week pretty flat with positive and negative news being digested. The big movement for the week was in the bond market that saw the 10 year U.S. Treasury yield climb to nearly 3.45% to reach the highest level since early November. This will utimatley flow into the real estate finance market which will push rates up and add additional pressure to area already stressed.
The Chicago Board Options Exchange's Volatility Index or VIX fell below 28 this week for the first time since September, when the collapse of Lehman Brothers triggered the huge sell off in stocks. It closed the week at 32.
The National Association of Homebuilders said that its survey of builder confidence increased for the second straight month in May, reflecting growing optimism on the part of many builders. The index rose two points to 16, the highest reading since September. Even with the rebound, the index remains near historic lows. Index readings lower than 50 indicate negative sentiment about the market.
The Commerce Department reported that construction of new homes and apartments fell 12.8 percent last month to a seasonally adjusted annual rate of 458,000 units, the lowest pace on records going back a half-century. In a disappointing sign for the future, applications for new building permits dropped 3.3 percent to a new record low annual rate of 494,000. Even in last month's big decline, there were some signs of stabilization. Construction of single-family homes rose 2.8 percent to an annual rate of 368,000, following a 0.3 percent gain in March and no change in February. The stability in single-family construction likely will be viewed as a hopeful sign that the three-year slide in housing could be bottoming out. The weakness last month came in the more volatile multifamily sector where construction plunged 46.1 percent to an annual rate of 90,000 units after a 23 percent fall in March.
The Conference Board reported its index of leading economic indicators, designed to forecast economic activity in the next three to six months, rose 1 percent last month.
The Labor Department reported that initial claims for jobless benefits fell to a seasonally adjusted 631,000, down from a revised figure of 643,000 the previous week. The number of U.S. workers continuing to claim unemployment insurance rose to nearly 6.7 million from about 6.6 million. That's the highest total on records dating to 1967 and the 16th straight record. As a proportion of the work force, the total jobless benefit rolls are the highest since December 1982, when the economy was emerging from a severe recession. The numbers indicate that laid-off workers are having a difficult time finding new jobs. The continuing claims data lags initial claims by one week. The four-week average of new claims, which smoothes fluctuations, dipped to 628,500, from 632,000. There were 2.3 million people collecting extended unemployment claims as of week ending May 2, the latest data is available. This would bring the total number of unemployed receiving benefits to 9 million people.
The Fed now expects the economy will shrink this year between 1.3 and 2 percent. The old forecast called for a contraction between 0.5 and 1.3 percent. The Fed also said the unemployment rate may hit nearly 10 percent, up from 8.8 percent in the old forecast.
May 15, 2009
By Paul Fero
This will be a light commentary as I was out of town most of the week. The stock market reversed course this week as the announcements from the bank stress tests and the corporate earnings season come to pass. With the S&P 500 at the 882 level, that brings it back under the trend line. It could be matter and bouncing around a bit trying to get a footing waiting for more economic news to determine if the "green shoots" haven't wilted.
The Obama administration's fiscal stimulus plan will meet previous estimates to save 3.5 million U.S. jobs by the end of 2010, but the unemployment rate at that time may be higher due to further deterioration in the economy. The White House Council of Economic Advisers released a report showing the plan would save or create 1.5 million jobs by the end of 2009 and 3.5 million by the end of 2010. The only thing missing from this press event was a banner saying "Mission Accomplished". When you throw $800 billion in stimulus and a couple of trillion through Treasury and Federal Reserve actions, that's bound to save jobs. In the end, it will be difficult to estimate the impact as estimates are based on complex economic modeling. With the recession's toll of 5.7 million jobs already and likely to reach upwards of 7.5 million over the next year or so as unemployment will reach around 10% I would recommend lighting up on the cheerleading.
The National Association of Realtors said that median sales prices of existing homes declined in 134 out of 152 metropolitan areas compared with the same period a year ago. Prices rose in the other 18 cities. Nationwide, sales of foreclosures and other distressed properties made up about half of the market. Overall, sales dipped 3.2 percent from the year-ago period. Home sales fell in all but six states -- Nevada, California, Arizona, Florida, Virginia and Minnesota -- where buyers have been able to snap up foreclosures at a deep discount. Sales more than doubled in Nevada, rose 81 percent in California and grew 50 percent in Arizona -- signaling that the worst may be over for those distressed states. Still, the median sales price nationwide was $169,900, down 13.8 percent from a year ago. The median price is the midpoint, which means half of the homes sold for more and half for less. The biggest drop, of more than 50 percent, was in Fort Myers, Fla. Prices fell 40 percent or more in Saginaw, Mich.; Akron, Ohio; San Francisco; San Jose, Calif.; Phoenix; Sarasota, Fla. and Riverside, Calif. The biggest price gain, of more than 21 percent, was in Cumberland, Md. The only other double-digit increase was in Davenport, Iowa, which saw the median price climb nearly 14 percent.
The number of U.S. households faced with losing their homes to foreclosure jumped 32 percent in April compared with the same month last year, with Nevada, Florida and California showing the highest rates. Ohio was in the top 10. More than 342,000 households received at least one foreclosure-related notice in April, according to RealtyTrac Inc. That means one in every 374 U.S. housing units received a foreclosure filing last month. April was the second straight month with more than 300,000 households receiving a foreclosure filing, as the number of borrowers with mortgage troubles failed to slow. The April number, however, was less than one percent above that posted in March, when more than 340,000 properties were affected. The March data was up 17 percent from February and 46 percent from a year earlier. "We've never seen two consecutive months like this," according to Rick Sharga, RealtyTrac's senior vice president for marketing. "It's the volume that's surprising." Source: www.yahoo.com
The Commerce Department said total retail sales slipped 0.4 percent after falling by a revised 1.3 percent in March, previously reported as a 1.2 percent drop. Excluding motor vehicles and parts, sales dipped 0.5 percent in April, compared to a 1.2 percent decline the prior month. Vehicles and parts sales rose 0.2 percent after a 2.0 percent plunge in March. Gasoline sales dropped 2.3 percent in April after tumbling 3.2 percent the previous month. Sales of electronic goods fell 2.8 percent, versus a 7.8 percent plunge in March, while building materials rose 0.3 percent after slipping 0.8 percent.
May 8, 2009
By Paul Fero
The stock market continued posting positive gains this week with 6% for the S&P 500 Index and moving into positive territory for the year. It has been quite a run since hitting decade old lows reached in March. I’ll admit this rally has caught me by surprise as it still has legs. So with this recent run up in the S&P 500, the level has now crossed through the down trend line established in October. What that means is that the trend is now positive on a short term basis on its way toward the larger down trend line established at the beginning of the downturn nearly two years ago.
So now with the large run off the lows where do go from here? Good question. All the most positive news is built in. And more importantly all the best case scenarios are also built in. This is why I didn’t think we would get here. I would have expected a more marginal or incremental climb back with more volatility in the market as some news is good and some news still not quite so good. But now the market has priced in some pretty positive expectations. Expectations that if not met will not be taken favorably. This can be seen by the S&P500 trading at fifteen times 2010 earnings which is the historical average. So the market is not cheap.
But the problems that created the economic downturn are still here. Residential real estate prices continue to fall but have seemed to have begun to slow. Foreclosures are still a problem. The mortgage market has significantly tightened over the past two years where it much more difficult to obtain a mortgage. The so-called toxic assets on banks balance sheets are still there and have seen some market liquidity return due to the Federal Reserve. The economy is very weak and contracting but will likely begin contracting a slower pace but still negative growth. Job losses continue to climb and labor market is poor.
So what do have? Good feelings. A sense that the worst is over. The perception of better times ahead. I would agree the worst is over as we are no longer in a free fall. But things aren’t that good still and will take a long time to work through. So for now, I’ve the market rise from the sidelines a bit surprised. I see more volatility ahead as the statistics will be bouncing round with some better and some worse. It ain’t over yet.
Federal Reserve Chairman Ben Bernanke told Congress that the economy should pull out of a recession and start growing again later this year. But in testimony to Congress' Joint Economic Committee, Bernanke warned that even after a recovery gets under way, economic activity is likely to be subpar. That means businesses will stay cautious about hiring, driving up the nation's unemployment rate and causing "further sizable job losses" in the coming months, he said. The recession, which started in December 2007, already has shed a net total of 5.1 million jobs. The unemployment rate "could remain high for a time, even after economic growth resumes," Bernanke said. Even with all the cautionary notes, the Fed chief offered a far less dour assessment of the economy. "We continue to expect economic activity to bottom out, then to turn up later this year," he told lawmakers. Recent data suggest the recession may be loosening its firm grip on the country, Bernanke said. "The pace of contraction may be slowing," he said. It was similar to an observation the Fed made last week in deciding not to take any additional steps to shore up the economy. Meanwhile, business investment remains "extremely weak," and conditions in the commercial real estate market are "poor," the Fed chief said. Source: www.yahoo.com
The bond market has some interesting action as well over the past couple of weeks. I failed to mention last week that the ten year treasury closed over 3 percent. Well this week the yield climbed up to nearly 3.3 percent. That will certainly not help mortgage rates just as real estate is getting a footing.
The National Association of Realtors said the volume of signed contracts to buy previously occupied homes rose for the second month in a row. Homebuyers taking advantage of bargain prices, low interest rates and a tax credit for first-time buyers pushed the seasonally adjusted index of pending sales up by 3.2 percent to 84.6 in March.
The Commerce Department reported construction spending increased 0.3 percent in March, the best showing since a similar rise last September. Spending on private residential projects fell 4.2 percent in March, the latest in a series of declines that began three years ago when the housing bubble burst. Nonresidential construction rose 2.7 percent in March, the biggest advance in nine months. It marked the second straight increase and was led by gains in office construction, hotels and power plants. Government building activity also showed strength in March, rising 1.1 percent. A 1.3 percent gain in state and local activity offset a 1.7 percent drop in spending on federal projects. The rise in state and local activity could be early signs of the impact of the economic stimulus bill. Even with the increase, building activity is 11.1 percent below year-ago levels.
New applications for U.S. jobless benefits plunged to the lowest level in 14 weeks, a possible sign that the massive wave of layoffs has peaked. Still, the number of unemployed workers getting benefits climbed to a new record. The Labor Department reported that the number of newly laid off workers applying for benefits dropped to 601,000 last week. But the total number of people receiving jobless benefits climbed to 6.35 million, a 14th straight record. The four-week moving average of initial jobless claims, which smoothes out volatility, totaled 623,500 last week, a decrease of more than 30,000 from the high in early April. Even with the big drop in new applications for jobless benefits last week, the claims remained at elevated levels. By comparison, weekly jobless claims totaled 372,000 a year ago. The rise in continuing claims to 6.35 million was registered for the week ending April 25, the latest data available. That was up from 6.30 million in the previous week and marked the highest tally on records dating to 1967. The high level of continuing claims is a sign that many laid-off workers are having difficulty finding work. But since peaking at 674,000 in late March, claims have been trending lower, raising hopes that the huge wave of layoffs that have rocked the country could be easing a bit.
The Commerce Department reported that wholesale inventories dropped 1.6 percent in March. That followed a 1.7 percent drop in February; the largest monthly decline on records that go back 17 years. It was the seventh straight month that wholesale inventories fell as businesses struggled to get stockpiles in line with plunging sales. Wholesalers saw sales drop 2.4 percent in March, the fifth decline in six months.
End the week was the all important jobs data. The Labor Department reported that the employer cut 539,000 jobs in April, the fewest in six months. The lower amount was helped in part by a big pickup in federal employment due to hiring of 63,000 temporary Census workers. Job losses in February and March turned out to be deeper, according to revised figures. Employers cut 681,000 positions in February, 30,000 more than previously reported. They cut 699,000 jobs in March, more than the 663,000 first reported. The deepest job cuts of the recession -- 741,000 came in January. That was the most since the fall of 1949.
The unemployment rate climbed to 8.9 percent. Look for this rate to climb further as college and high school graduates begin to enter the work fore. If laid-off workers who have given up looking for new jobs or have settled for part-time work are included, the unemployment rate would have been 15.8 percent in April, the highest on records dating back to 1994. The total number of unemployed now stands at 13.7 million, up from 13.2 million in March. Companies also kept a tight rein on workers hours. The average work week in April stayed at 33.2 hours, matching the record low set in March.
May 1, 2009
By Paul Fero
Concerns that swine flu could hurt industries such as travel and tourism escalated after the World Health Organization said it is too late to contain the virus. The WHO raised its alert this week phase 5 out of 6, saying the flu spreads easily but is not quite at the pandemic level. That made the stock markets around the world a bitter jittery this week. Not to undermine the sense of urgency here but perspective needs to be order. Somewhere on the order of 40,000 people die each year from the “regular” flu. Those less able to fight illness and disease and those with compromised immune systems are most susceptible, to any illness.
Speaking of perspective, the markets rally over the past few months has been surprising. It would appear those “green shoots and sprouts of green” have the market thinking the worst is over. It would depend on how you define the worst. What has seemed to pass is the perception, and let me emphasize perception that the economic free fall into the abyss has passed. Ok, so I would probably go along with that the free fall has passed. But where does that leave us…stuck in deep hole.
While some statistics have suggested that the free fall has certainly abated, many statistics have also indicated that we will maintain a sub-par economy. That means there won’t be this quick rebound in the second half of the year. Remember we heard this over and over again last year, as the first economic stimulus was passed GDP was actually moderately positive (even within the recession). The factors that have held up the economy over the past several years are gone, strong consumer spending based on borrowing above the ability to repay and strong exports. Other factors that contribute to weakened status are still the inability to address the issues related to banking and real estate.
I would suggest even with the massive government spending from the economic stimulus for the second half of the year, the economic growth will continue to be negative on the order of -3 percent for throughout the rest of the year. I would go further and say what we are currently experiencing will become known as the Great Recession. This will last more than months and will become years. The world wide economy will continue to struggle easily into 2011.
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 6.1 percent in the first quarter of 2009, (that is, from the fourth quarter to the first quarter), according to advance estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP decreased 6.3 percent.
During a speech at the New Your State Society of Certified Public Accountants, Co-Director of the Center of Economic and Policy Research in Washington, D.C. said, “I'm fairly pessimistic about the near-term future…I can't imagine a situation where unemployment doesn't go to 10 (percent). My guess is we're going to cross 11 (percent) by sometime next year." Government officials' talk of "green shoots" in the economy-a term introduced several weeks ago by Fed Chairman Ben Bernanke and which optimists have used widely since-was highly premature and even irresponsible, Baker said. Source: www.yahoo.com
One of the items that came out this week and will be front and center next week on Thursday will be the results of the bank “stress tests” Bank of America Corp. and Citigroup Inc., which have each received $45 billion in government bailout funds, have been told by regulators that "stress test" results show they may need to raise additional capital on the order of many billions of dollars, according an article this week by The Wall Street Journal. The Federal Reserve officials reported that all 19 banks that took its "stress tests" will be required to keep an extra buffer of capital reserves beyond what is required now in case losses continue to mount. That would mean some banks will likely have to raise additional cash. But the Fed stressed in a statement that a bank's need for more capital reserves to meet the requirements should not be considered a measure of the "current solvency or viability of the firm." This statement helps control the threat of a run on the bank. The Treasury and Fed have made quite clear that they will step in to prop up any of the banks that need additional capital.
Citigroup which has received $45 billion in federal bailout funds and potentially could have to raise more capital based on "stress test" results is requesting permission from the Treasury Department to pay out special bonuses to certain workers according to an article in The Wall Street Journal. Citigroup is seeking Treasury permission to pay retention bonuses to workers it says are “demoralized” amid the company's restructuring and sharp drop in stock value. The bonus plans could include a scenario in which payouts would consist mainly of stock which would vest over at least three years, and the awards would likely be worth at least half of an employee's cumulative pay over the past three years. Yea, ok, so should Chrysler workers be next as I’m sure they feel “demoralized” as their company just filed chapter 11 bankruptcy protection. Or how about GM workers, as they get closer to their own deadline for government handouts? Or better yet how about how “demoralized” the rest of us taxpayers for having to bailout your sorry butt, time and time again even while Citigroup jacks up the cost of the credit to credit card holders and the like. So here is some of advice, “suck it up”, because the alternative is far worse, you could not have a job.
Home prices dropped sharply in February, but for the first time in 25 months the decline was not a record, another sign the housing crisis could be bottoming. The Standard & Poor's/Case-Shiller index showed home prices in 20 major cities tumbled by 18.6 percent from February 2008. That was slightly better than January's 19 percent and the first time since January 2007 the index didn't set a record. The 10-city index slid 18.8 percent, the first time in 16 months its decline was not a record.
The Obama administration announced that it is expanding its plan to stem the housing crisis by offering mortgage lenders incentives to lower borrowers' bills on second mortgages. During the housing boom, lenders readily gave out "piggyback" second loans that allowed consumers to make small down payments or avoid fees entirely. While home prices soared, such mortgages were even extended to borrowers with poor credit scores and people who didn't provide proof of their incomes. But those loans, which are attached to about half of all troubled mortgages, have proved an obstacle to efforts to alleviate the housing crisis. That's because borrowers who are trying to get their primary mortgage modified at a lower monthly payment need the permission of the company holding the second mortgage. The administration also plans to give mortgage companies $2,500 payments to entice them to participate in the "Hope for Homeowners" program. It was launched by the government last fall but has so far fallen flat, proving unattractive to banks required to absorb large losses. It was supposed to allow 400,000 troubled homeowners to swap risky loans for traditional 30-year fixed-rate mortgages with lower rates. Instead only a handful of borrowers have been able to qualify and as of earlier this spring only one loan had completed the program.
