Posts Tagged ‘recession’

« Older Entries

Santa Brings More Than 200,000 New Jobs in December

Monday, January 16th, 2012

The United States added more than 200,000 jobs in December of 2011, building on a strengthening employment market that dominated the second half of the year.  This brought the unemployment rate down to 8.5 percent from the revised 8.7 percent, which had been predicted in November.  The primary growth was in transportation — primarily courier services that hired for the holidays — healthcare and manufacturing, according to the U.S. Bureau of Labor Statistics.

“It would have been even better without the drag from Europe,” said John Canally, economic strategist at LPL Financial, a stock brokerage firm. “The Europe situation created uncertainty, and uncertainty was used as a reason not to hire until now.”  The year ended even more strongly than economists had predicted.  They had forecast that employers would add a net 150,000 jobs in December, according to a survey by Factset. They also had predicted that the unemployment rate would tick up to 8.7 percent from November’s 8.6 percent; this is the lowest rate since March 2009.

In the end, November’s unemployment rate was revised up in this report, to 8.7 percent.  The better-than-expected monthly gain of 219,000 private-sector jobs means American businesses have replaced more than three million of the 4.2 million private-sector jobs that were lost the past 13 months. The private-sector jobs gained since employment bottomed in February of 2010 marks the strongest recovery since the 1990-1992 recession, when U.S. businesses added 4.2 million jobs in the same amount of time.

The new job numbers highlight the fact that the U.S. economy is on its way to recovery even as strains in Europe persist,” said David Watt, senior currency strategist at RBC Capital in Toronto. The fact that the labor market is gaining traction should be good news to the Obama administration, whose economic policies are relentlessly attacked by the political opposition.

This string of better-than-anticipated economic indicators has highlighted the stark contrast between the recovery in the world’s biggest economy and Europe, which faces bad times for months or even years.  Even with the good news, the American economy needs an even faster pace of job growth over a sustained period to make a noticeable dent in the pool of the 23.7 million people who remain out of work or underemployed in the wake of the 2007-09 recession.

December marked the 15th consecutive month that employment numbers have risen. Marcus Bullus, trading director at MB Capital, said: “That’s one hell of a number. Such an impressive fall in both the number of jobless Americans and the unemployment rate will cheer everyone bar Republican spin doctors.  The Obama administration could be forgiven for showboating over this convincing evidence that America’s economy is pulling away from Europe’s.  From a market perspective, strong US data like this will add to optimism, but nobody doubts the considerable downward pressure the Eurozone will continue to place on the global marketplace during 2012.”

Automatic Data Processing’s (ADP) numbers for December are even more impressive, saying the government added 325,000 jobs in December.  ADP’s figures do not always match the government’s, and economists warned that seasonal factors could have boosted the figures. Even so, all the major measures of the job market appear to be on the upswing.

Lasting payroll gains are needed to chip away at joblessness and support household spending, which accounts for approximately 70 percent of the world’s largest economy. The labor market figures come on the heels of recent data showing increased manufacturing and a rebound in consumer sentiment that show the U.S. is barely impacted by Europe’s debt crisis.  “You got the trifecta — more people working, wages up and the average work week up,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc., who accurately forecast the December payroll gains.  “You can’t really argue that that isn’t a sign of significant improvement in the job market.”

Yearly benchmark revisions showed the unemployment rate averaged 8.9 percent in 2011, down from 9.6 percent and 9.3 percent in the previous two years. It still ranks as the worst three-year period since 1939 to 1941.

Writing in the Wall Street Journal, Phil Izzo says the increase is “for real.” According to Izzo, “While the unemployment rate has been falling in part due to people leaving the labor force, a large portion of this month’s number appears to come from people finding jobs.

“The unemployment rate is calculated based on people who are without jobs, who are available to work and who have actively sought work in the prior four weeks. The actively looking for work’ definition is fairly broad, including people who contacted an employer, employment agency, job center or friends; sent out resumes or filled out applications; or answered or placed ads, among other things. The rate is calculated by dividing that number by the total number of people in the labor force.

“The key to the drop in the broader unemployment rate was due to a 371,000 drop in the number of people employed part time but who would prefer full-time work, that comes on top of big drops in that category over the past two months. That number could reflect people having their hours increased or part-time workers moving on to full time work,” Izzo concluded.

Tags: , , , , , , , , , ,
Posted in Economics, General | No Comments »

Banks Getting Healthier

Tuesday, December 13th, 2011

Bank earnings rose to their highest level in more than four years, while the number of troubled banks declined for the second consecutive quarter.  The Federal Deposit Insurance Corporation (FDIC) said the banking industry earned $35.3 billion in the 3rd quarter, an increase from the $23.8 billion reported in the same timeframe last year.  More than 60 percent of banks reported improved earnings.  According to the FDIC, there currently are 844 banks on its confidential “problem”, or roughly 11.5 percent of all federally insured banks.  That was down from 865 between April and June, and was first quarter in five years to show a decline.

