Economic Week in Review - February 15, 2008

Trade deficit shrinks, retail sales up
Economic news has been gloomy lately, but this week there were some encouraging signs. Reports showed better-than-expected retail sales and a reduced U.S. trade deficit. Still, in Senate testimony, the Federal Reserve chairman described the economy as "sluggish," and he also left the door open to additional cuts in the federal funds rate. On Wednesday, President George W. Bush signed into law a $168 billion package aimed at stimulating the economy through tax rebates. For the week, the S&P 500 Index rose 1.4% to 1,350 (for a year-to-date total return of –7.8%). The yield of the 10-year U.S. Treasury note rose 12 basis points to 3.76%.

U.S. trade deficit improves
The U.S. trade deficit narrowed 7.0%, to $58.8 billion, in December (from $63.1 billion in November). Analysts had expected a trade deficit of $61.6 billion. Exports rose by $2.2 billion, while imports declined by the same amount. The weakness of the dollar relative to other currencies was credited with helping to cut the trade deficit. For the year, the trade deficit declined by $46.9 billion, or 6.0%.

Retail sales rebound
Retail sales climbed 0.3% in January, recovering from a 0.4% drop in December. Analysts had expected a 0.3% decline. Gas stations had the strongest growth, with sales up 2.0%. Sales of automobiles and parts were up 0.6%. Excluding gasoline and autos, however, sales were unchanged.

Stimulus package enacted, rebates to come
President Bush signed an economic stimulus package that provides tax rebates to millions of households. Many single filers will receive $600, while many married couples will get $1,200. The rebate amounts, however, begin to phase out for individuals with incomes over $75,000 and for married couples with incomes over $150,000. The IRS will start mailing rebate checks in May.

Fed chairman: Further rate cuts possible
In testimony to the Senate Banking Committee on Thursday, Federal Reserve Chairman Ben S. Bernanke said, "Downside risks to growth remain, including the possibilities that the housing market or labor market may deteriorate to an extent beyond that currently anticipated." The Fed is open to further reductions in the federal funds rate "as needed to support growth," he said. Mr. Bernanke also said he expects "a somewhat stronger pace of growth starting later this year" as the effects of the stimulus package and Fed rate cuts take hold. Since September, the Fed has reduced the federal funds rate, which greatly influences the cost of borrowing for consumers and businesses, by 2.25 percentage points.

Business inventories head higher
December's business inventories grew 0.6%, boosted by increases in the manufacturing and wholesale sectors. Retail inventories nudged down 0.1%, fueled by a 1.6% slide in auto inventories. Excluding autos, retail inventories were up 0.7%.

Industrial production ekes out a gain
Industrial production in January inched up 0.1%. Manufacturing sector output was unchanged, while utility output climbed 2.2%. Capacity utilization in the industrial sector was 81.5% compared with the historical average of 81.0%.

The economic week ahead
Next week's reports will include a reading on the outlook for the economy with the release Thursday of The Conference Board's index of leading economic indicators. Also due are the latest reading on the Consumer Price Index (Wednesday), a report on new residential construction (Wednesday), and the minutes from the January meeting of the Federal Open Markets Committee (Wednesday).

Economic Week in Review - January 11, 2008

Trade deficit widens, Fed open to more rate cuts
The U.S. trade deficit widened in November, hitting its highest level in more than a year amid then-record oil prices. In other economic news, the chairman of the Federal Reserve said the Fed is prepared to make additional interest rate cuts to stimulate growth. For the week, the S&P 500 Index fell 0.8% to 1,401. The yield of the 10-year U.S. Treasury note fell 6 basis points to 3.82%.

U.S. trade deficit hit 14-month high
The U.S. trade deficit—the gap between the total value of imports and exports—grew 9% to $63.1 billion in November from $57.8 billion in October. It was the biggest trade gap recorded since September 2006, according to Commerce Department data. Analysts attributed the wider deficit, in part, to higher import prices for oil. Overall, imports rose by $6 billion, while exports were up $600 million. Compared with a year ago, the trade deficit is up $4.7 billion, or 8%.