March mortgage workout results announced by Hope Now - a coalition of mortgage lenders, servicers, investors and community groups put together to fight the foreclosures- were a decidedly mixed bag. Approximately 134,000 mortgages were rewritten by Hope Now members, which are nearly 20,000 more than the average since September. Another 115,000 at-risk borrowers were granted repayment plans, for a total of nearly a quarter of million troubled mortgages addressed for the month. Despite the efforts, however, more homeowners fell into default in March. Servicers initiated foreclosure proceedings against 290,000 mortgage borrowers, a jump of nearly 20% from February's 243,000, and the highest monthly total since the coalition began tracking data in mid-2007. Starts have risen by more than a third since January. On the other hand, completed foreclosure sales, transactions in which lenders have actually taken back homes from defaulting borrowers, dropped by 39% in March. Banks repossessed only 53,000 homes compared with 87,000 taken over during February. Since the mortgage meltdown hit in July 2007, 1,447,866 homes have been lost to foreclosure.
The New York-based Conference Board reported that its Consumer Confidence Index rose more than 12 points to 39.2, up from a revised 26.9 in March. The reading marks the highest level since November's 44.7 and well surpasses economists' expectations for 29.5. The huge jump in confidence follows a small increase in March, following a freefall in February. Still, the index remains well below year-ago levels of 62.8. The Present Situation rose slightly to 23.7 from 21.9 last month. The Expectations Index, which measures how shoppers feel about the economy over the next six months, skyrocketed to 49.5 from 30.2 in March. The consumer confidence survey showed that those anticipating business conditions will worsen over the next six months declined to 25.3 percent from 37.8 percent, while those expecting conditions to improve increased to 15.6 percent from 9.6 percent in March. The employment outlook was also considerably less pessimistic. The percentage of consumers anticipating fewer jobs in the months ahead declined to 33.6 percent from 41.6 percent, while those expecting more jobs increased to 13.9 percent from 7.3 percent.
The Reuters/University of Michigan Surveys of Consumers said its final index of confidence climbed to 65.1 in April from 57.3 in March. That was the highest since September 2008 and the biggest one-month increase since October 2006. The April reading also marked the first yearly increase since July 2007. The index of current economic conditions rose to 68.3 last month from 63.3 in March, the best reading in four months. The index of consumer expectations climbed to 63.1 from 53.5, also the highest since September of 2008. Most of the gain can be tied to consumers' favorable assessment of U.S. President Barack Obama's stimulus spending, Curtin said. The survey found that 65 percent of consumers thought the stimulus would improve the national economy.
U.S. auto sales in April were on the road to plunging to their lowest levels in nearly 30 years according to sales reports this week. Chrysler reported the worst sales declines by 48 percent followed by Toyota at 42 percent. Nissan sales declined by 38 percent, Ford slid almost 32 percent, while sales at General Motors fell 34 percent. Honda reported sales were off 25 percent. Also Mercedes sales fell almost 31 percent, while Porsche slumped 35 percent. The industry-wide sales rate of cars and light trucks in April on an annualized basis is expected in the low- to mid-9 million unit range estimated by Ford. That would mark the 18th consecutive month of year-over-year declining sales and would be down from 9.9 million in March.
A key measure of manufacturing activity rose for the third consecutive month in April, but remained in contraction for the 15th month in a row, according to a purchasing management group's report Friday. The Institute for Supply Management said its manufacturing index rose to a reading of 40.1 in April from 36.3 in March. A reading below 50 indicates manufacturing activity is shrinking. A reading below 41 is typically associated with a recession in the broader economy. The index, which hit a 28-year low in December, has been below 41 since October.
The Commerce Department reported that orders to U.S. factories fell a larger-than-expected 0.9 percent in March, while factory shipments dropped for a record eighth consecutive month. Shipments of manufactured products tumbled 1.2 percent, an eighth consecutive decline. It marked the longest stretch of decreases on records going back to 1992.
The Commerce Department reported U.S. consumer spending fell for the first time in three months while income growth slipped for a second straight month, indicating that the economy is still struggling to emerge from the recession. Consumer spending dropped by 0.2 percent in March. Incomes, reflecting the continued massive way of layoffs, dropped by 0.3 percent, worse than the 0.2 percent dip that had been expected. After-tax incomes were flat in March, leaving the personal savings rate at 4.2 percent, an improvement from a year ago when the rate was near zero. The 0.2 percent drop in spending was the first decline after two consecutive increases. Spending shot up by 1.1 percent in January, the largest monthly jump in nearly five years, but that increase followed six straight monthly declines. The fact that spending turned negative again in March is a worrisome sign about future economic prospects. Consumer spending in the first quarter of the year grew at a 2.2 percent annual rate after two consecutive quarters of declines.
The Labor Department reported that new applications for unemployment insurance fell to a seasonally adjusted 631,000 last week. That was down from the prior week's 645,000, which was revised slightly higher from the government's initial estimate. The four-week moving average of initial jobless claims, which smoothes out volatility, dropped last week to 637,250, the lowest level since late February and a decrease of about 20,000 from the high in early April. Still, the number of people continuing to draw unemployment benefits jumped to more than 6.27 million, the highest on records dating back to 1967. Besides the continued claims, there were 2.4 million people receiving benefits, as of April 11, under an extended unemployment compensation program enacted by Congress last year. That brings the total number of people receiving benefits to 8.67 million.
April 24, 2009
By Paul Fero
So it seems the bank earnings announcements have caught up to the reality as banks have to set aside more funds for bad loans. The announcement by Bank of America sent the banking stocks tanking this past Monday, with BOA down 20% for a single day and dragging the rest of the market with it with the S&P 500 losing over 4% on Monday. However, by the end of the week, the market was about where it ended the prior week. The focus by the end of the week was on the “stress tests” for banks. This entire “stress test’ process conducted by the Treasury Department is entirely new, and public and outside the traditional channel of private and conducted by their regulator. This process is setting a number of expectations that can never be fully satisfied.
One expectation is creditability. If as we are to believe that "most banks currently have capital levels well in excess of the amounts needed to be well capitalized”, as reported by the Treasury Department. That doesn’t get the matter of how “well capitalized” is defined.
From a banking perspective, there is not a lot of difference between “well capitalized” and lesser levels. Based on tier 1 capital from the FDIC, the capital thresholds are as follows: over 6 percent is “well capitalized”, 4 percent to 6 percent is “adequately capitalized”, less than 4 percent is “undercapitalized” and less than 3 percent is “significantly undercapitalized”. Tier 1 capital or core capital is essentially the sum of common stockholders' equity and noncumulative perpetual preferred stock. Source: www.fdic.gov
Based on these definitions, the current TARP funds that the banks have received are not included as tier 1 capital as they are not perpetual preferred stock. So this could explain this week’s discussion that these funds would be converted to common stock, which would then be included in as tier 1 capital. Perhaps that’s one of the assumptions included under the “stress tests” and therefore gets to the conclusion that the banks are “well capitalized”. In any event, the Federal Reserve says the government is prepared to rescue any of the banks that underwent "stress tests" and were deemed vulnerable if the recession worsened sharply. The Fed said the 19 companies won't be allowed to fail, even if they fared poorly on the stress tests.
This brings us to the next problem. The government is plain scared that if any bank has poor results that will cause a “run” on that particular bank. This illustrates the problem for conducting these tests in public. This is why the regulators do these in “private”. We all can appreciate transparency but what happens if the result is bad? There is a process in place for when a bank fails…so stick with the process. The FDIC has a process that works smoothly, so why not let them do their job. And what makes these 19 banks so special than the other 8,000 plus banks out there. Yes, they control over half of the deposits, but if the government is not going to let the bad ones fail then the credit and financial crisis can’t move forward and we are stuck slopping around in the muck. But with the Lehman Brothers failure which significantly intensified the credit crisis, still fresh in the minds of the Fed and Treasury, they are paralyzed to move forward.
The Wall Street Journal reported some aspects of the “stress tests” this week. One of the guidelines was to assume 8.9 percent unemployment for this year and 10.3 percent for 2010. Given the level of unemployment is currently at 8.5 percent, this years assumption isn’t very stressful. Some estimates of likely losses that were used in the stress tests were tougher which included that banks would have to calculate two-year losses of up to 8.5 percent on their first-lien mortgage portfolios, 11 percent on home-equity lines of credit, 8 percent on commercial and industrial loans, 12 percent on commercial real estate loans, and 20 percent on credit card portfolios, according the Wall Street Journal. Given this level of loan loss performance, I can’t imagine how some of the banks would be able to survive without huge infusions from the government.
So with only $109.6 billion in resources remain in the government's $700 billion financial rescue fund the Treasury Department said they expect the fund will be boosted over the next year by about $25 billion as some institutions pay back money they have received. That would boost the total to $134.6 billion. The Obama administration’s budget request included a "placeholder" to more than double the fund to $750 billion.
The International Monetary Fund projects that worldwide financial institutions could suffer more than $4 trillion in losses from the global credit crisis with the U.S. leading the way with a total of $2.7 trillion. The $2.7 trillion estimate for the U.S. was nearly double the IMF's projection from just six months ago.
The International Monetary Fund also projected the world economy to shrink this year for the first time in six decades, by the 1.3 percent drop. "By any measure, this downturn represents by far the deepest global recession since the Great Depression," according to the IMF’s World Economic Outlook. The revised forecast of a decline in global economic activity for 2009 is much weaker than the 0.5 percent growth estimated in January. Among the major industrialized nations studied, Japan is expected to suffer the sharpest contraction this year: 6.2 percent. Russia's economy would shrink 6 percent, Germany 5.6 percent and Britain 4.1 percent. Mexico's economic activity would contract 3.7 percent and Canada's 2.5 percent. Source: www.imf.org
The Conference Board's Leading Economic Index declined 0.3 percent last month. It also fell 0.2 percent in February, which was originally reported as a 0.4 percent drop. The index has not risen in the last nine months. Real money supply and the yield spread both showed strength in March, but not enough to counterbalance the drag of building permits, stock prices and supplier deliveries. Over the last six months, the index has fallen 2.5 percent, compared to the smaller 1.4 percent drop for the previous six months. The Coincident Index, a measure of current conditions, fell for the third month in a row, by 0.4 percent, primarily due to declines in employment and industrial production. The Lagging Index, which provides a glimpse backward, has been on a downward trend since July 2007. The 0.4 percent decline in March was caused by weakness across all of its components, which include duration of unemployment, inventory levels, and outstanding loans.
The Commerce Department reported that orders for durable goods dropped 0.8 percent last month. A rise in orders for commercial and military aircraft helped offset weakness elsewhere. The small drop followed a 2.1 percent increase in orders in February. That was the first gain after six straight monthly declines. While February's results were revised down from an earlier estimate of a 3.5 percent gain, that rise in orders followed by only a small drop in March shows some leveling off in manufacturing. Excluding transportation, orders fell 0.6 percent last month. Still, demand fell for primary metals such as steel, and for orders of machinery and computers. Also, non-defense capital goods excluding aircraft rose 1.5 percent.
The National Association of Realtors reported that home sales fell 3 percent to an annual rate of 4.57 million last month, from a downwardly revised pace of 4.71 million units in February. The median sales price plunged to $175,200, down 12.4 percent from $200,100 a year earlier, but up from $168,200 in February. While median sales prices typically rise slightly in early spring as demand is higher.
The Labor Department reported that initial claims for unemployment compensation rose to a seasonally adjusted 640,000, up from a revised 613,000 the previous week. The four-week average which smoothes out volatility dropped slightly to 646,750, about 12,000 below the peak in early April. The number of people continuing to claim benefits rose to 6.13 million, setting a record for the 12th straight week. As a proportion of the work force, the total jobless benefit rolls are the highest since January 1983. The continuing claims data lag initial claims by a week. The Labor Department also said an additional 2.1 million people were receiving benefits under an extended unemployment compensation program and as of April 4th that would bring the number of unemployed receiving benefits to 8.23 million.
April 17, 2009
By Paul Fero
The stock market has completed it’s sixth straight weekly increase and has climbed over 30% since hitting the lows as measured by the S&P 500. This brings the S&P 500 just a hair above the down trend line from October and also a hair above the 865 resistance level. So why doesn’t this make me happy. Well, it would if I believed it would last. So yes, I’m still in that “other” camp that says this is just a bear market rally and greater likelihood of a retreat is more likely than a continued rally.
But at least I have company. NYSE Euronext CEO Duncan Niederauer told CNBC that the rally likely has to run out of steam as low volume eventually comes back to the bite the market. He said. "It feels to me we're in a trader's market and not an investor's market," adding, "the volume in March hasn't convinced me that it's the kind of volume that you need to see to believe it was the real beginning of a turnaround." He goes further in saying, "instincts tell me we're going to retrace one more time and the rally I believe is the summer rally." Source: www.cnbc.com
With such a big run up in prices as of late based on the initial statements by banks that they have had seen better earnings this first quarter have bared some fruit as many reported better than expected earnings. So things aren’t so bad with banks after all. I’m still in the skeptic camp here as well. Accounting can make for some better or worse numbers. No need to go far from previously over zealous reporting such as Enron and WorldCom. Sure are those are extremes but it’s also perspective. Can I truly believe that Wells Fargo had their best quarter ever? Perhaps, but perhaps they need to adjust and account for more write-downs and impairments? So they get moved out a quarter perhaps. It’s not as if the economy is truly that much better given increasing unemployment, growing foreclosures and worsening commercial real estate market. So as the saying goes, one quarter doesn’t a trend a make.
After all even financial firms had a positive first quarter. Or did they? Well the first quarter did see more commercial activity. But given the extreme credit crunch since last September, it wasn’t too surprising that commercial activity picked up as credit markets began to thaw. But then there is Goldman Sachs that reported better than expected profits. But given they are considered a “bank” now; they have normal calendar quarter reporting. So what were the preceding quarters like for comparables? Who knows, because they got choosey as to how to report. No kidding here. The current quarter is the three months ending for March, which would be normal. But here is where is gets absolutely goofy. The other reporting periods are for the three months ending November 2008 and three months ending February 2008. What is that? Oh by the way, they did lose $1 billion in just December alone. For a financial firm, that reviews other firms financials they should be truly embarrassed to present such a distortion. At the very least they should have presented adjusted previous financials for comparisons. So can I trust that the accounting is truely fair….aaahhh, not so much. See for yourself in their earnings release just like I did. Source: www.goldmansachs.com
The Federal Reserve released their Beige Book survey of business conditions found five of its 12 regional banks reporting a moderation in the pace of the economic decline. Several regions "saw signs that activity in some sectors was stabilizing at a low level ... (but) overall economic activity contracted further or remained weak," the Fed said. For those that might not know and for trivia buffs, it called the Beige Book survey because when it was released in paper form, the book color was beige. Economists are a simple bunch.
The Commerce Department reported that retail sales dipped 1.1 percent in March. Retail sales had been on the glimmers of hope or sprouts of recovery referred by the President and Fed Chairman. A big drop in auto sales led the overall slump in demand. Sales also plunged at clothing stores, appliance outlets and furniture stores. Seasonal adjustments could partly explain the showing for retail sales. The March 2008 performance had been boosted by an early Easter, while the holiday did not occur this year until April, delaying some shopping. The 1.1 percent drop in retail sales last month followed a revised 0.3 percent increase in February, originally reported as a 0.1 percent fall. Retail sales rose 1.9 percent in January, which followed six straight months of declines. For March, auto sales fell 2.3 percent, following a 3 percent drop in February. Excluding autos, retail sales fell 0.9 percent after a 1 percent rise in February. Sales at appliance stores fell 5.9 percent last month and furniture stores reported a 1.7 percent decline. Sales at specialty clothing stores fell 1.8 percent and dipped 0.2 percent at general merchandise stores. Sales at gasoline stations fell 1.6 percent, while food and beverage stores saw one of the few increases for the month, a rise of 0.5 percent.
Industrial production fell for the fifth straight month in March. The Federal Reserve said production at the nation's factories, mines and utilities dropped a seasonally adjusted 1.5 percent, matching February's decline. The total industrial capacity utilization rate fell to 69.3 percent from 70.3 percent, the lowest on records dating to 1967. Industrial production fell at a 20 percent annual rate in the first quarter. The drop will contribute to another steep contraction in the overall economy in the January-March period as reported by the GDP. Manufacturing output fell 1.7 percent in March, and has fallen for five consecutive quarters. The factory utilization rate dropped to 65.8 percent, the lowest on records dating to 1948. A 3.6 percent drop in electronic goods production, as well as declines in appliance, furniture and carpet manufacturing drove the reduction. Auto industry production rose 1.5 percent, the second straight increase after a steep fall in January. Gas and electric utilities increased output 1.8 percent in March, after warmer-than-usual weather caused a steep 7.7 percent drop in February.
Meanwhile, the Labor Department reported that wholesale prices plunged 1.2 percent in March as the cost of gasoline, other energy products and food fell sharply. Gas prices fell 13.1 percent, the steepest drop since December, while food costs dipped 0.7 percent. Excluding volatile food and energy prices, the Producer Price Index was unchanged, below analysts' forecasts of a 0.1 percent rise.
