Wikinvest Wire

The week's economic reports

Saturday, March 22, 2008

Another poor report on new home construction and more bad news for manufacturers in the eastern part of the U.S. highlighted the week's economic reports.

Stocks and bonds ended with the S&P 500 Index up 3.3 percent to 1,330, now down 9.5 percent for the year, and the yield of the 10-year U.S. Treasury note fell 9 basis points to 3.33 percent.
New York/Philadelphia Manufacturing Indexes: Both New York and mid-Atlantic area manufacturing activity has slowed dramatically in recent months and the incoming data has become remarkably consistent in what are normally volatile series that exhibit big month-to-month swings. The last two readings in the New York area, from -11.7 in February to -22.2 in March, confirm the same rapidly deteriorating conditions observed in the Philadelphia survey, from -20.9 to -24.0 to -17.4 during the first three months of the year.

Recall that, in these indexes, positive numbers indicate expansion while negative numbers indicate contraction and the large negative numbers of late follow average readings of between +10 and +20 over the last few years. In both regions, new orders and shipments have fallen sharply and employment has been weakening as prices continue to rise. These reports add to the mounting evidence that we are likely already in a recession.

Housing Starts: Single-family housing starts fell 6.7 percent to a new 17-year low in February and starts of multi-family units rose 14.5 percent as apartment building continues to be a bright spot in what is otherwise a still deeply troubled industry. When compared to unrevised data from January, overall housing rose, but, compared to the revised data, housing starts dipped slightly.

Building permits, an important leading indicator for new home construction, dropped 7.8 percent in February from the revised January total, the biggest monthly decline in more than 13 years.

On a year-over-year basis, housing starts are down 28.4 percent, paced by a 40.5 percent decline in single-family starts. Permits for new construction are down 36.5 percent from a year ago with the decline in single-family units now standing at 41.9 percent, the sharpest drop since 1982.
Despite a number of false signals over the last two years, it has been a long steady decline for homebuilders amid falling prices and growing inventory.

In many parts of the country with depressed housing markets, vacancy rates have been soaring, led by Orlando, Florida where 7.5 percent of housing units are unoccupied. Tampa, Florida and Las Vegas, Nevada claimed the next two spots with rates of 5.1 and 4.9 percent, up markedly from just a year ago as a result of dwindling sales (many of which are investment properties) and rising foreclosures.

There is still no bottom in sight for housing despite the persistent bottom-calling by some in the real estate industry.

Producer Prices: Following a surge of 1.0 percent in January, producer prices rose just 0.3 percent in February led by pharmaceuticals, energy, and automobiles. Core producer prices (excluding food and energy) rose sharply, up 0.5 percent in February after a 0.4 increase in January. On a year-over-year basis, overall producer prices have risen by 6.8 percent and the core rate gained 2.5 percent adding to the argument that inflation is not subsiding.

Summary: The news just doesn't seem to want to improve for the homebuilders as new home construction continues its downward spiral and the homebuilders' housing market index remains near historic lows. Existing home sales, to be reported next week, will likely offer no relief as only a few analysts see any improvement in store for housing in 2008.

The factory sector is slowing dramatically as all major manufacturing reports now indicate contraction and the labor market looks worse with each passing week. Initial claims for unemployment insurance bounced back up last week to 378,000, the trend now appearing to favor a return to the 400,000 level that is normally associated with recessions and major job losses.

The Conference Board's index of leading economic indicators fell for the fifth straight month and there is little doubt that we are now either already in or very close to a recession.

The Week Ahead: The coming week will be highlighted by the third and final report on fourth quarter GDP on Thursday. Also scheduled for release are reports on existing home sales on Monday, consumer confidence on Tuesday, durable goods orders and new home sales on Wednesday, and both personal income/spending and consumer sentiment on Friday.

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getyourselfconnected said...

Heard all day about how we have to avert a financial "Crisis" at all costs. Japan had a "Lost Decade". But I do not think the populace burnt Tokyo for fire wood or resorted to cannibalism to survive the winter. Last time I checked, Japan seemed to be ok. If the current "Crisis" goes on, will Americans have to spend some time getting by on much less, or are we going to have to live in caves and eat our pets to survive? Who knows? The point is before the reins of finance are passed on to the government (Katrina response was soooo good right?) and we accept basic communism as a national goal, somebody needs to persuade me that we are indeed trying to avoid some terrible fate and not just trying to avoid poor bank earnings for a year or two. The time is up for using a term like "Crisis" without any meaningful idea what in fact is the crisis. Here is a challenge: explain in some basic detail what is in fact the crisis being averted at any cost without using terms with no meaning like "banking failure", "systemic meltdown", "depression" and the like. Are things indeed so bad? Not so bad? Acceptable or not?

Jonathan said...

"are we going to have to live in caves and eat our pets to survive?"

Noooo! I would never eat Admiral Pumbie!!!!

eh said...

There is still no bottom in sight for housing despite the persistent bottom-calling by some in the real estate industry.

The stocks get a boost anyway.

Too much demand was pulled forward by subprime lending, and the builders went nuts to satisfy it. They are dead for several years.

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