While the U.S. economy continues to shed jobs, equity markets have been moving cautiously higher over the past week. The broader S&P 500 index has increased for the past five consecutive sessions although it has yet to breakthrough its October 6, 2008 resistance levels. All three major stock indices were slightly lower through mid-day trading on Friday even though the University of Michigan consumer sentiment index posted a surprising increase for August. The report shows that conditions continue to improve for the U.S. economy although it may still be a long and arduous recovery. Even though job losses have moderated, the U.S. economy continues to shed payrolls while wage growth has been virtually non-existent. The continued rise in unemployment along with weaker income trends means broader economic recovery is still some distance off.

The latest Fed Beige Book also stated that the economy may finally be stabilizing while “most regions reported improvement in residential real estate”. The recent jump in housing and manufacturing activity has been driven by government initiatives to spur the housing and auto industry. The housing market has been supported by strength in the entry-level segment which has been given a big boost by the government’s homebuyer tax credit. The National Association of Realtors recently reported that their pending home sales index, which is a forward looking indicator of housing activity based on sales contracts, increased for the sixth straight month in July. The continued rise in the pending home sales index suggests that housing demand continues to improve after already posting four straight months of gains.

The Economy
The Labor Department reported that the U.S. economy shed a seasonally-adjusted 216,000 non-farm payrolls in August. While the decline in payrolls is the tamest since August 2008, it is the 20th straight month that the economy has lost jobs. Further job losses pushed the nation’s unemployment rate up to 9.7% which is the highest it has been since 1983. Non-seasonally adjusted total non-farm employment in August was 5,999,000 jobs lower than in August 2008. Currently, non-seasonally adjusted total non-farm employment shows a figure of 131,003,000, a loss of 4.38% from August 2008.

In July, personal incomes in the United States decreased to $11,957.4 billion, a 2.4% drop from a revised $12,254.8 billion in July of last year. This month marks the seventh consecutive month of annualized personal income declines. Every month this year has seen a year-over-year drop in personal incomes, ranging from a 0.8% drop in January to a 3.2% decline in June.

Housing Market
National average mortgage rates dropped slightly from the previous week to 5.07% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on September 10th. This is the second straight week that rates have declined and the lowest they have been since the end of May. In the week ending September 4th, the MBA’s seasonally-adjusted purchase index jumped 9.5% from the previous week but was still down 18.15% compared to the same time last year. This is the largest weekly increase for the purchase index since early April. It is also the highest the purchase index has been since the first week of the year. A drop in mortgage rates helped to ignite application volume this past week.

New home sales increased for the fourth consecutive month in July which further suggests that conditions in the housing market may finally be stabilizing. Seasonally-adjusted new home sales jumped 9.6% from the previous month to an annual rate of 433,000 units. This followed a 9.1% increase in new home sales just last month in June. New home sales for the previous three months were also revised higher by 34,000 units. The annual pace of new home sales is now at their highest levels since September. In July, median new home prices declined slightly to $210,100 from an upwardly revised price of $210,400 in June. Median new home prices are down 0.1% from last month and are 11.5% lower than the same year-ago period. Increased competition from the existing homes market, especially foreclosures and short sales, has caused median new home prices to fall back to their lowest levels since March. Median new home prices have now recorded seven straight months of year-over-year declines. In July, new home inventories declined to 272,000 from a June figure of 281,000 on a non-seasonally adjusted basis. The number of new homes for sale continues to decline and have not recorded a monthly increase since May 2007. New home inventory, on a non-seasonally adjusted basis, is at its lowest levels in over 14 years.

Seasonally-adjusted inventory of unsold homes have declined for 27 straight months to 271,000 units which is the lowest it has been since March 1993. Declining inventory levels pushed months of inventory back to its lowest levels since April 2007. Seasonally-adjusted months of inventory declined from last month to 7.5 months of supply on a seasonally-adjusted basis which is down from 8.5 months of inventory in June.

Existing home sales continued to rise in July buoyed by increased affordability and the homebuyer tax credit. Annualized sales of total existing homes in July jumped 7.2% from June levels to 5.24 million units. This was the first time since 2004 that existing home sales have posted four consecutive months of increases. Sales of existing homes are also up 5.0% from their year-ago levels of 4.99 million units which is the first time since February 2006 that existing home sales have not recorded an annual decline. Existing single-family home sales increased 6.5% from last month to 4,610,000 units while condo and co-op sales were up 12.5% from June to 630,000 units. Median existing home prices in July declined to $178,400 from $182,000 in June.

Existing home inventory increased from the previous month probably due to homes being relisted as activity has picked up with the expiration of the homebuyer tax credit approaching. Inventory of existing homes jumped 7.35 percent to a preliminary 4,091,000 units from 3,811,000 units in June. These are the highest levels of existing home inventory on the market since November. Months of existing home inventory remained unchanged from the previous month as the increase in inventory levels were offset by higher sales activity. At the current sales pace, there are 9.4 months of supply of existing homes on the market. Months of existing home inventory are now at their lowest levels since December.

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