The Labor Department also reported that consumer prices edged down 0.1 percent last month as a drop in energy prices offset the biggest rise in tobacco prices in more than a decade. Over the past 12 months, consumer prices have fallen 0.4 percent, the first 12-month decline since a similar drop for the year ending in August 1955. Core inflation, which excludes energy and food, rose 0.2 percent last month, matching the gains of the past three months. Over the past 12 months, core inflation has risen 1.8 percent. For March, energy prices fell 3 percent, reversing a 3.3 percent jump in February. Gasoline prices fell 4 percent last month, home heating oil plunged 8.5 percent and natural gas slid 4.8 percent. Food costs dropped 0.1 percent in March. Dairy products led the decline with a drop of 2.4 percent. More than half of the increase in costs outside of food and energy came from an 11 percent rise in tobacco prices. New car prices also rose in March by 0.6 percent, but airline fares declined 2.3 percent. Clothing costs, which had jumped in February by the largest amount in nearly two decades, posted a 0.2 percent drop in March.
The National Association of Home Builders said its housing market index posted its biggest one-month jump in five years in April as many homebuyers seized on lower prices and incentives. While still near historically low levels, the index rose five points to 14, it's highest reading since October. Index readings lower than 50 indicate negative sentiment about the market. The report reflects a survey of 360 residential developers nationwide, tracking builders' perceptions of market conditions. Builders' gauge of current sales conditions, buyer traffic and expectations for sales over the next six months each increased in April.
The Commerce Department reported housing starts fell 10.8 percent to a seasonally adjusted annual rate of 510,000 units, the second lowest on records dating back to 1959, from February's downwardly revised 572,000 units. New building permits, which give a sense of future home construction, dropped 9 percent to a record low 513,000 units, from 564,000 units in February.
The number of American households threatened with losing their homes grew 24 percent in the first three months of this year and is poised to rise further as major lenders restart foreclosures after a temporary break, according to data released by RealtyTrac. Nationwide, nearly 804,000 homes received at least one foreclosure-related notice from January through March, up from about 650,000 in the same time period a year earlier. In March, more than 340,000 properties were affected, up 17 percent from February and 46 percent from a year earlier. The report noted that Nevada, Arizona, California and Florida had the nation's top foreclosure rates. In Nevada, one in every 27 homes received a foreclosure filing, while the number was one in every 54 in Arizona. Rounding out the top 10 were Illinois, Michigan, Georgia, Idaho, Utah and Oregon.
The Labor Department reported that its tally of initial unemployment claims dropped to a seasonally adjusted 610,000 from a revised 663,000 the previous week.and the lowest level since late January. The four-week average of claims, which smoothes out volatility, fell 8,500 to 651,000. While declining jobless claims remain much higher than a year ago when claims stood at 369,000. The total number of people remaining on the jobless benefit rolls rose 172,000, topping 6 million for the first time. That's the highest on records dating from 1967. The figures for continuing claims lag initial claims by one week. The Labor Department also said an additional 2.1 million people were receiving benefits under an extended unemployment compensation program enacted by Congress last year, as of March 28, which would bring the number of unemployed receiving benefits to 8.1 million.
The Reuters/University of Michigan Surveys of Consumers report its preliminary April reading of consumer sentiment rose to a level of 61.9, up from 57.3 in March and was the highest since 70.3 recorded in September. The survey's index of current economic conditions rose to 66.6 in April from 63.3 in March and was the highest reading since December. The index of consumer expectations rose to 58.9 in April from 53.5 in March and was the highest since September. The positive sentiments are based in part by the recent climb in the stock market and positive comments from coming from Washington, D.C.
April 10, 2009
By Paul Fero
For the shortened holiday week, stock markets made some additional gains with the S&P 500 increasing 1.7% and are up 26.6% from the recent lows reach on March 9th. The big driver for the week was the announcement by Wells Fargo that it will have a record $3 billion profit for the first quarter and hugely surpassing all expectations. While it’s nice to see the big banks are now not on the edge of the cliff, it makes me wonder why they appeared to be so bad off to begin with. However, one bank’s comments may not necessary be a precursor for the whole industry which begin to report earnings next week along with financial services and investment firms and continues into the following week. Also on the on deck circle following the earnings announcements will the U.S. Treasury’s results for stress tests for the top 19 banks. So it seems that many of these banks likely fall into one of three categories; pretty good shape, average and then struggling.
Another financial indicator I follow is CBOE Volatility Index commonly referred to as the VIX. This “fear index” as some call it, would be somewhat of a contary indicator. That is, when the VIX is low (or fear and volatility diminish) it’s time to go (as move out of the stock market). When the VIX is generally low relatively speaking the market has previously reversed course and with the nearly 27% increase, that wouldn’t be too much of a surprise. The VIX indicator is at the lowest level since September 2008, when Lehman Bros. when forced into bankruptcy. One thing to mention, of course, is just because the VIX is low, doesn’t mean it will turn on a dime. The VIX has been much lower previously and has stayed low for extended periods of time.
From a trend line perspective, the S&P 500 is along the recent down trend line from November, and strong over head resistance at the 865 level. So with that I would say we may approach the resistance levels but until the trend line is broken, it is still intact and therefore I’m still in the camp that this is just a bear market rally. Also, markets have often times had “double bottoms” that is that they reach a low level, and rise above only to reverse course and re-test the lows. So if a retest of the lows would occur, I definitely move into “that was the bottom”. From a selfish perspective, a re-test of the lows would also provide a good entry point back into equities. There is a saying that says, no one rings the bell when the market tops or when it bottoms. Don’t worry…I’ll ring it for you so you won’t miss it. (This is probably a good reminder to read the disclosures at the end of page, if you have not done so already.)
Consumer borrowing plunged more than expected in February as individuals cut back their use of credit cards by a record amount. The Federal Reserve reported that consumer borrowing dropped at an annual rate of $7.48 billion in February, or 3.5 percent, from January. The decline was led by a record drop in borrowing on credit cards, which fell at an annual rate of $7.8 billion, or 9.7 percent. That is the sharpest drop in dollar terms since federal records began in 1968, and the steepest percentage fall since 1978. Besides credit cards, the Fed's report also covers auto and other personal loans. It doesn't include mortgages or other real-estate related debt. Auto and other loans in February rose at a slight $313 million annual rate, or 0.23 percent, after increasing by an upwardly revised 4.6 percent in January. February's overall drop in consumer credit followed an increase in January that was revised even higher. Consumer borrowing rose at an $8.1 billion annual rate in the first month of the year.
Toxic debts racked up by banks and insurers could spiral to $4 trillion, new forecasts from the International Monetary Fund according to the British daily The Times. The IMF said in January that it expected the deterioration in U.S. originated assets to reach $2.2 trillion by the end of next year. But it is understood to be looking at raising that to $3.1 trillion in its next assessment of the global economy, due to be published on April 21, the newspaper reported. In addition, it is likely to boost that total by $900 billion for toxic assets originated in Europe and Asia.
U.S. mortgage applications rose last week, as demand for home purchase loans jumped even as interest rates edged up from recent record lows, according to data from the Mortgage Bankers Association. Demand for home purchase loans, an indicator of home sales, far outweighed demand for refinancing. The increase may help gauge what the U.S. housing market will look like this spring, the peak home buying season. The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended April 3 increased 4.7 percent to 1,250.6. The seasonally adjusted index of refinancing applications increased 3.2 percent to 6,813.5. The refinance share of applications decreased to 77.9 percent from 79.1 percent, while the adjustable-rate mortgage share of activity was unchanged at 1.5 percent.
The 30-year mortgage rate could fall to nearly 4 percent by the end of the year as both the economy and housing market make a slow recovery. The efforts to ease monetary policy combined with a general weakening of the economy will combine to send rates lower, the firm said in a research note to clients. "We expect that disinflationary forces combined with overt quantitative easing from the Federal Reserve will push the 30-year fixed rate mortgage down from the current 4.85% rate to 4.2% by year-end," the firm said in a note from Bank of America-Merrill Lynch economists Gary Bigg and David A. Rosenberg. (Source: www.yahoo.com.) A 30 year mortgage rate of 4.2% would create an environment worse that the current financial crisis as interest rates will ultimately begin to rise and the mortgages and related securities would decline in significantly in value. Whether these get bundled once again into securities sold off to investors or picked up by Fannie Mae or Freddie Mac, which would cripple them financially for years to come and would create a second wave of the financial crisis in the years to come.
The Federal Reserve lowered their economic outlook for the rest of the year at its meeting last month. According to the minutes of the Fed's latest policy meeting, the central bank said that gross domestic product, the broadest measure of economic activity, is likely to flatten out in the second half of 2009 and expand only slowly next year. The Fed also said that it now expected the unemployment rate to rise more steeply into early next year before "flattening out at a high level over the rest of the year." The Fed had previously forecast in January that GDP would start to recover in the second half of this year and that the economy would grow between 2.5% and 3.3% in 2010. The central bank had also projected in January that unemployment would peak at 8.5% to 8.8% this year and fall to a range of 8% to 8.3% in 2010. The minutes showed that some policymakers were more optimistic, stating that they "believed that the natural resilience of market forces" would still lead to a recovery in 2009. But other members "saw recovery as delayed and potentially weak." (Source: www.yahoo.com) One of the results would be further deterioration of the U.S. budget deficit already at astronomical levels. So far the Office of Management and Budget (OMB) is still working with the rosy scenario. Good luck with that.
Wholesalers cut their inventories in February by the steepest amount in more than 17 years, but sales rose for the first time since the summer, encouraging signs that companies may be getting their inventories under control. The Commerce Department reported that wholesale inventories dropped 1.5 percent in February, the most on records dating to January 1992. But sales at the wholesale level rose 0.6 percent, the first increase since June and a sharp reversal from January's revised 2.4 percent drop. That shows retailers and other businesses have begun to replenish their supplies. The sixth straight monthly drop in wholesale inventories also can be viewed as positive in the long-term because once stockpiles have been adjusted for the economic slowdown; businesses may be able to increase orders for new goods. But in the short run, the reductions will lead to fewer orders and less production.
The Commerce Department reported that inventories-to-sales ratio dropped for the first time since the middle of last year, to 1.31 from 1.34 in January. The ratio measures how many months it would take to clear inventories at the current sales pace. Still, it remains far above the 1.14 figure in February 2008. Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories and retailers hold the rest. A record decline in stockpiles of durable goods, which fell 2.4 percent in February, and a record 7.9 percent drop in auto and auto supplies led the overall slide in wholesale inventories.
New jobless claims fell last week but are still at elevated levels, while those continuing to receive unemployment insurance set a record for the 11th straight week. The Labor Department reported the tally of initial jobless claims fell to a seasonally adjusted 654,000, down from a revised 674,000 the previous week. The total number of laid-off Americans receiving unemployment rose to 5.84 million, from 5.75 million. That was the most on records dating from 1967. The four-week average of claims, which smoothes out fluctuations, fell slightly to 657,250, the first drop after 11 straight increases. Still, the declines are from very high levels. The 674,000 figure was the highest number of initial claims in the current recession and the most in 26 years, though the labor market has grown by half since then. The 5.84 million continuing claims lag the initial claims data by a week and doesn't include 1.54 million Americans that received benefits under an extended unemployment compensation program approved by Congress last year, otherwise the total would be 7.38 million jobless claims.
More than two-thirds of U.S. chief executives plan additional layoffs and expect sales to decline in the next six months as their confidence in the economy continues to fall, according to a survey released the Business Roundtable. The Business Roundtable's quarterly CEO Economic Outlook Index fell to negative 5, the first negative reading in the survey's six-year history, and down from a fourth-quarter reading of 16.5. A reading below 50 means CEOs expects contraction rather than growth. The majority of CEOs, 71 percent expected to cut their U.S. work forces over the next six months and 66 percent said they expect to reduce capital
The Commerce Department reported the U.S. trade deficit plunged in February to the lowest level in more than nine years and pushed imports down for a seventh straight month while U.S. exports managed a small rebound. The Commerce Department said that the deficit dropped a sharp 28.3 percent to $25.97 billion, the smallest gap since November 1999. It marked the seventh consecutive month the trade deficit has declined. The deficit with China fell 31 percent to the lowest level in three years while the trade gap with Japan dropped to the smallest point in 24 years.
Lastly, the Blue Chip Economic Indicators survey of private economists released a report that showed that 86 percent of respondents believed that the economic downturn would be declared to have ended in the second half of this year. However, just because the downturn is deemed to be over, that would not suggest that the economy is out of the woods. Even after the economy is deemed to have ended the recession, unemployment typically continues to worsen for 12 to 18 months thereafter.
April 3, 2009
By Paul Fero
The stock market climbed up once again with the fourth consecutive week of positive gains. This week’s advance came as some positive news or more aptly better than expected news came in on some economic indicators. It seems as of late the cheerleading on the economy seems to have worked and the mood seems less dire, which explains the 20 percent run-up in stock prices. Even the jobs report couldn’t shake the market from its positive mood. The current level on the S&P is up against the near term down trend line from November and near the over head resistance level at 850. While it’s nice to see to the market moving ahead even in spite continued economic weakness, I’m still in the bear market rally camp.
The week started off by President Obama and Company, reiterating that GM's initial plans to become viable didn't go far enough. He gave the company 60 days to make more cuts and get more concessions from bondholders and unions or it won't get any more government help. Also, the administration asked CEO Rick Wagoner to resign. Chrysler gets a 30 day reprieve to come back with a better plan. While purely a positioning move on all fronts to make the appearance of getting a better deal for the taxpayer it’s unlikely the government would let either one file for bankruptcy, if it were an “orderly” bankruptcy. The actions of firing the CEO does give pause since that the primary role of the Board of Directors. Again, all appearances aside, there should probably be a lot more of that going on so for the President to just pick and choose who stays and who goes is a bit unsettling.
March proved to be another dismal month for U.S. automakers as low consumer confidence kept buyers away. General Motors Corp. led the slide, with a 45 percent drop in sales compared with March 2008. Ford Motor Co. reported a 41 percent decline, and Chrysler LLC said sales plunged 39 percent. There was little to celebrate in the March report for domestic auto sales although March sales were up industry wide 25 percent from February's figures. In fact, no manufacturer reported a sales increase for the month. So Hyundai Motor Co.'s 4.8 percent drop in sales stood out from a crowd largely reporting double-digit declines. So a good marketing plan with the Hyundai Assurance program protecting new buyers if they lose their job is paying off. So much so that General Motors and Ford have announced plans this week they would run a similar program.
Orders to U.S. factories posted an increase in February after six straight monthly declines, providing a glimmer of hope that the economy's deep plunge may be starting to moderate. The Commerce Department said that orders for manufactured products rose by 1.8 percent in February. The increase in total factory orders was led by a 3.5 percent gain in demand for durable goods, items expected to last at least three years. Non-durable goods, products such as chemicals, food and paper, showed a 0.3 percent rise in February following a 0.5 percent gain in January. The strength last month included a big swing in demand for machinery with orders jumping 12.7 percent in February. Orders for non-defense capital goods excluding aircraft, seen as a general sense for business investment plans, showed a 1.4 percent drop in February. Business investment spending plunged during the fourth quarter of last year, one of the sectors that contributed to the economy's overall large decline in GDP for the fourth quarter. Orders for transportation goods rose by 2.7 percent in February even though demand for commercial aircraft plunged by 29 percent. That weakness was offset by big gains for defense aircraft and a 1.1 percent rise in demand for motor vehicles and parts. The auto increase could prove temporary given all the problems facing automakers.
The Institute for Supply Management (ISM) said its index of national factory activity rose to 36.3 in March from 35.8 in February. A reading below 50 indicates contraction in the sector, and ISM said the index has been below this level for 14 straight months. For the first quarter, the ISM manufacturing index averaged 35.9, which corresponds to a 1.6 percent fall in real gross domestic product, according to the group. The March ISM Non-manufacturing Index came in at 40.8, showing continued contraction in the economy's service sector and down from the 41.6 in February.
The Standard & Poor's/Case-Shiller index of home prices in 20 major cities tumbled by a record 19 percent from January 2008. It was the largest decline since the index started in 2000. The 10-city index dropped 19.4 percent, also a new record. All 20 cities in the report showed monthly and annual price declines, with 13 posting new annual records. Prices dropped by more than 10 percent in 14 cities.
The National Association of Realtors said its seasonally adjusted index of pending sales for existing homes rose 2.1 percent to 82.1 in February from January's record low of 80.4. Typically there is a one- to two-month lag between a contract and closing, so the index is a barometer for future home sales. Because of falling home prices and mortgage rates, the Realtors group said homeownership is more affordable than it's been since at least 1970. The Realtors estimate that 45 percent of existing home sales are now foreclosures and other distressed properties.
Construction spending fell for a fifth straight month in February as another big drop in home building offset a slight rebound in nonresidential construction. The Commerce Department said that February construction activity dropped 0.9 percent. Total construction has been falling since October. The level of activity is at the slowest pace in nearly five years. The weakness in February reflected a 4.3 percent drop in housing construction, which pushed the level down to the lowest in 11 years. The commercial real estate industry is poised to fall into the worst crisis since the early 1990s. Delinquency rates on loans for hotels, offices, retail and industrial buildings have risen sharply in recent months and are likely to soar through the end of 2010 as companies lay off workers, downsize or shut their doors. Construction spending by the government showed a 0.8 percent increase in February following two months of declines. The strength came in an increase of 0.8 percent in spending on federal building projects and a similar 0.8 percent rise in spending on state and local government projects.
The Conference Board's consumer sentiment index inched up to 26.0 for March from an upwardly revised 25.3 in February. The original February reading of 25 represented an all-time low for the index, which dates back to 1967. The survey's expectations index improved modestly, but perceptions about current conditions worsened from already extremely low levels.