“After three years of shrinking loan portfolios, any loan growth is positive news for the industry and the economy,” said Martin Gruenberg, FDIC’s acting chairman.  Lending has not yet reached healthy levels.  So far in 2011, 90 banks have failed.  That’s a significant improvement over the 157 banks that were shuttered last year — the most for one year since the darkest days of the 1992 savings and loan crisis — and the 140 in 2009.

The FDIC’s so-called problem bank list consists of the institutions considered most likely to fail, though few actually are shuttered.  Only 26 of the nation’s 7,436 banks failed in the 3rd quarter, 15 fewer than the same period of 2010.  “The trend has been improving, but the current number of failures and problem institutions remains high by historical standards,” Gruenberg said.

Banks whose assets exceed $10 billion drove of the earnings growth. They account for just 1.4 percent of all banks but accounted for about $29.8 billion of the industry’s earnings in the 3rd quarter.  Those are the biggest banks, such as Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.  The majority of these banks have recovered with help from federal bailout money and record-low borrowing rates.

Writing on MarketWatch, Ronald D. Orol says that “It is unclear whether the reduction in troubled banks on the list is a result of institutional failures or improvements.  In the 3rd quarter there were 26 bank failures and 21 banks dropped off the problem bank list.  In the 2nd quarter there were 22 bank failures and 23 banks came off the problem bank list.  It is possible that a bank fails so fast that it is never on the problem list.  FDIC-insured institutions posted net income of $35.3 billion in the 3rd quarter, an increase of $11.5 billion, or 48 percent, compared to a year earlier.  The profits were at the highest level since the 2nd quarter of 2007, the FDIC said.  However, Martin Gruenberg said that even though the industry is generally profitable, the recovery is ‘by no means’ complete.  He noted that a central concern for the agency is whether banks can generate income from a greater demand for loans, something that is still lacking.  He said that the industry has seen income gains generated from improvements in credit quality and the ability to reduce loss provisions but that to really generate income and revenue, funding for loans is going to have to expand and that ‘depends on the overall economy.’  The key issue is going to be whether there can be a pick up in economic activity and generate demand for loans.  Ongoing distress in real-estate markets and slow growth in jobs and incomes still pose a threat to bank credit quality.”

The majority of banks that have struggled or failed have been small or regional institutions.  They rely a lot on commercial property and development loans, sectors that have lost a lot of money.  As companies closed during the recession, they vacated shopping malls and office buildings financed by those loans.  Nevertheless, large banks are less profitable than they were before the financial crisis hit in the fall of 2008, leading to some sizable layoffs.  Some credit rating agencies have been warning that the European debt crisis could hit the largest American banks.  Financial companies’ stocks have been especially beat up in the stock market’s volatility in recent months.

“We continue to see income growth that reflects improving asset quality and lower loss provisions,” Gruenberg said.  “U.S. banks have come a long way from the depths of the financial crisis.  Bank balance sheets are strong in a number of ways, and the industry is generally profitable, but the recovery is by no means complete.”  The banking industry also saw a 0.5 percent rise in net operating revenue compared with 2010, thanks in part to a $3.2 billion — or 5.8 percent — increase in non-interest income, the first year-over-year increase in nearly two years.  “Absent these unrealized gains, net operating revenue would have posted a year-over-year decline for a third consecutive quarter,” Gruenberg concluded.

Tags: , , , , , , ,
Posted in Financing, General | No Comments »

Companies Are Stocking Up on Durable Goods

Wednesday, November 30th, 2011

American companies ordered more heavy machinery, computers and other long-lasting manufactured goods in September, an encouraging sign for the shaky economy.  The increase in demand for these durable goods suggests businesses are staying with investment plans, despite slow growth and a lack of consumer confidence.

Durable goods are products expected to last a minimum of three years.  Core capital goods are products that have nothing to do with defense or aircraft.  The gains are driven by tax breaks given to businesses for investments made this year, an incentive Congress approved last December to boost the lethargic economy.

“Demand for big ticket items seems to be alive and well,” said John Ryding, an analyst at RDQ Economics.  “Outside of the volatile transportation sector, the gains in durable orders were broad based in September, and point to a manufacturing sector that continues to expand at a solid rate.”

“Despite the understandable concern about economic growth, businesses are still investing,” said Jennifer Lee, senior economist at BMO Capital Markets.

Robust demand for core capital goods is a strategic reason why economists expect an annual growth rate of 2.4 percent in the 3rd quarter.  That would be a major improvement from the first six months of the year, when the economy expanded at just 0.9 percent, the worst growth since the recession ended more than two years ago.  A 2.4 percent growth rate could ease fears that the economy is on the verge of sliding back into a recession.  Even so, the growth rate needs to nearly double to make a substantial dent in the unemployment rate, which remained stuck at 9.1 percent in September for the third consecutive month.

