| Key Indicator Summary - Summer Stock Rally Stumbles a Bit |
| Written by Jodi Bice | |||||||||||||||||||||||||||||||||||||||||||
| 08.13.2009 | |||||||||||||||||||||||||||||||||||||||||||
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Although the summer rally fizzled early in the week leading up to the Fed’s two-day meeting, broader indexes all traded higher in the past two sessions despite weaker retail sales figures released on Thursday. U.S. retail sales declined 0.1% in July but will likely rebound in August due to higher demand for autos driven by the government’s “cash for clunkers” program. The broader S&P 500 index closed at its highest levels on Thursday since October 6, 2008. Embattled bailout recipients Freddie Mac and AIG posted surprising profits last quarter which is an encouraging sign although Fannie Mae posted another dismal quarter and stated it may need further government support. Better than expected July employment figures also helped fuel the rally at the end of last week with the unemployment rate falling for the first time since August 2008. The Fed kept their target rate unchanged at a range of 0 – 0.25% and reiterated it would continue with their plans to purchase mortgage-back securities and agency debt from Fannie Mae and Freddie Mac while buying $300 billion in Treasuries. These efforts have been undertaken to spur housing activity, but with the purchase of Treasuries scheduled to end in the fall and the purchase of agency debt expected to cease at the end of the year, it is not certain if the economy is stable enough to remain on its own footing without aide. Based on the Fed statement, it shows there are currently no plans to expand these programs. Rates inched up as weaker than expected demand at Treasury auctions pushed yields higher. Indirect bids were lower than at recent auctions which show weaker foreign demand. The worry is that yields will continue to move higher when the Fed concludes their purchases of U.S. Treasuries which may stall the recovery in housing. While last month’s employment data was a positive sign, the economy isn’t expected to add jobs anytime soon. Most economists still feel that the unemployment rate will peak at over 10% before things really turn around as employment trends tend to lag broader business conditions. Considering these factors, it is very unlikely that this rally and any substantive recovery can move forward with conviction this year. The Economy Although the U.S. economy continued to shed jobs, losses in July were the tamest they have been since August of last year. There were a total of 247,000 non-farm payrolls lost on a seasonally-adjusted basis last month while the unemployment rate fell slightly to 9.4%. Non-seasonally adjusted total non-farm employment in July was 5,732,000 jobs lower than in July 2008. The current non-seasonally adjusted total non-farm employment figure of 131,318,000 is on par with the level seen in at the beginning of 2005. All of the job gains seen over the last four and a half years have been wiped out. 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. Housing Market National average mortgage rates increased from the previous week to 5.29% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on August 13th. Rates rose to their highest levels since the beginning of July due to better than expected employment data. In the week ending August 7th, the MBA’s seasonally-adjusted Purchase Index increased 1.1% from last week but is still down 15.2% from the same period last year. This was the second straight week that purchase applications posted slight increases and its third weekly gain in the past four weeks. 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. 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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