Chairman Bernanke: Fed ready to make 'substantive' rate cuts
Citing concerns about a weakening economy, Federal Reserve Chairman Ben S. Bernanke said in a speech Thursday that he's open to further reductions in the federal funds rate, which greatly influences the cost of borrowing for businesses and consumers. Mr. Bernanke said the outlook for 2008 "has worsened and the downside risks to growth have become more pronounced." The Fed chairman said he is especially concerned about what appears to be a further decline in the demand for housing caused in part by continuing troubles in the mortgage markets. "We stand ready to take substantive additional action as needed to support growth and provide adequate insurance against downside risks," he said. The Fed cut rates on three occasions last year for a cumulative reduction of one percentage point in the federal funds rate. Fed policy makers next meet January 29 and 30 to vote on interest rates.

Consumer borrowing rose sharply, exceeding expectations
U.S. consumers ramped up their borrowing in November as consumer credit outstanding rose by $15.5 billion from October's number to $2.5 trillion. The increase—7.4% on an annualized basis—was nearly twice the $8 billion that had been forecast. Revolving debt, primarily credit card borrowing, jumped at an 11.3% annualized rate. Analysts said the housing slump has increasingly forced consumers to rely on credit cards because it's now more difficult to get home equity loans. Nonrevolving credit, primarily auto loans, climbed at a 5.1% annual rate, after declining 3.5% in October.

The economic week ahead
A busy week for economic news will include the latest readings on two closely watched inflation gauges—the Producer Price Index (Tuesday) and the Consumer Price Index (Wednesday). The release on Friday of The Conference Board's index of leading economic indicators will provide a reading on the outlook for the U.S. economy. Also due are reports on retail sales (Tuesday), business inventories (Tuesday), industrial production (Wednesday), and new residential construction (Thursday). Analysts will also await the Wednesday release of the Fed's Beige Book.

Welcome to 2008

The best thing that can be said about 2007 is that it is over. What lies ahead for the Real Estate Community in 2008?

We are one week into the new year and I am extremely optimistic. This weekend I held an Open House at a Fantastic Home (3 Sierra Vista, Laguna Niguel). The weather was terrible but the Open House was very well attended. The people visiting were optimistc about the market and planned to buy home in 2008.

Real Estate Prices

What if the Real Estate Market actually was a roller coaster...

Has the Recovery Begun?

Every week my clients, friends, neighbors and associates inquire about the Real Estate Market. For the longest time there hasn't been any good news. However, this week the Market seems to be improving. Now, this is not based upon statistics or polls or anything more scientific than just a "seat of the pants" indicator.

As I spoke with other Realtors this last week I learned that many of them had Buyers enter into escrow on home purchases. This is the first time in a while that I can point to several new escrows in the same week. Not to be outdone, I also have Buyers that purchased a home this weekend

Let me know what you think...

10 Reasons the Housing Market Will Begin to Recover 2nd Quarter 2008

1. The Federal Open Market Committee (FOMC) Will Continue to Lower Interest Rates - This will continue stimulating the economy, keeping unemployment low in addition to helping ARMs reset to lower interest rate.



2. The Economy is Creating Jobs and Unemployment is Low - The last two housing downturns were due to recessions in the U.S. economy (80-81, 90-94)



3. Lenders are Helping Homeowners with Loan Modifications on ARM Resets - This will decrease the number of homeowners needing to sell or going into foreclosure



4. Subprime ARM Resets Peak in 1st Quarter 2008 with Minimum Resets by Year End - The credit markets froze in fear of these resets. Once past, more credit markets will make money available



5. Home Builders are Dumping Standing Inventory to Remove Inventory off the Books by Year End - The competition to the resale market will be greatly reduced



6. Sellers of Existing Homes Will Take Their Homes Off the Market at Year-End that Don’t Need to be Sold - Combining this with those that need to sell and lowering their sales prices during the holiday slow period, will cause the months to sell inventory to come down



7. Credit Markets for Jumbo Financing are Opening Up - The spread of interest rates between conforming and jumbo has been greatly reduced. Many programs are still available making it easy for buyers to qualify