“Manufacturing is in pretty decent shape, and this ends the quarter on a high note,” said Brian Jones, a senior U.S. economist at Societe Generale, who accurately forecast demand for non-transportation equipment.  “We’ve got decent momentum going into the 4th quarter.”  Orders for computers and related products jumped as much as six percent.  A Commerce Department report is projected to show the world’s largest economy grew at a 2.5 percent annual pace in the 3rd quarter, an increase of the 1.3 percent rate in the previous three months.  Societe Generale’s Jones said the gain in durable goods demand has the potential to bring GDP growth for last quarter closer to three percent.

Boeing, the largest American aircraft maker, received 59 airplane orders in September, compared with 127 the preceding month.  September’s decline came on the heels of a 25 percent gain in August.  Orders for non-defense capital goods excluding aircraft jumped 17 percent at an annualized rate compared with an 11 percent increase in the previous three months, an indication that business investment is picking up.

Additional indicators show that manufacturing, which accounts for approximately 12 percent of the economy, continues to grow.  The Institute for Supply Management’s factory index rose a full point to 51.6 in September, compared with 50.6 in August.  A level greater than 50 indicates that expansion is taking place.  Industrial production advanced in September on demand for items such as cars and computers, according to the Federal Reserve.

According to Mike Shea, Managing Partner and Trader at Direct Access Partners LLC, “The number wasn’t bad, and having a decent number in durables is far better than having a bad number, since with the overhang of Europe, if we were getting lousy data here, then we wouldn’t have anything to hang our hats on.  If not for what was going on in Europe, this market would be running on all cylinders.  The summit in Europe is the tradable event.  We could have one hundred percent earnings positive surprises today, we could have great economic data come out, all of that could come in rosy domestically, but if the news out of Europe is judged to be bad, none of what happens in the U.S. will matter.  This market will not shrug off a lousy plan coming out of Europe.  It will not shrug off any plan that is not fundamentally based in reality.”

Tags: , , , , , , , , , , , , , , , , , , ,
Posted in Development, Economics, General | No Comments »

Spain’s New Financial Hit: S&P Downgrades Its Credit Rating

Tuesday, November 15th, 2011

Standard & Poor’s slashed Spain’s credit rating to AA-, three steps beneath the highly desirable AAA, underscoring the challenges facing Europe’s major powers as they meet G20 counterparts over the eurozone debt crisis.  S&P, whose move mirrored that by fellow ratings agency Fitch, cited high unemployment, tightening credit and high private-sector debt.  Spanish 10-year government bond yields climbed slightly in response, although they are still nearly 60 basis points lower than those of Italy.

“Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain’s growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain’s main trading partners,” according to S&P.  Spain’s Economy Minister Elena Salgado noted that there would be some margin for maneuver this year thanks to about two billion euros raised by an auction of wireless frequencies and lower interest payments.  “Interest payments by the central government will be at least two billion euros below budget.  So the combined effect of the spectrum auction and lower interest payments will mean we have a margin of 0.4 percent (of GDP)” Salgado said.

S&P took note of Spain’s “signs of resilience in economic performance during 2011” but saw “heightened risks” to the country’s prospects for growth.  Elevated unemployment, tighter financial conditions, and an external debt-to-GDP ratio of approximately 50 percent and the likely economic slowdown of Spain’s main trading partners are the downgrade’s primary causes.  S&P noted that the “economy” variable in its credit-rating equation was responsible for the downgrade.  Spain’s GDP, according to S&P, will likely grow about 0.8 percent in 2011 and nearly one percent in 2012, weaker than S&P’s 1.5 percent estimate made in February.  S&P said that Spain is still in danger of another downgrade if the situation deteriorates.  According to their downside scenario, “We have also adopted a downside scenario, consistent with another possible downgrade.  The downside scenario assumes a return to recession next year, partly as a result of weaker external and domestic demand, with real GDP declining by 0.5 percent in real terms, followed by a weak recovery thereafter.  Under this downside scenario, the current account deficit would decline, but the general government deficit would remain above 5.5 percent of GDP, at odds with the government’s fiscal consolidation targets.”

Investors currently are focusing on“whether European governments can forge a political solution to the sovereign crisis,” said Guy Stear, Hong Kong-based credit strategist at Societe Generale SA.  The longer-term question is “whether austerity plans will work,” he said.

S&P pointed out ongoing challenges facing Spain. “The financial profile of the Spanish banking system will, in our opinion, weaken further, with the stock of problematic assets rising further,” according to S&P analysts.  Spain is being held back by “uncertain growth prospects in light of the private sector’s need to access fresh external financing to roll over high levels of external debt amid rising costs and a challenging external environment.”