The Labor Department said that initial claims for unemployment insurance rose to a seasonally adjusted 669,000 from the previous week's revised figure of 657,000 and the highest in more than 26 years, although the work force has grown by about half since then. The tally of laid-off workers claiming benefits for more than a week rose 161,000 to 5.73 million, setting a record for the 10th straight week. The continuing claims data lag the initial claims by one week. An additional 1.5 million people received benefits under an extended unemployment compensation program approved by Congress last year which would bring the total to 7.23 million as of March 14th, the latest data available. As a proportion of the work force, the number of people on the jobless benefit rolls is the highest since May 1983. The four-week moving average of jobless claims, which smoothes out weekly volatility, rose to 656,750, the highest since October 1982.
The Labor Department reported that the unemployment rate jumped to 8.5 percent in March, the highest since late 1983, as employers eliminated 663,000 jobs. The number of unemployed people climbed to 13.2 million in March. The average work week in March dropped to 33.2 hours, a new record low. Since the recession began in December 2007, the economy has lost a net total of 5.1 million jobs, with almost two-thirds of the losses occurring in the last five months. Employers cut 651,000 jobs in February when the jobless rate was 8.1 percent, the same as initially estimated. January's job losses, however, were revised much higher, to 741,000 from 655,000. The areas contributing the worsening January number were: much deeper job cuts in construction and professional and business services. January marked the worst payroll losses since the fall of 1949.
If part-time and discouraged workers are factored in, the unemployment rate would have been 15.6 percent in March, the highest on records dating to1994. In addition, the number of people forced to work part time for "economic reasons" rose by 423,000 to 9 million. Those are people who would like to work full time but whose hours were cut back or were unable to find full-time work. Construction companies cut 126,000 jobs, factories cut 161,000, retailers cut 50,000, professional and business services cut 133,000, leisure and hospitality lost 40,000 and even the government cut 5,000 jobs. The economy has shed a total of 5.1 million jobs since the recession began in December 2007. Nearly two-thirds of the losses have come in the last five months.
Delinquencies among consumer loans continued to rise during the fourth quarter due to mounting job losses, according to the American Bankers Association. The delinquency rate during the fourth quarter across multiple types of closed-end consumer loans increased to 3.22 percent. The delinquency rate is the highest ever recorded since the ABA began tracking the rate in the mid 1970s. Delinquencies increased from 2.65 percent during the fourth quarter in 2007 and 2.90 percent during the third quarter of 2008. The ABA also noted that credit card delinquencies, which aren't included in its composite delinquency rate because they are not closed-end loans, increased to 4.52 percent during the fourth quarter. The delinquency rate for credit cards was 4.38 percent during the final quarter in 2007 and 4.20 percent during the third quarter of 2008.
And lastly, a record 32.2 million people, one in every 10 Americans, received food stamps at latest count, according to the government a reflection of the recession now in its 16th month and climbing. Food stamps are the major U.S. anti-hunger program and help poor people buy groceries. The average benefit was $112.82 per person in January. The January figure marks the third time in five months that enrollment set a record.
March 27, 2009
By Paul Fero
The S&P 500 has end up 6.2 percent this week to end the week at 815.94 and up a whopping 20.6 percent over the past 14 trading days after hitting a 12 year low. This has been the best run over that length of time since 1938 and certainly unanticipated given there hasn’t been a whole of lot fundamental news to warrant such an increase in such a short period of time. As the saying goes, take it while you can get it. The short-term downward trend established in November 2008 still holds, so we haven’t made it through the woods yet as we are still in this lower entrenched trading pattern. And still leaves the broader downward trend well intact from the October 2007 highs. So I’m not buying we’ve bottomed and just missed the rebound. The fundamentals are still horrible and outside a couple of positive to improving statistics things haven’t gotten better.
The rally began a couple of weeks after CEO’s of a couple of big banks said they had pretty good results for January and February. Today we hear March was pretty tough a couple of big bank CEO’s. And of course this is just on the “banking side” and doesn’t include and write-downs for investments or increases in delinquencies. So, good luck with that and I’m not holding my breath thinking that all of sudden they got their act together. We’ve hear the cheerleader routine before so we’ll wait for the reported numbers to tell the story.
Speaking of stories, there are quite a few stories going around that Goldman Sachs and some other recipients are looking to return the TARP funds. On the surface this looks good the taxpayer as we get paid back rather quickly. After the AIG bonus mess, what firms wants to be dragged so publicly through the mud. But what will leave is the perception among those that still have and/or need it that they may be in trouble so the scrambling now will be to try and return it as soon as possible. Even though some firms should still keep it. So if they give it back what happens if they run into trouble again, can they get it back? This could lead to some that even more trouble. And for those firms that do give it back, the likelihood that will preserve their existing cash and capital is all the more apparent. So that will likely limit loan activity and one the cornerstones that program was intended to solve. The flaw is with the premise that the government should expect banks to increase lending.
The National Association of Realtors said that sales of existing homes grew 5.1 percent to an annual rate of 4.72 million last month, from 4.49 million units in January. The median sales price plunged to $165,400, down 15.5 percent from $195,800 a year earlier which explains the increase in sales. February's median sales price was up slightly from January, which recorded the lowest median price since September 2002. Prices are down about 28 percent from their peak in July 2006. The number of unsold homes on the market last month rose 5.2 percent to 3.8 million, a typical increase for the winter months. At February's sales pace, it would take 9.7 months to rid the market of all of those properties, unchanged from a month earlier. The Realtors group added bout 45 percent of sales nationwide are foreclosures or other distressed property sales which typically sell for about 20 percent less than non-distressed homes.
New home sales rebounded last month, but were still the second-worst on record and remained well below last year's levels. The Commerce Department said sales rose 4.7 percent in February to a seasonally adjusted annual rate of 337,000 from an upwardly revised January figure of 322,000. Even after the revision to January's sales results, the month remained the worst on records dating back to 1963. February's sales were still down by more than 40 percent from the same month a year earlier. The median sales price fell to $209,000, a record 18 percent drop from the same month last year. The median price is the midpoint, where half sell for more and half for less. At the current sales pace, it would take a year to exhaust the supply of new homes on the market.
Rates on 30-year mortgages plunged this week to the lowest level on record after the Federal Reserve launched a new effort to assist the staggering U.S. housing market. Mortgage finance giant Freddie Mac said that average rates on 30-year fixed-rate mortgages dropped to 4.85 percent this week, from 4.98 percent last week. It was the lowest in the history of Freddie Mac's survey, which dates back to 1971. The previous record low of 4.96 percent was set in the week of Jan. 15.
The Commerce Department said that orders for durable goods, manufactured products expected to last at least three years, increased 3.4 percent last month. It was the first advance since July. Last month's strength was led by a surge in orders for military aircraft and parts, which shot up 32.4 percent. Demand for machinery, computers and fabricated metal products also rose. Still, orders for durable goods excluding the volatile transportation sector rose 3.9 percent last month.
The economy shrank at a 6.3 percent pace at the end of 2008, the worst showing in a quarter-century. Both the new and old fourth-quarter GDP readings were the worst since the first quarter of 1982, when the economy contracted at a 6.4 percent pace. In the final quarter of last year, consumers cut spending at a 4.3 percent annualized pace, the same as previously estimated. It was the biggest decline since the second quarter of 1980. Consumers cut spending on "nondurables," such as food and clothes, at a 9.4 percent pace, the most on records dating to 1947. Business cut spending on equipment and software by 28.1 percent on an annualized basis, the most since the first quarter of 1958.
The Commerce Department reported that consumer spending edged up 0.2 percent in February. That follows a huge 1 percent jump in January that was even better than the 0.6 percent rise originally reported. Given the large drop off in consumer spending from the fourth quarter, it may be more timing with after holiday sales bargains.
Also, Commerce Department reported personal incomes fell by 0.2 percent in February, the fourth drop in the past five months, declines that reflected the sizable number of job layoffs that have been occurring because of the recession. After-tax incomes also fell in February, edging down by 0.1 percent. With incomes down while spending climbed, the personal savings rate dipped slightly to 4.2 percent in February, compared to 4.4 percent in January. Still, the recent performance marks the first time that the savings rate has been above 4 percent in more than a decade.
The Reuters/University of Michigan Surveys of Consumers said its final index of sentiment rose to 57.3 in March from 56.3 in February. The survey hit a record low of 51.7 in May, 1980. The index of consumer expectations rose to 53.5 from 50.5. The report indicated confidence in the Obama administration's economic policies improved consumers' mood, with 22 percent of those surveyed rating policy favorably in March, compared with 7 percent in January. Americans' view of their present situation remained dim, with the index of economic conditions slipping to 63.3 in March from 65.5 in February.
The number of laid-off Americans filing initial jobless benefit claims rose slightly last week while the number of people continuing to claim benefits set a record for the ninth straight week, according to the Labor Department. First-time claims for unemployment insurance rose to a seasonally adjusted 652,000 from the previous week's revised figure of 644,000. A year ago, the number stood at 367,000. The total number of people claiming benefits for more than a week jumped 122,000 to 5.56 million, the highest on records dating back to 1967. The continuing claims data lag initial claims by a week. As a proportion of the work force, the number of people receiving benefits is at its highest level since May 1983. The total is nearly double the amount a year ago, when about 2.8 million people were continuing to receive unemployment checks. And that number doesn't include an additional 1.47 million people receiving benefits under an extended unemployment compensation program approved by Congress last year, which would bring the total number receiving unemployment claims to over 7.03 million. The four-week average of initial claims, which smooths out fluctuations, dropped slightly to 649,000.
The president's proposed $3.6 trillion budget was released along with the Congressional Budget Office's analysis of his budget proposals. The cumulative deficit from 2010 to 2019 under the President’s proposals would total $9.3 trillion, compared with a cumulative deficit of $4.4 trillion projected under the current-law assumptions embodied in CBO’s baseline. Debt held by the public would rise, from 41 percent of GDP in 2008 to 57 percent in 2009 and then to 82 percent of GDP by 2019. Assumptions aside on GDP projections in those “out years”, when the deficit is that high for so long, there is definitely a problem. Rosy GDP projections make anyone’s deficits look better. Here’s a thought, perhaps with rosy GDP numbers we should have a surplus? Maybe, perhaps, please! Because if that’s the deficit when the economy is average, I would hate to see it when we have the next recession.
Of course I save the best for last. Treasury Secretary Tim Giethner finally released his plan to buy those toxic assets. The plan, known as the Public-Private Investment Program for Legacy Assets (PPIP), is the latest initiative on the part of the executive branch to rely on loans and guarantees, as opposed to budgeted funding, and also asks the same government entities running the programs, to essentially oversee them. In particular, the PPIP will use a small, amount of money from the second round of the TARP ($75 billion to $100 billion) money approved by Congress and use the Federal Reserve's emergency lending powers to leverage that by as much as a 6-to-1 debt-to-equity ratio. Though the Fed's authorized to use its balance sheet for such lending activity under "unusual and exigent circumstances", according to section 13.3 of the Federal Reserve Act.
One of the problems with the PPIP program is that will essentially use government money to back more limited investment capital from the private sector. Unlike the original TARP concept which called for a dollar for dollar investment in troubled firms through a capital-for-equity swap. Taxpayers could end up providing more than 90 percent of the funds to buy the troubled assets. One of the program's two main components-the Legacy Loans Program-calls on the FDIC, which operates the government insurance fund that insures bank deposits, to "provide a guarantee for debt financing...to fund asset purchases." The FDIC will participate in the funding of the program and also "provide oversight for the formation, funding and operations" of these funds. The Treasury's fact sheet does not address any outside oversight to make sure there is adequate transparency, something Congress keeps hammering about. That law, the Economic Emergency Stabilization Act, created a congressional oversight committee and an inspector general, while also delegating some authority to the Government Accounting Office. Additionally, the FDIC is funded by banks which I doubt will like the idea of the guarantee of debt financing if it goes bad. Another program thrown up against the wall to see if it sticks.
March 20, 2009
By Paul Fero
The stock market continued its rally this week touching along the recent down trend line and coming up against overhead resistance at the 800 level on the S&P 500. While at the same time the VIX index, which is the CBOE volatility index, came down to hit 40, which over the past 6 months or so indicated a reversal in the market to move back down. So it seems the market ended the week following that course. We’ll chalk that up to a typical bear market rally for now. So with quarter end approaching, window dressing of funds and portfolios will be the name of the game, so volitity in the market will continue and could go either way.
The big news of the week didn’t come from the “bonus gate” issues at AIG and others; it came from the Federal Reserve’s Federal Open Market Committee. With fed fund rates at zero, the big news came in the form that the Fed will be putting an additional $1.2 trillion to work. About $200 billion will be used to purchase long term U.S. Treasuries that they first indicated in January was something they were going to do. The result came immediately as the 10 year U.S. Treasury yield dropped from near 3 percent to 2.50 percent just on Wednesday and closed the week at 2.62 percent. The last time the Fed set out to influence long-term interest rates was during the 1960s.
Also, the Fed announced they will buy an additional $750 billion, and this is additional funds, to acquire even more Mortgage Back Securities (MBS). (As a reminder a MBS is a pool of a large number mortgages sold off to investors and within each security there are specific levels of who gets paid first, and second and so on.) Many of these MBS also have been commonly referred to as the “toxic” assets on the books of banks and other financial institutions. What the Fed is doing is adding liquidity to a market for these securities where there is very little to none. Bringing liquidity to an illiquid market is usually a positive step. However, here’s the downside. What are they going to pay for them? If the current market price is for example 50 cents on the dollar, and since no one wants them, the price would seem to be a bit too low. By the Fed adding demand to the market, the price should come up to a more “realistic” value. What’s missing here is the dynamic of multiple buyers that determine the price. It’s that competition that sets a realistic price.
So if the Fed is a prudent steward of government funds, and that is a big assumption, they would want to get these assets at fair price. Here’s the no win double edge sword. The Fed will likely overpay for these securities as they are the only buyer. This would likely create future losses to the taxpayer. On the opposing side, the bank that is currently holding these investments has an unrealized loss or maybe recognized a small portion of a loss from a write-down of the value of the securities. So for all these banks that have unrealized losses, by selling these securities at distressed prices this will create real losses when sold, at anything other than the price they paid. I’m not quite so sure that many banks will be willing to take significant losses here, unless they feel the Fed is overpaying and they shift the loss to them. I believe in the end it will be a bit of both. And the definite loser here once again will be the current and future taxpayers.
In addition, the Fed has kicked off its $1 trillion program to jump-start consumer and small business lending and added it could be expanded to include other financial assets. The program currently is focused on spurring lending for autos, education, credit cards and loans for business equipment. The government already has announced an expansion to include commercial real-estate assets.
With these trillions of dollars being utilized, one can’t say the Fed Chairman Bernake isn’t standing still. So with that he gets some credit. Although, the doing something is better than nothing approach or how much of what to do, could be debatable, and from a public policy perspective they definitely should. However, it is these very programs that involve huge amounts of dollars and without the level of transparency that also creates problems. The government in and of itself is taking on substantial risks with what on the surface seems have little disregard to the risk undertaken in the sake of propping up the economy as well as adding to inflationary pressures down the road.
The Federal Reserve reported that industrial output dropped by 1.4 percent last month. The weakness included a 0.7 percent fall in manufacturing output, which pushed the operating rate at the nation's factories down to 67.4 percent of capacity last month, the lowest level on records that go back to 1948. The drop in manufacturing output occurred even though production at the nation's auto plants actually rose sharply after extended shutdowns in the previous month. Output in the mining industry, a sector that includes oil and gas drilling, was off by 0.4 percent and utility plant production plunged by 7.7 percent, reflecting warmer-than-normal weather in February which cut into demand. Production at auto plants and auto parts manufacturers rose 10.2 percent in February after four straight months of declines including a sharp 24.7 percent drop in January. The overall operating rate for manufacturing, mining and utilities fell to 70.9 percent of capacity in February, matching a record low set in December 1982.
The Commerce Department reported that construction of new homes and apartments jumped 22.2 percent from January to a seasonally adjusted annual rate of 583,000 units. February's pickup was led by a big increase in apartment construction. Since many individuals can’t get a house, they need somewhere to live. By region, all parts of the country reported an increase in overall housing construction, except for the West, which led the housing boom and has been hard hit by the bust. Overall housing construction activity fell to a pace of 477,000 units in January, according to revised figures. That was a little higher than first reported but still marked a record low. Applications for building permits, considered a reliable sign of future activity, also rose in February by 3 percent to an annual rate of 547,000. Even with February's rare burst of activity, housing construction is down a whopping 47.3 percent from a year ago.
The National Association of Home Builders' housing market index was flat in March at a reading of nine. That was one point above the all-time low reached in January. Readings lower than 50 indicate negative sentiment about the market. The index has been below 10 since November, reflecting the toughest market conditions in a generation.
The Labor Department reported that wholesale prices edged up a slight 0.1 percent in February as a big drop in food costs offset a second monthly increase in energy prices. The 0.1 percent increase in wholesale inflation was much lower than the 0.8 percent surge in January. Compared with a year ago, wholesale prices are actually down 1.3 percent. Core inflation, which excludes energy and food, edged up 0.2 percent in February. Core prices had risen 0.4 percent in January. The 0.1 percent rise in wholesale inflation in February reflected a 1.3 percent increase in energy prices, which have been rising for two months after having retreated for five straight months. Gasoline prices jumped 8.7 percent in February after a 15 percent surge in January. Food costs fell for a third straight month, dropping 1.6 percent in February.
The Labor Department reported that consumer prices rose 0.4 percent in February by the largest amount in seven months as gasoline prices surged again and clothing costs jumped the most in nearly two decades. Two-thirds of last month's increase reflected a big jump in gasoline pump prices. Core inflation, which excludes food and energy, rose 0.2 percent in February. Gas prices surged 8.3 percent last month after a 6 percent rise in January. Total energy costs rose 3.3 percent in February almost double the 1.7 percent January rise. But energy prices are still down 18.5 percent from a year ago. Home heating oil and natural gas prices both fell in February based on warmer weather. Clothing costs shot up 1.3 percent in February, as the gain likely reflected a turn around from steep discounts offered in January as retailers were clearing store shelves after the worst holiday season in decades. Food costs dipped 0.1 percent last month but are still up 4.7 percent over the past year.
