| Key Indicator Summary - Summer Stock Surge |
| Written by Ken Lee | |||||||||||||||||||||||||||||||||||||||||||
| 08.05.2009 | |||||||||||||||||||||||||||||||||||||||||||
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A gambit of seemingly positive news ranging from housing reports and economic reports to a better-than-expected earnings season has propelled equities to their highest levels in 2009. Lower rates and the homebuyer tax credit continue to spur housing activity in the short term as evidenced by increases in both new and existing home sales for June. Advance GDP figures showed economic contraction was tamer than expected in the second quarter which suggests that the worst of the recession has passed, although this figure will be revised twice in coming months. On Monday, the broader S&P 500 index closed at its highest levels since November 4th, spurred by an increase in auto sales and improved manufacturing data. Auto sales last month were lifted by the government’s $1 billion “Cash for Clunkers” program which is expected to receive another $2 billion in funding. While all the aforementioned developments are positive, they may not represent a new trend of recovery. Short term incentives for homes and cars seem to be resonating with consumers, but the question remains as to whether consumers will still be purchasing cars and homes when theses programs expire. In this respect, government intervention has obfuscated the natural data trend and introduced a degree of uncertainty into the equation, calling into question which signs of stabilization are indicative of a new recovery trend, and which are temporary blips that may vanish as quickly as they appeared. Second quarter GDP figures showed the economy contracting 1.0% which was an improvement from the 6.4% pullback in the first quarter. Despite the improvement, consumer spending, which accounts for roughly two-thirds of GDP, fell 1.2% compared to 0.6% in the first quarter. Employment conditions will likely continue to be a sore spot into next year even though the sharpest period of economic contraction is behind us. Employment tends to lag other economic indicators, as businesses often cautiously focus on increasing productivity coming out of a recession, and commence hiring again only when absolutely necessary. The Economy Advance estimates for second quarter gross domestic product showed the economy contracted for the fourth straight quarter but the declines were far tamer than in previous quarters and also tamer than most had anticipated. Gross domestic product fell 1.0% in the advance second quarter report. Revised estimates showed that economic contraction of 6.4% in the first quarter was the worst since the first quarter of 1982. This is the first time on record that GDP has recorded declines in four straight quarters. The consumer confidence index declined for the second straight month in July. The index fell to a reading of 46.6 in July from a June figure of 49.3. After reaching its highest levels since September 2008 in May, the consumer confidence index is now back down to its lowest levels since April. Both component indexes also declined in July. The present situation index declined for the second straight month to a reading of 23.4 from 25.0 last month. The expectations index declined to 62.0 from 65.5 in the previous month. Employment costs increased 0.4% from April through June 2009, which was slightly higher than the 0.3% gain recorded in the previous quarter. The employment cost index increased only 1.8% during the past twelve months. The year-over-year increase in employment costs are lower than the 2.1% increase at the end of the first quarter and is the lowest annual increase since the government started tracking the data in 1982. Housing Market Both new and existing home sales posted gains in June giving further evidence that the worst of the housing crisis may finally be over. New home sales jumped 11.0% in June to a seasonally-adjusted annual rate of 384,000 homes from a revised May figure of 346,000. This was the highest rate of new home sales since November. Sales for the previous three months were revised lower by 5,000 units. In June, new home inventories declined to 282,000 from a revised June figure of 290,000 on a non-seasonally adjusted basis. Non-seasonally adjusted units of unsold inventory have not recorded a monthly increase since May 2007 and are now at their lowest levels since February 1999 as builders continue to scale back building activity. There are now 8.8 months of supply on a seasonally-adjusted basis based on the current sales pace which is the lowest it has been since October 2007. In June, median new home prices dropped to $206,200 from a revised a downwardly revised May figure of $219,000. Median new home prices fell 5.8% from last month and are down 12.0% from the same time last year. The drop in new home prices helped to increase affordability which positively impacted sales last month. Annualized sales of total existing homes in June increased 3.6% from May levels to 4.890 million units. This was the first time since 2004 that existing home sales have posted three consecutive months of increases although sales in May were revised lower by 50,000 units. Sales of existing homes are down just slightly from their year-ago levels of 4.9 million units. More robust activity out West, which has been driven by foreclosures and short sales, has helped overall existing home sales figures. Median existing home prices in June increased to $181,800 from $174,700 in May. This is the highest median existing home prices have been since October. Existing home inventory declined from the previous month as lower prices helped to spur buying activity and reduce the number of homes for sale. Inventory of existing homes declined 0.73 percent to a preliminary 3,823,000 units from 3,851,000 units in May. At the current sales pace, there are 9.4 months of supply of existing homes on the market which is the lowest it has been since December. National average mortgage rates increased from the previous week to 5.25% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on July 30th. This is the second straight week that rates have increased and the highest they have been since the beginning of July. In the week ending July 24th, the MBA’s seasonally-adjusted Purchase Index declined slightly to 262.0 from 262.1 in the previous week. The latest figure reflects a 0.04% decline from last week and a 15.35% drop from the same period last year. This is the tamest annual decline in purchase mortgage applications since the end of last year. For market-level data and analysis please visit Hanley Wood Market Intelligence. For more detailed information on the indicators discussed in this key indicator alert, please visit the following links:
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