Simon Denham, the head of Capital Spreads, noted that “S&P and Moody are working overtime at the moment downgrading bank after bank and European country after European country which reminds us of the dangerous situation that the eurozone is in.  However, as mentioned, the overriding theme that something will be done to sort the mess out is keeping equity markets afloat and the FTSE remains just above the 5,400 level at the time of writing.”

Steven Barrow, currency strategist at Standard Bank, offers this perspective.  “The move follows a similar downgrade from Fitch last week and hence does not have a huge shock factor for the market.  Nonetheless, it clearly questions the markets ability to continue with the more optimistic tone towards the debt crisis that seems to have been reflected in the euro recently – although not necessarily in the bond markets.”

 

Catalina Parada, Marketing Consultant, is Alter NOW’s Madrid correspondent.

Tags: , , , , , , , , , , , , , ,
Posted in Economics, General | No Comments »

Companies Are Stocking Up on Durable Goods

Wednesday, November 2nd, 2011

American companies ordered more heavy machinery, computers and other long-lasting manufactured goods in September, an encouraging sign for the shaky economy.  The increase in demand for these durable goods suggests businesses are staying with investment plans, despite slow growth and a lack of consumer confidence.

Durable goods are products expected to last a minimum of three years.  Core capital goods are products that have nothing to do with defense or aircraft.  The gains are driven by tax breaks given to businesses for investments made this year, an incentive Congress approved last December to boost the lethargic economy.

“Demand for big ticket items seems to be alive and well,” said John Ryding, an analyst at RDQ Economics.  “Outside of the volatile transportation sector, the gains in durable orders were broad based in September, and point to a manufacturing sector that continues to expand at a solid rate.”

“Despite the understandable concern about economic growth, businesses are still investing,” said Jennifer Lee, senior economist at BMO Capital Markets.

Robust demand for core capital goods is a strategic reason why economists expect an annual growth rate of 2.4 percent in the 3rd quarter.  That would be a major improvement from the first six months of the year, when the economy expanded at just 0.9 percent, the worst growth since the recession ended more than two years ago.  A 2.4 percent growth rate could ease fears that the economy is on the verge of sliding back into a recession.  Even so, the growth rate needs to nearly double to make a substantial dent in the unemployment rate, which remained stuck at 9.1 percent in September for the third consecutive month.

“Manufacturing is in pretty decent shape, and this ends the quarter on a high note,” said Brian Jones, a senior U.S. economist at Societe Generale, who accurately forecast demand for non-transportation equipment.  “We’ve got decent momentum going into the 4th quarter.”  Orders for computers and related products jumped as much as six percent.  A Commerce Department report is projected to show the world’s largest economy grew at a 2.5 percent annual pace in the 3rd quarter, an increase of the 1.3 percent rate in the previous three months.  Societe Generale’s Jones said the gain in durable goods demand has the potential to bring GDP growth for last quarter closer to three percent.

Boeing, the largest American aircraft maker, received 59 airplane orders in September, compared with 127 the preceding month.  September’s decline came on the heels of a 25 percent gain in August.  Orders for non-defense capital goods excluding aircraft jumped 17 percent at an annualized rate compared with an 11 percent increase in the previous three months, an indication that business investment is picking up.

Additional indicators show that manufacturing, which accounts for approximately 12 percent of the economy, continues to grow.  The Institute for Supply Management’s factory index rose a full point to 51.6 in September, compared with 50.6 in August.  A level greater than 50 indicates that expansion is taking place.  Industrial production advanced in September on demand for items such as cars and computers, according to the Federal Reserve.

According to Mike Shea, Managing Partner and Trader at Direct Access Partners LLC, “The number wasn’t bad, and having a decent number in durables is far better than having a bad number, since with the overhang of Europe, if we were getting lousy data here, then we wouldn’t have anything to hang our hats on.  If not for what was going on in Europe, this market would be running on all cylinders.  The summit in Europe is the tradable event.  We could have one hundred percent earnings positive surprises today, we could have great economic data come out, all of that could come in rosy domestically, but if the news out of Europe is judged to be bad, none of what happens in the U.S. will matter.  This market will not shrug off a lousy plan coming out of Europe.  It will not shrug off any plan that is not fundamentally based in reality.”

Tags: , , , , , , , , , , , , , , , , , , ,
Posted in Development, Economics, General | No Comments »

August Foreclosures Rise 33 Percent Over July

Tuesday, October 11th, 2011

Default notices sent to delinquent U.S. homeowners soared 33 percent in August when compared with July, evidence that lenders are accelerating the foreclosure process after almost one year of delays, according to RealtyTrac, Inc.  First-time default notices were filed on 78,880 homes, the highest number in nine months.  Total foreclosure filings, which also include auction and home-seizure notices, rose seven percent from a four-year low in July to 228,098.  One in 570 homes received a notice during August.  “The industry appears to be hitting the reset button and the logjam may finally be breaking up,” Rick Sharga, RealtyTrac senior vice president, said.  Foreclosure filings in 2011 have been “artificially low.”