The Conference Board’s index of leading economic indicators dropped 0.4 percent in February, continuing its broad decline of the past 19 months. The Conference Board also lowered estimates for the previous two months, as leading indicators rose just 0.1 percent in January and slipped 0.1 percent in December. The earlier estimates were for gains of 0.4 percent in January, and 0.2 percent in December.
The number of U.S. workers collecting state unemployment benefits set another record high this week. However, the number of people filing new claims for jobless benefits fell to a seasonally adjusted 646,000 in the week ended March 14, according to the Labor Department. The prior week's number was revised up to 658,000 from 654,000. The number of people staying on the benefits roll after drawing an initial week of aid surged 185,000 to 5.47 million in the week ended March 7, the latest week for which the data is available, from 5.29 million the previous week. This was the highest on record and pushed the insured unemployment rate to 4.1 percent from 3.9 percent the week before, the highest since June 1983. The four-week moving average for new claims that irons out week-to-week volatility, rose to 654,750, the highest since October 1982, from 651,000 in the week ended March 7. With the additional 1.4 million people were receiving benefits under an extended unemployment compensation program approved by Congress last year that would bring the total to 6.9 million.
Courtesy of CNN, 45 percent of people questioned in a CNN/Opinion Research Corporation survey said another depression is likely. According to CNN Polling Director Keating Holland, "Last December, 38% said a depression like the one the U.S. experienced in the 1930s was likely in the next year. Now that number is up 7 points." The poll described the 1930s' Great Depression as a time in which roughly one out of four workers was unemployed, banks failed across the country and millions of ordinary Americans were temporarily homeless or unable to feed their families. Nearly nine out of ten people questioned in the survey said economic conditions in the country are poor today, with only 11% suggesting that conditions are good. "Only one in ten say recovery is likely within a year; one in five predict it will take longer than four years for the country to get back on its feet," Holland said. The CNN/Opinion Research Corporation poll was conducted Thursday through Sunday, with 1,019 adult Americans questioned by telephone. The survey's sampling error is plus or minus 3 percentage points. (Source CNN.com)
Ok, so with that, the new Presidential administration went from we are in dire straights to being cheerleaders that the economy is fundamentally sound. Gee, that sounds awfully familiar. Perhaps it should be a bit of both but it shouldn’t ebb and now with the flavor of the week news item or political sound bite.
March 13, 2009
By Paul Fero
The stock market had a nice turn around this week gaining over 10% after hitting fresh new lows of late. The rally was sparked by favorable comments from the CEO’s of Citigroup and Bank of America indicating a level of profitability so far this year. I hate to be a bit cynical here, but nothing has really changed this week from last week. I can only imagine the issues related to poor investments and increasing delinquencies and write-offs will continue. It's not as if these issues just went away. Although, if you count the “uptick” rule that eliminates some of the timing associated with short selling, that won’t amount to anything from a material standpoint to matter. There is also the possible removal of the “mark to market” accounting standard. As I have previously stated, how changing this would be bad as you won’t readily have the ability to differentiate those with good investments from those with problems.
So here’s the camp I’m in. Given the steep decline, the market was due for a rally. A bear market rally is what it is called. I was expecting a bit more of a decline first with the S&P 500 in the 650-660 range, so a bounce off of the 677 level, is close so you’ll have that. The latest talk will be that we hit another bottom and will be rebounding. It would be pretty premature to be saying that. The economic issues haven’t gone away and with significant losses in the labor market will continue so this won’t be a quick turnaround. So given the now big run up, I would expect more shorts to come in and some brief profit taking after a quick gain. The trend is still down so the likelihood still follows the trend and not against. As a reminder, nothing goes up or down in straight line, and it’s a process not an event.
Regulators revised AIG’s bailout last week to ease loan terms and extend $30 billion in fresh capital after the firm posted a $61.7 billion fourth-quarter loss, the worst in U.S. corporate history. The government has already provided about $160 billion of direct funds however lawmakers are a bit weary about additional funding requests because they say regulators haven’t given enough detail about how the funds are being used or when the bailouts will end. With over $450 billion worth of credit default swaps and increasing worries of corporate and municipal default concerns, look for more funding requests. This isn’t going away quickly either.
Freddie Mac reported that its liabilities now exceed its assets, in part because the fair value of its loan portfolio declined by a massive $120 billion. It has said it will need to draw another $30.8 on the loan facility established to keep it afloat. All told it lost just under $24 billion in the fourth quarter. Given the current the state of housing in the U.S. and this isn’t going away quickly either.
The World Bank said that the global economy will shrink this year for the first time since World War II and that the global financial crisis will make it tougher for poor and developing nations to access needed financing. Trade is forecast to fall to its lowest point in 80 years in 2009, as the recession expansions around the world and becomes more significant to developing nations. The most drastic trade slowdowns are expected in East Asia and the impact on the poorest countries will be severe. The World Bank predicts that a group of 129 countries face a shortfall of assistance of $270 to $700 billion this year. For all Multilateral Development Banks (MDB’s) of which the World Bank is just one of many entities, the 2009 requested amount from the U.S. is just over $2 billion of which roughly 90% of requested amounts are appropriated by Congress according the State Department reports.
The Director of the National Economic Council, Lawrence Summers and President Barack Obama's top economic adviser said the nation's economic crisis has led to an "excess of fear" among Americans that must be broken to reverse the downturn. "Fear begets fear," and that "is the paradox at the heart of the financial crisis.” Adding "It is this transition from an excess of greed to an excess of fear that President Roosevelt had in mind when he famously observed that the only thing we had to fear was fear itself," Summer said. "It is this transition that has happened in the United States today." (Source: www.yahoo.com)
So Larry, what do think happens when we as Americans see the economy is poor and worsening and that people are losing their jobs at an alarming rate? I don’t call that fear, I call that reality. This is the reason that people are fearful. When the economy starts to improve and jobs aren’t lost in huge numbers, then maybe the anxiety level will loosen. This would be a rational level of fear that normal people have. Perhaps that’s your problem Larry, your missing that perspective of normal people. Please don’t belittle our fears as irrational or excessive.
The net worth of American households fell by the largest amount in more than a half-century of record keeping during the fourth quarter of last year. The Federal Reserve said that household net worth dropped by a record 9 percent from the level in the third quarter. The decline was the sixth straight quarterly drop in net worth in the midst of a steep recession with unemployment surging and the value of their homes and investments plunging. Net worth represents total assets such as homes and checking accounts minus liabilities like mortgages and credit card debt. Family net worth had hit an all-time high of $64.36 trillion in the April-June quarter of 2007 but has fallen in every quarter since that time. The record 9 percent drop in the fourth quarter pushed total net worth down to $51.48 trillion, a level that is 20 percent below the third quarter 2007 peak.
The Labor Department reported that first-time requests for unemployment insurance rose to 654,000 from the previous week's upwardly revised figure of 645,000. The number of people receiving benefits for more than a week increased by 193,000 to 5.3 million, the most on records dating back to 1967. The four-week average of new claims, which smoothes out fluctuations, rose to 650,000, the highest in more than 26 years, though the work force has grown by about half since then. An additional 1.4 million people were receiving benefits under an extended unemployment compensation program approved by Congress last year, the department said. That tally was as of Feb. 21, which would bring the total to 6.7 million.
The Commerce Department said retail sales fell by 0.1 percent in February also revised January's performance to show a 1.8 percent rise stronger than the 1 percent gain that was originally reported. This is a mixed picture of sorts. While nice to see some positive stats once in while, much of this is bargain shopping and gift cards from the holiday season as well as an increase in gas prices of recent lows at the end of the year. Still better than expected which is always a plus.
Businesses slashed inventories for a fifth straight month in January as they struggled with the deepening recession. The five consecutive declines marked the longest stretch of reductions since inventories were cut for 15 straight months from February 2001 to April 2002, a period that covered the last recession. When business slash inventories, less orders are made and less are manufactured and less labor is needed.
The Reuters/University of Michigan Surveys of Consumers said its preliminary index reading of confidence for March increased to 56.6 from 56.3 in February. The Surveys of Consumers said those who thought the administration of President Barack Obama was doing a good job rose to 23 percent. In February that number was 14 percent and it is up from just 7 percent in January. While on the surface that initial low number seems a bit surprising it’s probably more due to what respondents perceive of as individual abilities versus overall approval ratings that we are more commonly familiar with. But the point of this is shift of respondents approve of the President’s initial actions versus perceived inaction. Ultimately, sentiment remains severely depressed and is not far from the record low of 51.7 that it hit in May 1980. The University of Michigan confidence index dates back to 1952.
Lastly, as spring begins and more houses are coming on the market, Freddie Mac said the average rate on a 30-year fixed mortgage slipped to 5.03 percent this week from 5.15 percent last week. A year ago, the 30-year fixed-rate mortgage averaged 6.13 percent. So with relatively low mortgage rates, those that can move into the housing market will help to put a floor. But with the weak credit environment still continuing this counters some of the benefit from lower rates.
March 6, 2009
By Paul Fero
The stock market got hammered once again. The Dow Jones was down 6.2 percent for the week to end at 6,626 and the S&P 500 index was down 7 percent to end at 683. Both have fallen more than 24 percent since the start of 2009. The Dow Jones is at its lowest point since the spring of 1997, and the S&P 500 is at its lowest level since September 1996. In my economic and financial forecast included a decline of 25% on the S&P, so that came through. I have marked the S&P 500 to hit 650 for my forecast. Given how far and how fast we have come so far, we may go even lower. There is a support at the 650 level and also around 600 which also the Fibonacci retracement level of 61.2% from the high. A break below that could take it the 500 level which has pretty strong support. The negative momentum is huge and building. However, we are do for a bear market rally so any significant upward movement is only temporary. Mr. President, please stop giving stock advice. The comment that stocks look cheap relative to price to earnings sounds nice but with earnings declining, you’ll keep chasing the price downhill.
And now for the most outrageous, grossly appalling public policy item, courtesy of the Making Home Affordable plan to help homeowners avoid foreclosure. First off, no one wants or enjoys that people are losing their homes to foreclosure. If this truly was meant to help the few people who are struggling that could afford their home to begin with, that’s all well and good. But truth be told, many, not an exact number, bought way too much house than they can afford in markets of rising home prices. The whole notion that the maximum percentage of gross income for a mortgage at 31% is still way out there. Just because some bank says you can get a loan, doesn’t mean you should take it. Hellooooo. To buy a house three times your annual income puts you up to the edge of the financial cliff.
And now for the disgusting part. The Making Home Affordable applies on an unpaid principal balance up to $729,750. Excuse me….if you have a home that’s three times the median price and I’ll go on a limb here and say at least three times more than the average person’s home, it sucks to be you. Oh good grief. Why should my tax dollars go to support someone’s mortgage that’s $300,000, $400,000, $500,000, $600,000 and $700,000? Way more than anything I can ever hope to afford. This makes me sick at how pathetically stupid this is that these homeowners should get a subsidized mortgage to as low as 2%. All the while, me being a responsible individual trying to buy my own first house. There is a reason I’m still renter.
Ok, now that I got that rant out of the way, the number of people who were late making their mortgage payments shot up 53 percent in the fourth quarter of 2008 from the same period in 2007, according to TransUnion. Delinquencies those that are at least 60 days behind on payments, jumped to 4.58 percent nationally, from 2.99 percent for the 2007 fourth quarter and above the 3.96 percent rate seen in the in the previous third quarter 2008. This marks the eighth straight quarter that delinquency rates rose. The states that have shown the highest delinquency and foreclosure rates remain the same. Florida is on top, with a 9.52 percent rate, Nevada is second with 9.01 percent, Arizona came in at 6.93 percent and California right behind at 6.88 percent. Looking at which states are getting worse, the sharpest increases in loans 90-days past due were in Louisiana, New York, Georgia, Texas and Mississippi, reflecting a spreading recession and massive job losses nationwide.
Sticking with the mortgage them, another report showed 1 in 5 mortgages are “underwater” meaning the current home value is less than the mortgage amount. These were most prominent in California, Texas, Nevada, Arizona and Florida. Duh, no surprise here as these states saw 25% to 50% annual increases in real estate that created the crisis now implode. The worst state is Nevada as 55% of mortgages are “underwater”. There is not help for these people or their homes. If you are significantly underwater, why bother staying. The only way these states can improve is by providing reasonable financing for someone who can afford to buy them at current prices. Prices are currently around the 2003 price levels so they could moderate a bit if the demand was there.
Moving along, the nation's unemployment rate bolted to 8.1 percent in February, the highest since late 1983, as employers slashed 651,000 jobs amid a deepening recession. February's net job loss came after even deeper reductions in the prior two months. The economy lost 681,000 jobs in December and another 655,000 in January. Since the recession began in December 2007, the economy has lost 4.4 million jobs, more than half of which occurred in the past four months. All told, the number of unemployed people climbed to 12.5 million. In addition, the number of people that are “underemployed” those that are forced to work part time for "economic reasons" rose by a sharp 787,000 to 8.6 million. That's people who would like to work full time but whose hours were cut back or were unable to find full-time work. If part-time, discouraged workers and others are factored in, the unemployment rate would have been 14.8 percent in February, the highest on record started calculating it back in 1994. For perspective, the underemployment rate reached a high of 21.5% in November 1982.
Over the last six months, 3.3 million jobs have been lost. That's the largest six-month job loss since the end of World War II. Even adjusting for the large growth in the nation's labor market in recent decades, this is still the biggest six-month job loss since March 1975. The diffusion index of employment change, which showed that three out of four business sectors cut jobs in February. Job losses were even slightly more widespread in December and January, meaning that 83% of industries have lost workers over the last three months. This was the first time in the past 30 years that there have been job losses in more than two-thirds of the sectors of the economy. When the recession started in December 2007, about 58% of industries were still adding jobs.
Now add to that the weak labor productivity over the last month and this will only get worse. With a low labor productivity number, that means more idle work for workers. Not enough work means layoffs. My forecast has the unemployment rate going to 9% by year end. With these large labor cuts continuing, this item too may need to be revised higher. If you anticipate the large number of high school and college graduates coming into the labor market in the next couple of months, this could easy push the unemployment level higher, perhaps hitting the 10% level. At the very least, many of the college graduates will fall into the underemployed category definitely bringing that indicator higher.
The initial requests for unemployment benefits fell slightly to 639,000 from the previous week's figure of 670,000, according to the Labor Department.. The number of people claiming benefits for more than a week fell slightly to 5.1 million in the latest report from 5.12 million, after rising to record-highs for five straight weeks. Analysts expected 5.15 million continuing claims. But an additional 1.4 million people were receiving benefits under an extended unemployment compensation program approved by Congress last year. That tally was as of Feb. 14, the latest data available, and brings the total jobless benefit rolls to about 6.5 million. The four-week average of new claims, which smoothes out fluctuations, increased 2,000 to 641,750, the highest since October 1982. What’s missing here, is the number of people who have exhausted their unemployment benefits and have moved into the still unemployed area, underemployed fell out of the labor market that is they removed themselves from seeking employment for whatever reason.
There are a number of other items but nothing that we can’t already imagine how bad the numbers are given the current economic climate. So with auto sales off by over 50%, GM will be declaring bankruptcy. It’s not an option now. Speaking of not an option, Citigroup won’t have an option either and will be “nationalized” as the government has not choice but to come in and “save” them. And another not an option, more bailouts at AIG. One would think after four rounds of bailouts to the tune of $180 billion, and the government already owning 80%, they would just pull the trigger already. Hmmm, does AIG have health insurance? Perhaps the government can dole it out at a discount for those that don’t have it. There’s a thought. You own them, put them to good use.
February 27, 2009
By Paul Fero
The stock market continued its decline this week with the S&P 500 hitting a 12 year low ending the week at 735. From its current level it’s only about 10% away from my forecast low of 650 anticipated within the next couple of months.
Citigroup seems to have gotten its support once again from the government as expected, since it is worse off than Bank of America. But the government also announced additional funding the financial sector, so it’s probably just a matter of time before the announcement.
The Commerce Department reported the economy sinking by 6.2 percent which is a huge revision from previous estimate of 3.8 percent. The economy contracted by the largest amount in a quarter-century. All told, consumers at the end of the year slashed spending by the most in 28 years. And that includes the holiday season, which would have made the contraction worse. That sets up the first quarter GDP to be at least a negative 5% as the economy continues to contract.
The National Association of Business Economists (NABE) released an updated forecast for 2009 from their November release. Of note, 60 percent noted the depth of the recession would be relatively contained with a decline in real GDP of less than 1.5%. The remaining 40% expect a larger contraction. Also, they revised the anticipated unemployment to become 9% by year end. Like the Federal Reserve’s updated forecast each moving toward my own initial forecast from December.
The Conference Board said that its Consumer Confidence Index, which was down slightly in January, plummeted more than 12 points in February to 25, from the revised 37.4 last month. The index, which had hovered in the high 30s over the past few months, broke new lows since it began in 1967. A year ago, the consumer confidence reading stood at 76.4. The Present Situation index, which is consumers' assessment of current economic conditions, fell to 21.2 from 29.7 last month. The Expectations' Index, which is consumers' outlook over the next six months, sank to 27.5 from 42.5.