8. Fires in So. California Will Create Construction Jobs and Help Supporting Industries - California has been losing jobs in this area. This in itself will keep a cap on the unemployment rate. Furniture, appliances, landscaping and architects will benefit



9. Real Estate Investors are Stepping Up and Making Offers - Mostly absent in 2007, Real Estate investors are stepping up to take advantage of the foreclosures and lowered prices



10. Buyer Sentiment of Those Waiting Will Change as Foreclosure Reporting Lessens - There are so many buyers just waiting for a sign as they fear prices will continue down. The sign will be decreasing foreclosures and inventory time to sell reduced and reported by the media

Information provided by: Kevin Budde, Branch Manager Countrywide Home Loans. Kevin Budde has been in the mortgage industry since 1975 in Orange County.

Economic Week in Review - Oct. 8, 2007

Employment rebounds
The week's key report was released on Friday, with new Labor Department data on the September employment situation indicating an improved payroll picture, as was expected. Coupled with Thursday's unemployment report, the two releases painted a benign employment situation. In other news, activity in the manufacturing and services sectors slowed, and factory orders declined; consumer credit remained healthy. For the week, the S&P 500 Index rose 2.0% to 1,557 (and has earned a year-to-date total return of 11.4%). The yield of the 10-year U.S. Treasury note rose 7 basis points to 4.64%.

Manufacturing slowed
In September, manufacturing continued to expand—though at a slower rate—as the Institute for Supply Management (ISM) Index of manufacturing activity dropped to 52.0 from 52.9 the previous month. This marked the third consecutive month of declines for the index, which now stands at its lowest level since March. Weak numbers on core capital goods orders and shipments indicated weaker output, as new orders and production grew more slowly. While the report suggested a slowing in manufacturing, the sector is holding up despite ills elsewhere in the economy, especially in housing.

Nonmanufacturing activity eased
The ISM Non-Manufacturing Index also showed a slight decrease for September, dropping to 54.8 from the prior month's 55.8. The report showed that employment activity in the nonmanufacturing sectors increased during the month, as did prices, which saw a big rise. The report came in above consensus expectations and suggested that, overall, the outlook for the services sector remains sunny, though activity may be muted for the rest of the year.

Factory orders fell
In August, factory orders dropped a larger-than-expected 3.3%, wiping out most of July's 3.4% increase. Durable-goods orders sank 4.9%, while nondurable-goods orders posted a 1.6% decline, the largest since January. A decline in oil and coal shipments, driven by August's sharp drop in oil production, accounted for most of the weakness in durable goods.

Payroll picture improved
Two reports from the Labor Department painted an improved employment picture, relieving fears of an economic downturn within the financial markets. Thursday's release showed initial jobless claims for the week ended September 29 increasing to 317,000 from an upwardly revised 301,000 the previous week, bringing claims back in line with expectations. Aside from the occasional spike, during the year jobless claims have remained essentially flat.

Friday's employment situation report showed that employment growth rebounded in September, with a net job gain of 110,000. In addition, August's report of 4,000 jobs lost underwent a major revision, showing an ultimate gain of 89,000. Public-sector employment, which had dragged the preliminary numbers down, actually rose in both August and September. Gains also continued in September for service industries, suggesting that spillover from the housing downturn remains largely contained, and private-sector employment as a whole increased. Overall, the unemployment rate rose very modestly in September to 4.7%, from 4.6% in August.

Consumer credit increased
In August, consumer credit increased $12.2 billion, or an annualized 5.9%, to $2.5 trillion. A report released by the Federal Reserve showed that the latest hike was driven by an upswing in revolving credit, which rose 8.4% in August on the heels of July's 7.7% gain. Rebounding auto sales during August also helped to increase demand for nonrevolving credit, which was up 4.8%.

The economic week ahead
On Tuesday of next week, the Federal Open Market Committee will release the minutes from its September 18 meeting, when it slashed both the federal funds rate and the discount rate. A report on international trade will appear on Thursday, and Friday's releases will cover the Producer Price Index, retail sales, and business inventories.

by: Cheryl Anderson
949-212-2903
http://www.stewartoc.com/