“This is really the first time we’ve seen a significant increase in the number of new foreclosure actions,” Sharga said. “It’s still possible this is a blip, but I think it’s much more likely we’re seeing the beginning of a trend here.”  Foreclosure activity started declining last year after problems surfaced with the way many lenders were handling foreclosure paperwork, such as shoddy mortgage paperwork comprising several shortcuts known as robo-signing.

Additional factors have also stalled the pace of new foreclosures.  In some cases, the process has been held delayed by courts in states where judges are involved in the foreclosure process, a possible settlement of government investigations into mortgage-lending practices, and lenders’ reluctance to take back properties because of slowing home sales.  A rise in foreclosures also means a potentially faster turnaround for the U.S. housing market.  Experts say that revival won’t occur as long as the glut of potential foreclosures remains on the market. 

Foreclosures depress home values and create uncertainty among potential homebuyers who worry that prices may further decline as more foreclosures hit the market.  There are approximately 3.7 million more homes in some phase of foreclosure at present than there would be in a normal housing market, according to Citi analyst Josh Levin.  “This bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery,” he said.

Although negotiations between some banks and state attorneys general regarding foreclosure practices are still unresolved, several restarted foreclosure actions after an April settlement with federal regulators.  JPMorgan Chase & Co., as of the end of June, had resumed foreclosure actions in nearly all of the 43 states where it had suspended its efforts.  So-called “shadow inventory,” or the looming foreclosures that are still expected to hit the market, is a major threat for a housing sector that already has a glut of unsold homes.  In spite of everything, default notices had fallen 18 percent when compared with August of 2010 and down 44 percent from the peak reached in April 2009 during the tail end of the recession.

Writing for The Consumerist website, Chris Morran says that “Last year, several of the country’s largest mortgage servicers — Bank of America, GMAC/Ally, JPMorgan Chase, among others — were forced to hit the pause button on foreclosure procedures after it was revealed that many foreclosure documents were being rubber stamped by untrained, ill-informed ‘robo-signers.’  This delay caused a bottleneck of foreclosure-worthy properties waiting to be reviewed.  But now it looks like those homes are starting to trickle out into what could be a flood in early 2012.  According to Bank of America, “We are on an ongoing path to return foreclosures to normal levels. Strong gains like that from July to August demonstrate our progress – primarily in judicial states — clearing more volume to advance to foreclosure once we pass the numerous quality controls we have in place and exhaust all options with homeowners.  Our progress each month builds upon foreclosure levels lower than the market realities would dictate.”

A more optimistic view of the dismal report was offered by Gregory Tsujimoto, who performs market research for John Burns Real Estate Consulting in Irvine, CA, and views the data as reflecting more of a stall in an improving market than a new downtrend.  Despite the sharp increase in monthly figures, Tsujimoto attaches more weight to an 18 percent decline in default notices on a yearly basis.  Tsujimoto believes that the uptick in default notices is “a leading indicator for future foreclosures, which is not coming at a great time when measures of consumer confidence have declined.”  But, he says that we must address the backlog of distressed inventory and “vacant homes in the marketplace before we get true improvement.”  The other key, he says, is “creating jobs to spur demand.”

Among the states with the highest foreclosure rates, California led in new foreclosures with an increase of 55 percent over July, according to RealtyTrac.  Cities in inland California posted big jumps, with Riverside and San Bernardino counties soaring 68 percent, Bakersfield 44 percent and Modesto 57 percent.  “Scratch beneath the surface and there’s not a lot to cheer about this month.  Home sales were up from a year earlier but remained far below average,” DataQuick President John Walsh said.  “Many would-be buyers can’t find financing, and others who want to make a move now are stuck because they owe more than their homes are worth.”

The decision to move ahead is an important one since RealtyTrac has long maintained that property values won’t rise until a large number of distressed properties are purchased.  “We don’t know yet if this is a beginning of a trend, but there is a good chance we might see a return to more realistic foreclosure numbers,” Sharga concluded.

Tags: , , , , , , , , , , , , , , , , ,
Posted in Economics, Financing, Residential | No Comments »

Housing Prices Still Weak, But Show Welcome Improvement

Tuesday, September 13th, 2011

Home prices revived somewhat during the 2nd quarter, but the housing market is still struggling.  Prices climbed an impressive 3.6 percent, compared during the three months ending March 31.  Despite the upbeat news, home prices are still down 5.9 percent compared with the 2nd quarter of 2010.  The rise in home prices came after three straight quarters of drops, the S&P/Case-Shiller national index — a recognized gauge of residential real-estate markets — reported.  The year-over-year decline was slightly more than the than the 4.7 percent drop that had been forecast by a consensus of experts at Briefing.com.  A separate monthly index of home prices in 20 major metro areas reported a month-over-month gain of 1.1 percent for June, and a 4.5 percent decline compared with last year.