Standard & Poor's/Case-Shiller U.S. National Home Price Index, showed conditions deteriorating further. The national index plunged 18.2 percent during the quarter from the year-ago period, the largest drop in its 21-year history. Prices are now at levels not seen since the third quarter of 2003. In the month of December, the Case-Shiller 20-city index plunged 18.5 percent from December 2007 levels, while the 10-city index dropped 19.2 percent.
The National Association of Realtors said that sales of existing homes fell 5.3 percent to an annual rate of 4.49 million last month, from 4.74 million units in December. It was the weakest showing since July 1997. The median sales price plunged to $170,300, down 14.8 percent from $199,800 a year earlier. That was the lowest price since March 2003 and the second-largest drop on record.
New-home sales tumbled to a record-low annual pace in January. The Commerce Department reported sales fell 10.2 percent to a seasonally adjusted annual rate of 309,000, the worst showing on records going back to 1963. It shattered the previous all-time monthly low set in September 1981. The median sales price fell to $201,100 in January, a record 9.9 percent drop from the previous month. The median price is the midpoint, where half sell for more and half for less. The average home price also dropped to $234,600 last month, a 9.8 percent decline from December.
Delivering the Fed's semiannual report on monetary policy, Chairman Bernanke further warned that another risk to the outlook was the global nature of the economic slowdown, which could sap U.S. exports and harm financial conditions to a greater degree than currently expected. A slump in U.S. exports as world growth slowed during the end of last year added to the worsening GDP numbers. The only bright spot last year came in the first half as U.S. exports soared as the dollar fell. Once the dollar turned mid-year exports began to plummet. Once again, the Fed chairman made no mention of the prospect the central bank would purchase longer-term U.S. government debt, marking his third consecutive appearance in which he has not mentioned the possibility, which was front-and-center in a statement central bank policy-makers issued in late January.
The Labor Department reported that first-time requests for unemployment benefits jumped to 667,000 from the previous week's figure of 631,000. The 667,000 new claims are the most since October 1982, though the labor force has grown by about half since then. The four-week average of initial claims, which smoothes out fluctuations, rose to 639,000, the highest in more than 26 years. Meanwhile, the number of people receiving unemployment insurance for more than one week also increased to 5.1 million. That's the fifth straight week the figure has set a new record-high on data going back to 1967, and compared with only about 2.8 million people a year ago. As a proportion of the work force, the number of people continuing to receive benefits has reached its highest point since July 1983. An additional 1.4 million people were receiving benefits under an extended unemployment compensation program as of Feb. 7, the latest data available. That brings the total number of jobless benefit recipients to roughly 6.5 million.
The Commerce Department reported on durable goods orders, in which U.S. manufacturers saw orders for big-ticket goods plunge by 5.2 percent in January and for a record sixth straight month. The previous record of four months came in 1992. Activity in December turned weaker as revised figures showed a 4.6 percent drop in orders, versus a 3 percent decline previously estimated. Stripping out volatile transportation orders, all other orders sank 2.5 percent in January, also the sixth straight monthly decline.
While the U.S. continues to with its own enormous issues, these almost pale in comparison to Europe and more specifically Eastern European countries. These economies are contracting at faster rate than U.S. and also their own real estate lending situation. In many of these countries, mortgage loans are made in the major western European currency, such as the Euro or Swiss Franc. So while wages are paid the in the local currency, repayment of the loan must be converted the lending currency. Over nearly a year, many of the currencies have lost up to half their value relative the lending currency. This effectively doubles the monthly payments which now become unaffordable. This cascading effect will have huge economic and financial constraints throughout all of Europe.
February 20, 2009
By Paul Fero
What an ugly week for the stock market as the Dow Jones lost 6.2 percent and the S&P 500 index lost 6.9 percent. The majority of the blame can placed once again at the feet of the financial sector as continued worries about large banks, primarily Citigroup and Bank of America. These two large banks are teetering close to the point of significant involvement from the government, primarily the Treasury Department and the Federal Reserve. There is great amount of speculation in the marketplace that one or both of those could result in a “nationalization” of a bank, whereby the government comes in and takes it over completely. Their current stock prices are at a low point whereby at some price point the government will be forced to move in and either provide significant capital in the tens of billions dollars or be forced to take them over and nationalize them. As their stock price falls they move closer and closer to government involvement. This would be a huge mental blow to the banking and financial services industry that will have wide sweeping effects. Some initial government involvement would be as soon as over the weekend.
The Federal Reserve sharply downgraded its projections for the country's economic performance for this year, predicting the economy will actually shrink and unemployment will rise higher. Under the new projections, the unemployment rate will rise to between 8.5 and 8.8 percent this year. The old forecasts, issued in mid-November, predicted the jobless rate would rise to between 7.1 and 7.6 percent. The Fed also believes the economy will contract this year between 0.5 and 1.3 percent. The old forecast said the economy could shrink by 0.2 percent or expand by 1.1 percent. It’s good the see the Fed moving toward my forecast. It seems when I did my forecast in December, it would have been considered an “outlier”. Now everyone else is moving towards mine. Ben, next time just pick up the phone.
The Labor Department reported that new applications for unemployment benefits totaled 627,000 last week bring the total up to 4.99 million. Once again, this doesn’t include an additional 1.5 million people are receiving benefits under an extended unemployment compensation which would bring the total number of people receiving unemployment benefits to 6.54 million for the week ending Feb. 7.
The Commerce Department reported construction of new homes and apartments plummeted 16.8 percent in January from the previous month, falling to a seasonally adjusted annual rate of 466,000 units, a record low. While building permits, a measure of future activity, also sank to a record low pace of 521,000 units in January, a 4.8 percent drop from the prior month. Obviously not surprising given the level of overall housing in the U.S.
The housing sector also got a boost from the Obama administration, which unveiled a $75 billion effort to prevent up to 9 million Americans from losing their homes. The plan also will double the size of the lifeline the government is providing Fannie Mae and Freddie Mac to $200 billion each as a way of reassuring financial markets of the viability of both mortgage finance giants. While we can appreciate the appearance of reassurance, performance is about the only real measurement these days. While each organization continues to get hammered by their current portfolios and new loans made at historically low rates will not improve matters. In fact it makes it worse by saddling weak organizations with even greater levels of interest rate risk.
The Conference Board said its January index of leading economic indicators rose 0.4 percent, which forecasts economic activity for the next three to six months based on 10 economic components, including stock prices, building permits and initial claims for unemployment benefits. The Conference Board said the single biggest boost to the index was the real money supply. The government's effort to address the credit crisis has put more money in circulation. Other positive factors were the interest rate spread, an index of consumer expectations, and manufacturing orders for non-defense and consumer goods. While negative components include unemployment claims and building permits.
The Labor Department reported wholesale inflation increased by 0.8 percent last month. The acceleration was led by a 3.7 percent surge in energy prices with gasoline prices jumping by 15 percent. Even outside the volatile food and energy sectors, wholesale prices rose by 0.4 percent. The Labor Department also reported a surge in consumer inflation by 0.3 percent last month. Core inflation, which excludes energy and food, showed a modest increase of 0.2 percent.
February 13, 2009
By Paul Fero
For our new Treasury Secretary here is a simple piece of advice. When you set the expectation of a major policy shift or major policy change in anything, please come with ALL the details in hand. Without all of the details of how each piece will work and how much each piece will cost and whoever else we need to get it done, right there next to you on board ready to go provides only a hollow solution.
So out goes TARP and in comes FSP, Financial Stability Plan. A better name given what the purpose is intended. With the outcry on how the first $350 billion was spent, no wonder everyone is anxious over the second half of spending. Here’s the good and bad with the TARP. The bad is it sold as one thing when it was immediately used for something else. Ok, so maybe we were lied too. Strong words but effectively true. The good thing, the end result is that it did what it was intended to. The initial set of funding was intended to shore up the banking the system. How it did that is the issue. (I didn’t like the initial intended purpose of buying troubled assets to begin with.) But the re-capitalization of banks shored up the many of the banks that were on the brink of going under. So the end result worked as it was intended. Whether these banks should or shouldn’t go under, that’s debatable. There are plenty of pros and cons but as they say, that’s another story for another time. Now with the immediate shoring up of the banking system, there are still many more banking related issues that are still creating havoc for banks that still need to be resolved. And troubled assets are still a problem.
Ok, Washington, here’s the problem with the big banks. The big banks are not willing to lend…duh. First, they aren’t sure how much junk is still embedded in their investments. They aren’t sure about the worsening delinquencies on the loans they do have. And the TARP money and everything else is just trying to keep them alive for another day. They are more worried about survival than any of Washington’s well intentioned recovery plans. And to try and force banks to lend would only invite more of the same problems we already have. So let’s not go down that road again.
Now assuming banks are willing to lend, you need consumers willing to borrow. Hellooooo. With all the jobs being lost, it’s not a surprise you have a large number of consumers holding back from large purchases. Individuals and families are focusing on their own economic survival.
So yes, it is a conundrum. The chicken and egg thing, pick your analogy. While we can appreciate the sense of urgency here in putting together plan after plan, one thing we don’t need are unrealistic expectations. The suggestions of, if we don’t do all this right now or else it will be a catastrophe is no help to anyone. We have heard that all too often, and yes while bad things will continue, it’s not quite the level of catastrophe.
As follow-ups from last week, the Republican Senate idea of 4% to 4.5% mortgages failed to pass which a positive sign we won’t have a sequel to the financial crisis down the road. One item I failed to mention last week was as the Treasury’s proposals were being put together, I did call three areas within Treasury, Economic Policy, Financial Institutions and Financial Stabilization to express the problems with the “mark to market” approach of valuing investments which is a horrific idea. Outside leaving a voice message for someone in Economic Policy, I think, these people are pretty clueless as to who’s doing what during the transition. Not a surprise but makes you wonder who actually is making policy. Based on the new public-private partnership in the new Financial Stability Plan, which came from absolutely nowhere it does make me wonder and that’s not always a good thing. But in the end, the “mark to market” didn’t make it, which is good for everyone. One item that did come out is that the financial cost for these new components is something in the magnitude of $2.5 trillion. And yes, that’s trillion with a “T”. And, yes it is that bad.
So here too is another one of the problems. You have political people trying to work through non-political problems. Here’s a suggestion, stop trying to find a palatable political solution to a problem that is neither political nor palatable.
This is a huge and costly mess that is going to have some unpleasant results. These results will be unpalatable for many as it will cause significant economic and financial distress that the political process can’t ready address.
With such a brilliant Presidential campaign, I’m fairly disappointed that the new administration can’t get any traction. Given the new administration’s problems with vetting cabinet nominees, it makes me wonder what’s going to happen moving forward. The vetting process is painfully simple and yet with 5 candidates dropping out, the focus is being misplaced. Even the economic stimulus has lost traction and this one should be a slam dunk. It makes it more apparent how much more difficult the tough decisions are going to be to get done. In politics, sometimes you have to play nice and sometimes you don’t. While it’s nice to be inclusive and get everyone on board, don’t let some areas of the political processes pull the ideas down as if it were a boat anchor. Just cut it loose. Enough with the carrot approach, it time for sticks.
So now the revised stimulus is done. With the final revisions, this is will be a big yawn of a bill. Nothing to get excited here and nothing all that meaningful will be accomplished and way less than the expected 3.5 million jobs promised. It will be at best one quarter that amount. The way the government counts all these new jobs includes a “multiplier” effect. That is for each 1 job created there is a multiplier of say 2.5 which creates a total of 3.5 jobs, which could be anything from fast food workers to retail. The multiplier in this instance is more opportunistic than what reality would indicate. Given the economic environment businesses will be very hard pressed to hire additional employees as opposed to having the current employees do more. This will show up in the government productivity reports. And with the economy shedding huge numbers of jobs each month, what will happen is just a lower net job loss by the end of this year. My forecast is still to see unemployment increase to 9% by year end. Washington started the new spin here in the final days as instead of 3.5 million jobs created it became 3.5 million jobs created or saved. “Saved”, come on, give me a break. You might as well start taking the credit now.
The Commerce Department said wholesale inventories plunged by 1.4 percent which was the largest amount in 16 years. This was the fourth straight monthly decline. The reduction means wholesalers ordered fewer new goods, which leads to reduced production and potentially more job layoffs. Additionally, the Commerce Department reported U.S. businesses slashed inventories 1.3 percent in December the largest amount in seven years as sales during the holiday season plunged. It was the largest cut since the record 1.5 percent in October 2001. It also marked the fourth straight month that companies cut their stockpiles. The trend of inventory reductions illustrates the level of concern that these cutbacks will further reduce production and add to more layoffs. Wholesale inventories make up about 25 percent of all business stockpiles; factories hold another third and the rest is held by retailers. These declines in inventory levels may also show as part of the revisions to 4th quarter GDP, which may be revised downward from the negative 3.8% initial reported.
The Labor Department reported initial claims for state unemployment insurance benefits slipped 8,000 to a seasonally adjusted 623,000 in the week ending February 7. The previous week's claims were revised up to 631,000, the highest since the week ending October 30, 1982. The number of people staying on the benefits rolls rose by 11,000 to 4.81 million in the week ended January 31, the latest week for which data is available. But once again, that doesn’t include the 1.7 million receiving benefits under the extended program which brings the total to 6.5 million receiving benefits.
The 10 year U.S. Treasury is once again all over the place this week after hitting a high yield of 3.05% and ending the week at 2.88% with some fairly big one day gains and losses. Just a month ago on January 15th, the yield was 2.20%. As a reminder there is an inverse relationship between price and yield. So as yields go up, prices go down. So all those billions of dollars buying U.S. Treasuries when yields are low are losing value and losing significantly. This is the fallacy of when times are tough to move money into bonds. Unless you are moving money back and forth very often, that’s actually the worst advice. As times are tough and money moves into bonds, yields fall as prices rise. Once the immediate tough time eases, yields go up and prices fall. The place to go is safety is money market funds.
February 6, 2009
By Paul Fero
The stock market is coming off its weakest January on record. The S&P 500 index slid 8.57% for January. The previous record was 7.04% in January 1970. So given a big decline not too much of surprise the market ended up this week with anticipation over the economic stimulus plan and Treasury Department announcement on the re-workings relating to the banking industry.
One of key items for Treasury is changing of the accounting standard “mark to market”. That is a making an account entry to bring investments purchased to the current market price. For example, a firm buys $1 million of an investment that now has a market value of $400,000; the firm must recognize that $600,000 difference as an “Unrealized Loss”. What does for banks is these “Unrealized Losses” have a negative impact on capital and therefore if they are large enough they could go under over night. If this Treasury says you don’t have to do that anymore and firm shows the investment at $1 million, no one outside the firm has any idea what the value truly is. This is a hugely dangerous way to go. If no one has any idea what these investments are truly worth, how we know how much exposure these could be if the firm needs to sell them for liquidity. Then the “Unrealized Loss” would become a realized loss and that would be bad. And if this is applied to other businesses outside of the banking industry, then no one outside the firm can truly the value the firm. Just because the “Unrealized Loss” is a bad or ugly number doesn’t mean it should away. What the firms who don’t have such large “Unrealized Losses”? How could you differentiate the good firms from the bad firms? This should make everyone nervous and just another stupid attempt to try to band-aid the problem.
Within the Senate version of the economic stimulus plan has an effort to spur real estate sales. The Republicans offered a program to have 4% to 4.5% mortgage rates. This would be a huge win for consumers get a low rate and an absolutely horrific plan for Fannie Mae and Freddie Mac, presumably the ones that have buy these. When interest rates begin to normalize both Fannie Mae and Freddie Mac will have to pay out more than these mortgages bring and would result in huge “Unrealized Losses”. This prompted a call to the Republican Leadership (the Whip) to tell them how horrible this plan would be. This would make the current financial crisis pale in comparison. (I wouldn’t want anyone to think that stupid belongs to any specific party in general. In Washington, there’s plenty to go around.)
The big economic news came out Friday with the Labor Department announcing that employers eliminated 598,000 in January, the most since 1974 and that bought a huge jump in the unemployment rate to 7.6%. Job cuts in November and December were both revised higher than the previously released numbers. That brings the total jobs lost to 3.6 million from when the recession began in December 2007. With an anemic job market that brings the unemployed workers to 11.6 million. The average time it took to find a full time or part-time job rose to 19.8 weeks in January compared to 17.5 weeks a year ago. I would imagine that more and more are just settling for part time now as apposed to last year where given the economic climate, many might have held out for a full time job. Not so much now. In the end, you have to do what you got to do to support yourself and your family.
The Labor Department also reported this week that the number of workers seeking jobless benefits rose from the previous week to 626,000 from the upwardly revised 591,000 from the previous week. This is the highest level since October 1982; however the work force has grown by 50% since then so you it’s not quite as bad as the pure number indicates. Also the number remaining on unemployment compensation rose slightly to 4.8 million. But once again, that doesn’t include the 1.7 million receiving benefits under the extended program which brings to the total to 6.5 million receiving benefits.
The auto manufacturers reported absolutely dreadful numbers for January sales. Total U.S. car and truck sales declined by 37 from a year ago Sales at GM fell 49%, 40% for Ford, Chrysler saw a 66% drop in car sales and 49% in truck sales, Toyota had a drop of 32% and Nissan dropped at least 30% while Honda dropped 28%. Subaru buck the trend with 2 months of increase and in January saw an 8% climb. This is most likely attributed to the lower volumes overall and more wintery weather which make Subaru’s more appealing. With the fourth straight month of auto sales declines greater than 30%, for more of the same in the coming months, given the uncertainty of the economy and labor market.
The Federal Reserve pointed out this week how bad the economy and financial sector are contributing to the credit and financial crises. They are extending the key programs that slightly thawed the credit crisis until the end of October. The programs include emergency loans to investment firms, buying short term corporate debt called “commercial paper”, bolstering the mutual fund industry and to allow investment firms to temporary sway risky securities for safe U.S. Treasury securities.
Speaking of the Fed, what ever happened to Big Ben, the Fed Chief and not the Steelers Quarterback, coming out and saying they were going to buy long term Treasuries to keep long term yields low? The 10 year U.S. Treasury is at 2.98%, the highest levels since the end of November. Helloooo. And this part of their Fed’s release when they met a couple of weeks ago and the 10 year keeps climbing. With the all the increasing debt the government is taking on, it’s no surprise that yields keep climbing but if you don’t do what you say at least enough for it to matter, you lose huge amounts of credibility. And given the Feds role during these crises, there already is so little creditability it almost doesn’t matter.
January 30, 2009
By Paul Fero
What a week of economically filled activity with no real good news that culminated in a down week for stocks with a decline in the S&P 500 of about 2%. The US treasury yields have been zooming the past couple of weeks going from 2.20% on January 15th to 2.84% for the 10 year on January 30th.
With so many bad numbers, it’s difficult where to begin. Let’s start the 4th Quarter GDP with a decline of 3.8%, which was better than many of the forecasts of a decline in the 5% range. With all the holiday shopping, even in a horrible economy, that had helped boost what would have a horrific number. But don’t worry, we’ll see that this quarter. The first Quarter 2009 GDP is shaping up to be that bad. With much less carryover of holiday shopping as gift card sales declined there wouldn't be much carryover from holiday sales. With very little activity from consumers, businesses and even the government so far, first quarter GDP will likely hit a negative 5%.
With consumers contributing about 60% toward GDP, the consumer sentiment is poor. The Conference Board said its Consumer Confidence Index edged down to 37.7 from a revised 38.6 for December. The index is hitting the lows of levels not seen since it began tracking in 1967. For some perspective, it is also less than half the level from January 2007 when the index was at 87.3.
So with consumer sentiment weak, the National Retail Federation released its forecast for 2009, anticipating retail sales to decline 0.5 percent. The forecast for the first half of 2009 is expected to decline of 2.5%, with a 1.1% decline in the third quarter and a positive 3.6 % in the fourth quarter. Not to expect anything hugely positive by the year’s end, just that the fourth quarter of 2008 was so bad, the number works out to good. There’s something sad about an improvement that looks to be good because the previous year was that bad. We could say the same out the stock market as a whole and individual 401(k) plans.
The Conference Board also released it economic activity for December which showed a slight up tick of 0.3 percent. Given the holiday related activity, not much a surprise but still better than expected which also illustrates the difference in GDP from latest estimates.
One item the Conference Board did mention with its latest economic releases is that the unemployment rate may rise to 9% by year’s end. Same as my original economic forecast released in December.
The housing market is still all over the place. New home sales plunged by 14.7% in December with a sales rate the slowest since records begin back to 1963. However, existing homes rose 6.5% in December seeing the biggest jump in seven years as the median home price plunged 15.3% from year ago levels to $175,400. This is the biggest year over year drop since records began tracking this information back to 1968.
It wouldn't be a bad economic week without including the labor market. Weekly jobless benefits continued at torrid pace nearing a 26 year high with 589,000 filing first time claims. An even worse number is the continued claims paid rose to a seasonally adjusted level of 4.78 million the highest level since records began in 1967. And even more worse is this does NOT include the 1.7 million receiving benefits under an extended unemployment compensation program which brings the total receiving benefits to 6.5 million people.
Could it get worse? You betcha. The number of firms announcing layoffs this past month has been staggering. It seems you can’t go by without hearing another company laying off 5,000, 10,000 or 20,000 employees. It will get worse before it gets better.
One person not looking for work is President Obama’s personal chef from Chicago, who will be moving to Washington, DC. That reminded me to bring my personal chef to work this week. Like many of us, my personal chef is Chef Boyardee.
Congress was working hard on the President’s stimulus packages. Once again, this is not a stimulus package but an investment package that will take years to implement and won’t have any meaningful stimulus to turn the economy around. For those that may have served in the Navy on an aircraft carrier will attest, it takes quite a while to turn it around. Yea, just the like the economy, it doesn’t turn that fast.
In addition, there has some talk about the establishment of a “bad bank” that would acquire the troubled assets still on the books at banks. Gee, that is what the TARP funds were supposed to do that is currently what the Federal Reserve has already started to do since the TARP funds were used for something else. So now they want to create a “bad bank” to purchase all these. Good grief. Now that’s just going to be ugly mess. But we’ll save that for when more details become available.
And all the while we all know how bad this recession will be, as pointed out in the Reuters/University of Michigan Surveys of consumers, whose index nudged up a bit in January to 61.2 from December’s level of 60.1. According to the survey, “nearly all consumer now anticipate the deepest and longest recession in the post-World War II era but that consumers do not expect the economy to sink into a 1093s style depression.” Source: www.yahoo.com.
Therefore it’s more than natural for consumers who are concerned about their jobs or job prospects and the overall health of their personal finances to be more cautious. As a result of these precautions, this will take a while to overcome.
January 23, 2009
By Paul Fero
This shortened holiday week saw more excitement than anticipated and by excitement we don’t mean that it was all good. On the inauguration of President Obama, the stock market tanked once again. For anyone trying to tie the two events together, don’t bother, it was truly coincidental.
The dramatic decline on the fears of more banking troubles which started Monday with the Royal Bank of Scotland (RBS) and has a large U.S. presence under the Citizens Bank name. Previously having difficulties, the Bank of England (UK’s Central Bank) moved in to take a 50% ownership role in the fall of last year. On Monday, the ownership role increased to 70% as RBS reported a $41 billion quarterly loss, the largest corporate loss in UK history.
As a result, that sent many bank stocks to decline significantly in the 25% range for the week after greater losses on Tuesday. This is another warning sign that more of the bailout funds will be necessary to stabilize and re-capitalize these large financial institutions. With only $350 billion of the TARP/bailout funds left, it’s not a question anymore as to what to with it. The question is, will they need more and how much more and when will they need it. All the recent talk about trying to re-position some portion of the remaining funds for use for foreclosure relief and requiring some type of bank lending is truly just a waste of time and energy. This has moved way beyond the liquidity or lending issues to become solvency issues. Last week it was Citibank and Bank of America, and this week it’s rolling through most of the large regional banks. FDIC Chairwoman Sheila Blair said on Wednesday, that 99% of the banks are well capitalized and generally sound.
I’ll go on a limb here and say it’s more than 1% of the banks are causing the problems. And if they were so well capitalized it wouldn’t be necessary for the government to step in with the TARP/bailout funds. And the well capitalized statement was in reference to data from the 3rd quarter 2008. We’ll see just how well capitalized they are with this quarter’s reporting cycle due. Also missing from the capitalization calculation are the pending write-downs and write-offs that haven’t been booked yet in addition to the just the unrealized loss amounts. This reminds me of when former President Bush said the economy was fundamentally sound in February of 2008. Yes, the economy was fundamentally sound then and yes the financial system is generally sound now. But there are also lots of problems and issues that will continue to cause significant havoc throughout 2009. How do you think they get the saying, “it’s like putting lipstick on a pig”? That’s what they do.
Getting a free pass this week is Tim Geithner, the Treasury Secretary designate for failure to pay Social Security and Medicare taxes while an employee at the International Monetary Fund (IMF). Saying he’s the only that can do the job is a bit of stretch. So maybe we give him the benefit of the doubt for not reporting. Why didn’t the IRS send him a letter saying he didn’t pay? Presumably he reported he had wages and that seems a bit odd that the IRS wouldn’t catch that he missed including Social Security or Medicare tax on from his statement. Well, I’m sure he’ll fix that glitch since he’ll be overseeing the IRS. With the consensus saying he’s our best solution since he was intimately involved with the problems at hand since he was President of the New York Federal Reserve. There’s no doubt of his confirmation. Just so you know, he’s also part of the problem as well since he was part of the decision making process that led to the worsening of the credit and financial crisis. So let’s just hope recalls those hard earned lessons going forward.
The Labor Department this week said initial jobless benefit claims rose to a seasonally adjusted amount of 589,000 and an increase from the upwardly revised figure of 527,000 for the previous week. This matches a 26 year high and also the same amount reached just 4 weeks ago. While these numbers are high, it should also be noted the workforce today is also much larger than 26 years ago by almost double that level.
Also reported this week was housing starts that reached the lowest level on record (or at least the last 50 years since these statistics began being tracked). Not a surprise given a weak economy, over supply of existing new homes and the glut of existing homes for sale in the market. Add to that a weak residential mortgage market even at low rates and this spells bad news for housing.
Also coming up on the on deck circle is the Obama stimulus plan. I’ve already said it should be called an investment plan since most of the money is going to spent on investments in infrastructure, green energy and medical technology. And yes what stimulus aspects are included come in the form of tax credits for individuals, families and businesses. I like the plan as these are much needed initiatives all the way around. To call it a stimulus is disingenuous and these expenditures would typically be paid out over years. And now the plan is to have 75% paid in one year is just ripe for abuse and mismanagement, plain and simple. Last week’s commentary provided what would be real stimulus and what is truly needed from an economic public policy standpoint. Also to say this stimulus plan is going to create 3 to 4 million new jobs probably is not all that realistic. By the way, even if 4 million new jobs are created in the next year, that just brings us back to even before the downturn. Ever expanding is also the workforce each year so it difficult to ever get ahead in the jobs creation area during a downturn. Not to mention the jobs lost in this downturn don’t fit all that well with stimulus plan.
January 16, 2009
By Paul Fero
December retail sales numbers released this week showed a weak economy for the holiday season was much worse than anticipated. As a result, the stock markets declined primarily in the first part of the week as with yields on long term treasuries. The 10 year treasury has seen the swings from 2.10% to climb all the way to 2.50% only to fall back to 2.20% and ending the week at 2.30%. That’s some pretty big swings in just a few weeks time.
The weekly jobless claims numbers have been climbed this past week as was expected given last weeks decline was more seasonal related. Look for these levels to remain high as additional layoffs are announced with each major earnings announcement.
One problem that wasn’t a concern was inflation for 2008. With the CPI for 2008 at a level of 0.1 percent that’s as close to zero as you get. That’s also one of the problems with how CPI is calculated from two points in time. It misses the huge run up in prices, especially gasoline the first half of the year then the dramatic fall by the end of the year. I think it’s safe to say that while the statistic may have said prices haven’t changed, we all felt the prices change throughout the year in our wallets.
Citigroup this week is breaking itself apart into a number of pieces. Citigroup previously had liquidity issues, and it is now appearing to have moved into solvency issues. The brokerage unit is being sold off to Morgan Stanley while also create a “good” bank / “bad” bank. To the good-bad bank will be modeled after the Mellon Bank/Grant Street Bank in the mid 1980’s. That has both good and bad aspects to it. Anyway you slice it, it involves write-offs, write-downs and near term losses that will be huge. Just moving bad assets to a “bad” bank doesn’t make those go away, it just moves them from one to another. I would imagine there will other financial institutions climbing a similar wall of worry. Bank of America jumped right on the heels of Citigroup with additional funds from Treasury as part of the bailout program. Just as Congress approved the release the remaining $350 billion of bailout funds. Just another example that this won’t be ending soon and will continue to “ripple” throughout the year.
One little overlooked item this week with the new Obama administration confirmation hearings. The new head of the Office of Management and Budget (OMB), Peter Orszag testified that after the economy comes out of the doldrums, he expects the federal budget deficit to continue at levels of about 5% of GDP for 5 to 10 years. That would put the federal budget deficit at over $600 billion a year. Now that’s pretty high and going to create an environment of potentially higher interest rates down the road. So given the ultra low rates of today that will add to the continuing stress of the interest rate risk looming on the horizon. This led to my second call to the House Financial Services Committee alerting them to the potential financial strains this will create when interest rates normalize. This could lead to losses on mortgages and investments of up to 30%. My take once again is that our government puts the short term problem solving with a disregard to future consequences. Now that may win elections but that doesn’t solve the problems.
Next week should bring some “Hope” to the marketplace for a brief “Change”. All well too played out words during the election cycle. With a holiday on Monday and the Obama inauguration for Tuesday look for the markets to pick on the “Hope” theme and should provide some short term relief. But one thing that won’t change is the reality that the economy will continue to be disappointing. Each major quarterly earnings announcement coming in the next few weeks will be filled with announcements of layoffs and general cost savings initiatives given an uncertain economy.
January 9, 2009
By Paul Fero
The Congressional Budget Office (CBO) announced this week the federal budget deficit will be $1.2 Trillion for the fiscal year 2009 which began in October. This easily doubles the previous record deficit of under $500 Billion. And it will only continue to get worse as the economy struggles and the government provides additional stimulus packages.
Of all the economic news this week, one slightly positive number with the Institute for Supply Management (ISM) services index show a slight positive for December. One month doesn’t a trend make and there could be some seasonal factors that contribute to the slightly positive amount. But at least wasn’t a worse number.
A number of retailers reported December sales which were the disappointing suggesting holiday sales dropped to the lowest level in 40 years. Even Wal-Mart was not immune and reported disappointing sales. When Wal-Mart is struggling, you know things are bad.
Also the weekly jobless claims numbers have been dropping slowly over the past month which could be explained more from the seasonality but never the less, a slight positive note. One significantly worrisome area is the reported continuous claim for jobless benefits rose by 100,000 to 4.61 million and at the highest level since November 1982. With additional announcements of large scale layoffs and employment very weak, this will only get worse as the New Year begins.
The biggest economic news of the week came with the Labor Department news of about 525,000 newly lost jobs. For the year 2.6 million jobs were lost, the most for a single year since 1945, after World War II ended. Of the report, a more ominous news item was that the unemployment rate jumped from 6.7% to 7.2%, to the highest level in 16 years. A jump in the unemployment rate of that magnitude for one month is very discomforting. There are number statistical factors that are involved that arrive at the unemployment rate and while it’s not a perfect reflection of those that are truly unemployed, it does represent a general consensus of the magnitude and trend of the unemployed. Suffice it to say, the employment picture will continue to worsen as the credit and financial crisis continues and won’t improve anytime soon. As a reminder my forecast is a 9% unemployment rate by year end. This first quarter of 2009 will continue to shed jobs at the 500,000 plus level a month.
This setting up to a very poor fourth quarter as measured by Gross Domestic Product, GDP. The question is how bad will it be. My year end forecast was for a negative three percent and some have forecasted negative growth in the four to six percent range. Either way, it will be a bad quarter with the only saving grace being the weak holiday purchases which would have made it worse. However, looking to the first quarter GDP will continue to be very weak again in the negative three percent range.
With a weak economy as the back drop, President-elect Obama announced his goals for the economic stimulus plan to “jump-start” the economy. While well-intentioned, the information provided as stimulus isn’t really a stimulus at all but should be called investments. A stimulus should have an immediate effect, whereas an investment has some immediate but mostly prolonged effects. For example, the hundreds of billions of dollars going to be spent on “shovel-ready” infrastructure will payout over years at various milestones of project completion. According the CBO, government construction related projects such as these, payout 26% in the first year of the project. While it sounds nice to be called a stimulus with the perception that it will have immediate results, just call it what it is. Also mentioned is the creation of 3 million jobs with infrastructure, green energy and digital medical records being the investments. A nice goal but the “stimulus” projects don’t necessary fit the skill sets of those that have lost jobs. This is one of the reasons the economy won’t turn on a dime and won’t improve all the much this year. The projects announced are all items should be done in the normal course of government as these are much needed items but just escalating some of the projects and priorities is NOT going to solve the nation’s problems.
The only true stimulus aspect came from a reference for a $1,000 tax credit for 95% of working families. Without any more details it’s too difficult to estimate the stimulative effect. Giving taxpayers cash to spend would have some stimulus component, but as many are fearful over their jobs, I would speculate not much of that will be spent. We saw some of that last year with the economic stimulus checks that went out.
Individuals have a tendency to spend more as their paychecks are bigger versus a one-time check. Here’s what should be done. The best meaningful stimulus is through the payroll tax of Social Security and Medicare. The best features are that it is immediate and also requires nothing new to administer. The first $10,000 of earned wages should be exempt from Social Security and Medicare taxes. For those that work two or more jobs would have the other job(s) provide the withholding. The potential downside for those working multiple jobs and possibly skipping the withholding is that come tax time, they have a sizable tax burden or offsetting significant reduction of their tax refund. The current limit or ceiling on Social Security taxable wages should be removed, just as Medicare tax has no ceiling. Also, there shouldn’t be a penalty for an older citizen to work. Therefore, they should eliminate the taxable component on Social Security benefits for those that work.
Janaury 2, 2009
By Paul Fero
In the year end wrap up, the all the major indexes have shown major declines not seen in a generation or so. The Dow Jones Industrial Average posted a decline around 35% for the year, which hasn’t seen a single year loss so great since the Great Depression. The S&P 500 index posted a yearly loss of about 40%, its largest ever decline since the index was created since the mid 1950’s. So with a with a 40% decline, this will require a gain of 67% to get back to even or the same level as where it started. And with an average gain on the S&P 500 of nearly 10% a year, this could take 6 years or so to recover. From a comparison basis, the previous peak level on the S&P 500 hit in the year 2000 and it took seven years to get back to same level before it turned down once again.