The quarter-over-quarter price increase may be the last one for a while, said Stan Humphries, chief economist for the real estate website Zillow. He expects prices will weaken again.  “The August turmoil of credit rating downgrades, negative GDP revisions, stock oscillations and European debt woes are likely to leave a mark on both August home sales and home value appreciation,” according to Humphries.  “Monthly home value appreciation in June may mark the last hurrah before beginning to weaken in the back half of this year,” Humphries said.

Foreclosures still constituted a higher proportion of sales throughout the winter and spring as families took a break from home shopping; cash-rich investors dominate the market.  Nationally, home prices have returned to their 2003 levels.

Chicago, Minneapolis, Washington and Boston saw the largest monthly increases.  Cities hit hardest by the housing crisis, such as Las Vegas and Phoenix, reported small seasonal increases.  Housing has remained a drag on the economy and is one of the most important reasons why it is still struggling to recover two years after the recession officially ended.  Home sales in 2011 are likely to be at the lowest level in 14 years.  Home prices in many cities have reached their lowest points since the market bubble burst more than four years ago.  Home prices in Cleveland, Detroit, Las Vegas, Phoenix and Tampa are at 2000 levels.  “These shifts suggest that we are back to regional housing markets, rather than a national housing market where everything rose and fell together,” said David M. Blitzer, chairman of the S&P’s index committee.  “This month’s report showed mixed signals for recovery in home prices. No cities made new lows in June 2011, and the majority of cities are seeing improved annual rates,” Blitzer said.  “Looking across the cities, eight bottomed in 2009 and have remained above their lows.  These include all the California cities plus Dallas, Denver and Washington D.C., all relatively strong markets.”

“There’s no theoretical floor for prices. If the economy worsens, housing will get into a vicious cycle of falling prices and foreclosures,” said Mark Zandi, chief economist at Moody’s Analytics. “When prices fall, confidence wanes.”

Foreclosures and short sales — when a lender sells for less than what is owed on a mortgage – accounted for approximately 30 percent of all home sales in July, an increase from about 10 percent reported in normal years.  Nearly 1.7 million potential foreclosures are being delayed, according to real estate firm CoreLogic, either by backlogged courts or lenders waiting for the conclusion of state and federal investigations into questionable foreclosure practices.

“Prices aren’t going to rebound back rapidly,” said Paul Dales, a senior U.S. economist at Capital Economics Ltd. in Toronto.  “Most people think that when the downturn ends the recovery will be pretty good, but that’s not going to be the case at all.”

 “Consumer confidence is still weak, and the housing sector remains in a fragile state,” According to Robert Toll, chairman of Toll Brothers, Inc. the nation’s largest luxury homebuilder.  “The nation’s economy continues to suffer from the lack of jobs in housing construction and the related manufacturing and service sectors that a decent new-home market would typically generate.” 

Federal Reserve Chairman Ben Bernanke said “an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines” are hurting the housing market.

Lawrence Yun, chief economist at the National Association of Realtors, described the activity as “underperforming.  The market can easily move into a healthy expansion if mortgage underwriting standards return to normalcy,” he said.  “We also need to be mindful that not all sales contracts are leading to closed existing-home sales.  Other market frictions need to be addressed, such as assuring that proper comparables are used in appraisal valuations, and streamlining the short sales process.”

Tags: , , , , , , , , , , , , , , , , , ,
Posted in Economics, Financing, General, Residential | No Comments »

Rick Mattoon on the Economy: On the Brink or On the Mend?

Tuesday, August 30th, 2011

Emerging from a financial crisis of the enormity that the United States has lived through the last several years, it is natural that the road to recovery is slower and bumpier than in a typical recession.  This is the opinion of Rick Mattoon, a Senior Economist and Economic Advisor at the Federal Reserve Bank of Chicago,  Previously a Policy Advisor to the governor of Washington, he is also a lecturer at the Kellogg School of Management at Northwestern University.

According to Mattoon, the irony of the Monday after Standard & Poor’s downgraded the United States’ credit rating from AAA to AA+ is that while the Dow Jones Industrial Average nosedived by 635 points, investors were still putting their money into Treasury notes.  Treasuries, which theoretically should have been affected by the credit downgrade, remain attractive to savvy investors.  The most significant impact of the credit downgrade is its effect on municipal bond issuances and the cost of certain kinds of credit that historically have been backed by the United States’ AAA standing.