So with that the majority of the conventional wisdom is that the economy and the stock market will improve for the second half of 2009, as a new economic stimulus package is introduced with the new Obama administration. One thing about the conventional wisdom, it’s not always correct. The conventional wisdom also had it that the economy would improve by in the second half of 2008 as the economic stimulus checks received by taxpayers were received. Instead the credit and financial crisis took a dive for the worse. In the spirit of full disclosure, it should be noted that my 2009 Economic and Financial Forecast is in the minority of viewpoints. You may find my forecast on our website www.PAHealthCareCU.com. If there’s any consolation, I was in the minority for 2008 as well, but my forecast was much closer to reality.
The Conference Board’s Consumer Confidence Index hit an all time low in December, since it began the survey in 1967, as the weak economy overshadowed a drop in gas prices. So it’s not a surprise that this year’s holiday season was so bad.
The Institute for Supply Management (ISM) released the manufacturing index for index for December. The index reached at 32.4 has been declining the past 5 months and a reading below 50 is an indication of contraction. So this would be significant contraction and places the index at a 28 year low.
Also of note this week was that output at the nation’s steelmakers is at 50% off level from just this past September. As the economy has slowed and auto sales have dropped. Not a surprise that the steel industry is heading to Washington looking for their own bailout of sorts. They will also be pressuring the new Obama administration for a high priority on infrastructure spending on the upcoming stimulus plan. (More on that when its released in January/February.)
Also this week real estate prices have seen there largest year over year decline since the Great Depression and the average median home prices is back to the level of only 2004. As a result 18% of all outstanding mortgages are now under water so to speak, that is, the value of the home is currently less than the mortgage balance. So even with mortgage rates near lows not seen in generation, these individuals will not be able to participate. Since lending on real estate now is a minimum of 100% of value, and to the best rates 95%, 90%, or even 80% financing is required. This means down payments of up to 20% and those for those with the best credit scores. If the credit score is just average 80% financing or having a 20% down payment is the norm. Yea, this is going to take a long time to correct.
GMAC, the financing arm of General Motors, and now a bank got a $5 billion bailout/preferred stock plan from the government this week. One additional piece is that General Motors received $1 billion loan so it then in turn could invest that into GMAC. This way, General Motors will be able to maintain its ownership level with GMAC. Let me see, a company can borrow money from the taxpayers to invest in a troubled financial institution. That just can’t be good for taxpayers.
GMAC ran into trouble for multiple reasons. Through its subsidiary ResCap, it was one of the top ten mortgage providers, and one of the larger providers of sub-prime mortgages, that has gone bad or are in the process of going bad. Secondly, as a big financer of auto leases, which for SUV’s was horrific with gas prices at $4 a gallon as the subsequent values when the vehicles were turned in plummeted against the stated residual values from the lease contract caused huge write-offs. So with that decision making laid as the ground work, now that they received the $5 billion preferred stock plan that requires an 8% dividend payout, they offer as low as 0% financing for new automobile purchases and extending to average and less than average credit scores. So they have to payout 8% plus operating costs of the organization and receive 0% or next to 0% in revenue. There’s no way to sugar coat this one. This has to be one of the most stupid decisions done yet so far. As the saying goes, you can’t fix stupid.
The Federal Reserve under Chairman Ben Bernanke’s “we’ll do anything” approach announced that it will purchase $500 billion of mortgage backed securities. These are securities that now are commonly referred to as “toxic”. This was supposed to be what the Troubled Asset Relief Program (TARP) passed by Congress was intended to do. But since the Treasury Department quickly changed its mind to make it a investment program for banks, these toxic investments are still out there. Where’s Congress at here? What about oversight and checks and balances? When the Federal Reserve has to dust off little known rules not used since the Great Depression as the authority to go out and put not just billions of taxpayer dollars but now totaling over $7 trillion on the line, perhaps transparency should not be just a catch-phase. This “we’ll do anything” approach is going to create even greater financial crisis in the near future. The throw everything up against the wall approach to see what sticks creates dangerous financial risks to financial industry when interest rates begin to “normalize” and thereby creates the next financial crisis.
To provide a sense of why this isn’t going to correct itself very quickly, the company 3M during its quarterly update, Chairman and CEO George Buckley reviewed how the firm closed 16 plants over the past 18 months. He said “all of us acknowledge we're collectively making the situation worse, but I think the first responsibility we have as leaders of companies is to make sure that we ensure the health and survival of our own companies first, not necessarily other people's companies, or, for that matter, the whole U.S. economy.” Source: Yahoo.com.
December 26, 2008
By Paul Fero
With the holidays now upon us, it will be a light couple of weeks for news items. Given the year we had so far, that’s probably a good thing.
This week’s unemployment claims came in at 586,000 reaching levels not seen since 1982. To provide some perspective, last year’s unemployment claims for the week were 353,000. So that comes out to increase in weekly unemployment claims of 40% from last year. This is just another sign of a weak economy and one not likely to improve anytime soon. Also continuing unemployment claims remain high and claims made longer than 12 weeks is continuing to rise. This means more and more individuals are having a tough time finding a job.
Speaking of jobs, even holiday jobs were tough to come by. One story for Best Buy, the largest specialty electronics store, goes like this. Best Buy sought 24,000 holiday seasonal jobs nationwide and 1 million people applied. Also, with retail sales down, Best Buy sent a notice to all 4,000 employees at its corporate headquarters seeking voluntary retirements.
As an illustration of the recession being truly global, we can take a look at Japan. Manufacturing in the Japan has declined last month by the greatest amount since 1953. Also the auto manufacturer Toyota looks to report a nearly $2 billion loss this fiscal year and the first time it is reporting an operating loss in 70 years.
On the good news front, as mortgage rates begin to fall to levels not seen since the early 1960’s, many individuals will be able to benefit from lower mortgage payments. While lower rates will help lower payments for many, those that are having difficulty with their existing mortgages or have less than stellar credit will not benefit. This will not come close solving the foreclosure and housing crisis. For some reason, the Federal Reserve Chairman, Ben Bernanke doesn’t seem to understand that these problems won’t be solved by simply lowering interest rates. Just lowering the rates won’t increase the housing sales necessary to stem to decline in housing prices. (And this won’t do a thing for those in or near bankruptcy or the value difference between the current value and mortgage value.) The other side of the equation is the credit side. If the banks can’t make the mortgage happen, it won’t. And if the banks make the mortgage, they will get sold to the financial marketplace as Mortgage Backed Securities. And if the financial marketplace doesn’t buy them, who will? That leaves Fannie Mae and Freddie Mac. And by them purchasing all these mortgages, this will permanently put them into a bad financial situation. As rates “normalize” they will eventually be paying out 5% or more while earning something less than that. Now if you pay out more in expenses than you bring in revenue, that’s a recipe for financial disaster. It’s just math.
Happy New Year to all.
December 19, 2008
By Paul Fero
Twas the week before Christmas, when all through the Prime Outlets in Grove City, Pennsylvania, not a creature was stirring, not even a mouse. Yes, it was nearly that bad. On a recent trip after work this week at the Outlets, I found they were practically deserted. I was the only shopper or one of two shoppers in all of the stores. It was so bad as I walked up to one store the person behind the counter was reading a book. Not flipping through a magazine but a big, thick book. She apparently came prepared. As I asked around the various stores the general consensus was it was going to be a really bad holiday season.
The big news for the week came from the Federal Reserve which slashed the Fed Funds to a range of 0% to 0.25%, essentially zero. While that rate cut was larger than anticipated, the more dramatic news from the Fed was their comments on bringing down long term interest rates and keeping rates low for sometime. So with that, the 10 year US Treasury yield ends the week under 2.10%. The yield was 3.34% on November 24th. Now that is a dramatic move. And with yields hovering above 2%, that has brought down mortgage rates at some institutions to under 5% for a 30 year fixed rate. Certainly a holiday gift for many with the opportunity to lower their monthly payment. However, with the credit markets still frozen, this will not solve the problems in the real estate area. This also provides the ground work for yet another financial crisis in the making to play out in the near future when the Fed changes its policy and long term yields “normalize”.
This is such a significant issue I felt compelled to e-mail the Fed. So from their website and automated form, which probably just gets ignored, I sent the following to the Board of Governors. While I can appreciate the Board's position in trying to address the short term economic risks facing the nation, the current policy to bring down long term yields (10 year Treasury) has the potential for another financial crisis in the near future. As the current investments, (Treasuries, Mortgage Back Securities, Collateralized Debt Obligations) are created based on current historically low yields, when the Fed's policy shifts and yields begin to "normalize" the valuations of these securities will plummet, and provide greater stress on these organizations that hold these investments as they will struggle with "new" unrealized losses and capital ratio reductions. Furthermore, new mortgages based off the ultra low rates will also have significant unrealized investment loss and will pose huge asset liability management (ALM) issues for the banking industry or those that acquire these in the secondary market.
Also, the Big 3 automakers finally got some good news. Good for GM and Chrysler as they will keep going without the immediate bankrupcy. The fallout won't be so nice with the signicant restructuring they will take. This will be a lose-lose for everyone else. (See last week's commentary for the details.)
For those watching the S&P 500, the news of the week moved the index up to the 900 level. This level also happens to be about the 50 day moving average. From a technical analysis viewpoint, a failure to break that level as well being a short term resistance level would indicate that the near term activity is more likely to be to the downside.
Also, in case you missed it, our 2009 Economic and Financial Forecast is now available on our homepage. With next week being the beginning of the holiday season look for light volume over the next couple of weeks which could distort market activity. Happy Holidays!!
December 12, 2008
By Paul Fero
This week’s highlight was in the credit markets as short term (4 week) US Treasuries yielded 0% and the 10 year US Treasury is at 2.65%. Look for these types of yields through all of next year as the credit crisis will continue for at least a year. The fear and lack of trust in the marketplace has everyone looking for safety in US Treasuries.
This can be highlighted as consumer debt declined for the first time since tracking began in the mid 1950’s. In a “normal” environment, it would be viewed as a positive item as consumers paid down debt and didn’t over extend themselves. So in a not so “normal” environment, we can’t give the benefit of the doubt to the consumers doing the right thing as opposed to it having it forced upon them by the financial institutions not extending the credit the begin with. Look for more of this to continue as financial institutions struggle with their existing issues, they are so inclined to take on new ones.
The Big 3 automakers have been put through the wringer once again as the proposed bailout gets a haircut to $14 billion. So as part of the bailout deal the Big 3 will have to go through “significant restructuring” by end of the March 2009 to continue to receive remaining bailout funds. The alternative is at least GM and Chrysler will go into immediate bankruptcy. As many of the Big 3 suppliers, mainly parts suppliers, also provide the remaining auto manufactures in the US, such as Honda, Toyota, and Nissan. Many of these suppliers could easy end up in bankruptcy as a result. The impact of all these bankruptcies would be many billions, and could be as much as initial funding request. If the Big 3 get the funds, to get to “significant restructuring”, they would have to go through a similar approach as they would in bankruptcy with major layoffs. This is a lose/lose situation for everyone. All the rhetoric aside as the how screwed up they are, if the credit crisis didn’t exist, where consumers could get car loans financed, this wouldn’t be an issue.
The one unique item is that the Treasury Department is likely to provide the lifeline in the face of a Congressional defeat. I can’t imagine they made members of Congress happy about the gun slinging Treasury Department. But then Secretary Paulson, isn’t about to go through Lehman Brothers impact again. The result was a severe worsening of the credit crisis which won’t ease up. So in the end they’ll get the Big 3 will get the funds and many workers will still lose their jobs.
I apparently was a week early on mentioning the Federal Reserve meeting. That happens when you’re juggling 20 items and looking at last month, last week, next week, rest of this month and next year. So see below for details. Here’s the result. Look for the Fed to cut the Fed Funds rate by 50 basis points to 0.50%.
December 5, 2008
By Paul Fero
Another week and more turmoil in the marketplace. The week started with the “official” announcement that we are in a recession that began in December 2007. With the Countrywide implosion in August 2007, which would be the unofficial start of the financial crisis it was only a matter of time.
With the fourth quarter GDP turning negative it had to some month that quarter. With the S&P 500 peak in October, and employment beginning to turn negative in December, that would be a good indication of the beginning. The average length of a recession since 1948 is 11 months. It’s probably safe to say that we have exceeded that mark already. Other notable recent recessions, classified as sharp recessions, November 1973 through March 1975 and July 1981 through November 1982, each lasted 16 months in length and each had a significant impact on the economy. It would appear that this downturn in the economy will be classified as at least a “sharp recession”. From a historical perspective, the “Great Depression” lasted 43 months in duration. Given all the government institutions that arose as a result of the Great Depression, a decline of that length and magnitude would be unrealistic to be repeated. However, the current credit and financial crises that gripped the economy have not have been so impaired since then.
It wouldn’t be a week goes by without a bailout being mentioned. The Big 3 automakers were publicly dragged through the mud for their request at a bailout, now increased by 33% from $25 billion to $34 billion. While some it of it deserved lest not forget about last weeks additional bailout of Citibank by $20 billion and federal guarantees of up to $398 billion, without a single public shellacking. This causes some concern of double standards being applied on Capital Hill. Let’s not leave anyone out from being taken behind the woodshed, please. The Big 3 will go through the ringer some more before they ultimately get it. Think of it as a Christmas gift.
Friday culminated with the Labor Department report of over 533,000 jobs lost for the month of November alone. With the credit markets frozen, businesses will continue with the “slash and burn” mode with big layoffs. It’s not over yet and will likely continue strongly through at least the first half of the next year.
Speaking of the credit markets, the 10 year US treasury is around the 2.65% level marking an unprecedented low level. The flight to safety is ever present. This bodes well for mortgage rates as Freddie Mac announced 30 year mortgages at 5.53% this past week. There has been some leaking of information of perhaps a new federal mortgage program coming out at a below market rate to support the housing market. This would be a partial first step with negative impacts for Fannie Mae and Freddie Mac but we’ll save that till later when more information comes out.
Next week has the Federal Reserve meeting on December 15-16. Look for the Fed to cut rates by 50 basis points or ½% to bring the Fed Funds rate to a historically low 0.50%. Some think it may to 0.25%. That’s more wishful thinking but we’ll have to leave the Fed some little wiggle room for next year. With just a couple of “bullets” left, there’s not much more cutting left to go. We’ll get at least an additional cut, and if unemployment climbs significantly further or the credit markets continue to be frozen, look for the Fed to cut to 0%. While not very meaningful from a policy standpoint, it would provide at least the perception of they did all they could, without leaving anything on the table
November 28, 2008
By Paul Fero
As Friday kicks of the traditional holiday shopping season, we’re kicking off our weekly economic and financial commentary.
As the financial crisis continues to press onward, the government’s attempt at minimizing the fallout has reached truly unprecedented government involvement into the “private sector” by the Treasury Department and Federal Reserve. The debatable public policy question is what should the role and scope of the involvement of government to solve the credit and financial crisis. Everyone has an opinion of whether they should or shouldn’t or whether they should continue or stop their involvement. While this makes for interesting conversation, it seems pretty clear that it will continue and escalate until clear signs that the crisis is in fact over.
Citigroup gets another chunk of bailout money. But more intriguing, which is both good and bad, is the level of commitment by the government to shore up the bad investments which increase the level of investment guaranteed to hundreds of billions of dollars. The commonly used phrase “too big to fail” isn’t the best way to describe the current position or view by the government. It’s now any sizeable institution will be bailed out. When the government tried to “cherry pick” winners and losers by using Lehman Brothers as the “test case” to let it fail, the result of the failure directly led to the deepening of the crisis. So with that as the precedent, the un-heard of phrase is “we won’t be doing that again”.
The Federal Reserve said this week that it was going to spend up to $800 billion to buy troubled assets from banks. Sound familiar? The Troubled Asset Relief Program (TARP) was established with $700 billion to buy trouble assets related to mortgage back securities. That was the big Congressional debate back in September and October. That was the intent until the Treasury Department apparently changed the scope to instead invest directly in banks. The Federal Reserve is also buying other loans, credit card and student loans in an effort to get banks lending again. Given that the banks have tightened credit standards to limit lending based on their reduced level of risk tolerance, these efforts will have a very limited impact. And so the crisis will continue.
From an economic perspective, consumer spending for October showed the biggest decline since the terrorist attacks in 2001. The first half of October continued to have the fallout from the huge stock market declines which seem to have everyone paralyzed from the standpoint as to what was going to happen next. So it wasn’t a surprise the consumer spending halted.
One positive for the week as gas prices locally came below $2 a gallon. As oil prices reached the $50 a barrel level. We keep hearing that oil prices rose and declined as a function of supply and demand. Supply and demand has only had a very minor role to play to here. The big run-up from $100 to $147 a barrel was primarily speculative buying. So as the US dollar began to climb rapidly versus other currencies around the world, the price began fall as speculators were forced to sell out of their positions. As the financial crisis have escalated as foreign funds have came to the US for safety in US treasuries, the US dollar began to climb even more which in turn further brought on more falling oil prices.
Another interesting move this past week has been in the bond market. The 10 year US Treasury fell below 3%. This will be provide a brief comfort in the mortgage market as mortgage rates will come down a bit. Other short term rates on the US Treasury continue to be relatively low with the shortest term near zero. This illustrates the great demand for security and safety and funds from around the world. This too contributes to the rising US dollar. So even though we our markets have all kind of crises and issues, in the end, money still flows back the US for safety. That doesn’t necessary bode well for the rest of the world’s economies.
One relief for the stock market was a carryover from last Friday’s dramatic climb, and with Monday’s positive move, created the biggest 2 day rally in over 20 years. With the holiday week resulting in light trading we’ve seen a positive week. With that said, next week bring about the all important job numbers, so the market will be a bit anxious and with the recent climb, it wouldn’t be a surprise to see a bit of pull back.