From the Federal Reserve’s perspective, Mattoon says the central bank is going to continue making it easy for people to borrow and lend money to create the favorable conditions that will turn the economy around.  At present, he says the issue isn’t so much one of supply but demand.  A lot of people would like to take advantage of the current low interest rates, but can’t because they are not considered creditworthy due to tighter lending standards.  The Fed’s policy of quantitative easing (QE) has had some success, primarily — and until recently – the stock market rally and low interest rates.

The expression of “stall speed” is used to describe the pace of economic recovery as compared with the five percent rate of growth the country needs.  Mattoon says that this is a difficult process that has not been helped by other one-time shocks to the economy.  A case in point is March’s Japanese earthquake and tsunami, which caused supply-chain disruptions.  Another was the unanticipated spike in oil prices that dampened consumer spending.

The slow pace of job creation – just 117,000 created in July after two months of little employment growth – is also negatively impacting the economy.  The way the public sees it, job creation is currently the # 1 economic factor – particularly to the approximately 50 percent of the unemployed who have been jobless for six months or longer.

One game changer lies in the fact that Americans are currently saving more money than they did in the past – as much as six or seven percent of income when compared with a few years ago.

In terms of commercial real estate, the 1st half of the year saw tremendous amounts of capital raised for acquisitions, primarily for core $100 million transactions.  The market’s comeback depends on job growth.  According to Mattoon, if office employment ticks up, there will be greater demand for commercial real estate, especially in gateway cities like New York.  Retail will be the most difficult sector to recover, especially in strip malls, which were significantly overbuilt.  The demise of some big-box retailers – most notably Circuit City and Borders – is opening significant retail space that often anchored shopping centers.

To listen to Rick Mattoon’s full interview on whether the economy is on the brink or on the mend, click here.

icon for podpress  Rick Mattoon on the Economy: On the Brink or On the Mend?: Download

Tags: , , , , , , , , , , , , , , , , , ,
Posted in Economics, General | No Comments »

Economy Reaches Stall Speed

Tuesday, August 23rd, 2011

The American economy expanded at a snail’s pace of just 1.3 percent in the 2nd quarter, according to a report from the Department of Commerce. Growth in the first three months of 2011 was reduced to 0.4 percent from an earlier reading of 1.9 percent.

“Today’s first look at GDP in the 2nd quarter confirms what we already knew:  The economy isn’t growing as fast as it needs to,” said Commerce Secretary Gary Locke.  “Experts have repeatedly warned that if this uncertainty continues, our economy will pay the price.  We can’t afford to return to the same failed policies that brought us here.  We must build on the progress we’ve made over the last two years and reach a balanced compromise that will reduce our debt and at the same time strengthen our job-creating ability and global competitiveness for the future.”

Soaring gas prices and meager income gains caused consumers to limit their spending in the spring.  The abrupt slowdown means the economy in 2011 will likely grow at a slower pace than in 2010.  Additionally, economists don’t expect growth to pick up enough in the 2nd half to cut the unemployment rate, which rose to 9.2 percent In June.  Economists originally thought that a Social Security payroll tax cut would spur adequate growth to reduce the unemployment rate.  Unfortunately, the lion’s share of that money was spent filling up gas tanks as gas prices soared.  In an unfortunate twist, employers pulled back on hiring because Americans spent less.  Thanks in part to high gas prices, consumer spending was virtually flat throughout the spring.  It grew a mere 0.1 percent, after experiencing 2.1 percent growth in the winter.  Spending on long-lasting manufactured goods — primarily autos and appliances — declined 4.4 percent.

Usually reliable government spending fell for the 3rd consecutive quarter.  State and local governments also slashed spending, the seventh time in eight quarters since the recession officially came to an end.  Corporate spending on equipment and software grew 5.7 percent in the 2nd quarter, down from the 1st quarter’s impressive 8.7 percent pace and below 2010’s double-digit gains.  Additionally, American incomes are not growing.  After-tax incomes, adjusted for inflation, rose just 0.7 percent, similar to the 1st quarter and the weakest numbers since the recession ended.

Kathy Bostjancic, director for macroeconomic analysis at the Conference Board, said the poor new data could push the American economy back into recession.  Although she said that the chances of that are still low. “Anemic consumption, still declining state and local government spending, tepid business investment, and soft housing activity all combined to offset some strength in exports,” she said.  “Concerns about the weak labor market and rising food and energy prices continue to weigh on consumer confidence.”  In June, the Federal Reserve cut its estimate of economic growth for the year.  The Fed now thinks that the economy will grow between 2.7 percent and 2.9 percent, down from an April estimate of 3.1 percent to 3.3 percent.

The economy is struggling to recover from the recession that lasted from 2007 to 2009, a time when the GDP contracted.  According to a government report, the recession was even worse than originally estimated.  Between the last few months of 2007 and the middle of 2009, the economy declined by 5.1 percent.  That is one percentage point more than previous estimates.

Writing in the Washington Post’s “Political Economy” column, Neil Irwin says that “But even if the number comes in somewhat higher than economists are expecting, it will be no cause for celebration.  The U.S. economy is capable of growing at about 2.5 percent a year over the longer term, as the population increases and workers become more productive.  But when the economy grows at that rate, the labor market can only tread water — accommodating the rise in the labor force, but unable to put the millions of Americans still unemployed back to work.  So, what happens to employment when the nation’s economic growth stays below that 2.5 percent rate, as it has in the 1st half of this year?  The U.S. jobless rate has risen for three months straight.  Among the major culprits in keeping job seekers out of work are the financial struggles faced by state and local governments that are cutting tens of thousands of jobs and billions of dollars in spending each month to balance their budgets.  State and local government cutbacks subtracted 1.2 percentage points from 1st quarter GDP, the Commerce Department has estimated.  Friday’s GDP release shows the amount of drag in the 2nd quarter.  States were able to delay those cutbacks when they received hundreds of billions of dollars from the federal government in 2009 to ride out the recession.  That money has all been spent, and now states are being forced to slash spending and raise taxes to comply with balanced-budget requirements.  Congress has given little serious consideration to reviving the stimulus program.”

Some economists see the light at the end of the tunnel.  “The pace of fiscal retrenchment is likely to pick up in coming years,” said Jan Hatzius, Goldman Sachs’ chief economist, “and this year’s experience confirms our view that this adjustment is likely to weigh on GDP growth.”

Tags: , , , , , , , , , , , , , , ,
Posted in Economics, General | No Comments »

11 Percent Rise In New-Home Sales

Thursday, May 12th, 2011

New home sales rose in March, with the number of properties on the market at its lowest since the 1960s.  Additional gains will be stymied by competition from the market’s glut of previously owned houses.  Single-family home sales rose 11.1 percent to a seasonally adjusted 300,000 unit annual rate, according to the Department of Commerce, during a month when economists had expected a 280,000-unit pace.  Even with the March uptick, new home sales are just bouncing along the bottom.  Despite the good news, the number of houses sold still is 21.88 percent less than the level achieved one year ago.  The news was released by the U.S. Census in its monthly New Residential Home Sales Report for March.

“Investors continue to drive the market and were about 22 percent of the purchasers in March, up from 19 percent a year ago,” said economist Joel Naroff, of Naroff Economic Advisors, in Holland, PA.  Investors typically look for foreclosures or short sales.  “They love those cheap distressed homes, which now make up 40 percent of the market,” Naroff said.  “Given the tight lending standards cash buyers are more than welcome.  To get a Fannie or Freddie loan, which are the only games in town, a borrower has to have a credit score of about 760.  Before anyone gets excited and thinks housing is on the rebound, understand that we need to more than double the March sales pace to reach decent sales levels,” Naroff said.  “Prices remain soft and are down by about five percent over the year.”

According to Dirk van Dijk of the Wall Street Pit, “The March level was substantially better than the expected rate of 280,000.  The 11 lowest months on record (back to 1963) for new home sales have all been in the last 11 months.  We are down sharply from a year ago, and it is not like a year ago was a great time in the homebuilding industry either.  Relative to the peak of the housing bubble (July ’05, 1.389 million) new home sales are down 78.4 percent.  Inventories of new homes were down 1.1 percent on the month and are down 19.7 percent from a year ago.  Supply is at 7.3 months, down from 8.0 months in February, but up from 7.1 months a year ago.  While that is well off the peak of 12.0 months, it is still above normal.  A healthy market has about a six month supply of new houses and during the bubble, four months was the norm.”

The median price of new houses sold in March was $213,800, according to the Census Bureau.  “It’s a decent start to the spring selling season, but we’re coming off all-time lows here, so we’re not going to get too excited,” said Brett Ryan, economist with Deutsche Bank Securities.  “The overhang of foreclosures drags on new home sales.  Builders are waiting for a clearing process to take place.”

The housing market was either “little changed from low levels” or weaker across the country, the Federal Reserve said in its most recent Beige Book report.  The absence of a continued housing rebound is one of the reasons why policymakers will complete their $600 billion asset purchase plan and keep borrowing costs at nearly zero to encourage growth.

Last year was the fifth consecutive year of declining new-home sales. According to economists, it could take years before sales return to a healthy pace.  Slow new-home sales add up to fewer jobs in construction, which normally powers economic recoveries following recessions.  Each new home creates an average of three jobs for a year and adds $90,000 to the local tax base, according to the National Association of Home Builders.

Tags: , , , , , , , , , , , , , , , ,
Posted in Economics, General, Residential | No Comments »

« Older Entries