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HomeEconomic Update: Jobless Claims and Producer Prices
Posted by Larry Doyle on May 14th, 2009 10:42 AM |
Economic data released this morning included Initial Jobless Claims and Producer Price Index. Let’s dive right in!!
Initial Jobless Claims rose to 637k from last week’s reading of 601k, which was revised to 605k. The expectations for this week’s claims figure was 611k so the reading is disappointing as far as looking for stabilization within labor.
I am not surprised, though, for a few reasons:
1. we know there are going to be layoffs coming in the automotive industry. In fact, a large percentage of the increased unemployment filings came from states with heavy automotive exposure, especially Illinois.
2. as I reported in last Friday’s May Unemployment Report:
The fact that temporary government workers are factored into overall employment, in my opinion, is stretching the integrity of the report.
Thus, I am not surprised to see this week’s claims report higher than expected and I expect subsequent revisions to show higher claims as well.
In regard to the Producer Price Index, it was reported as an increase of .3% and without the volatile food and energy components as an increase of a mere .1%. No big deal, right? Well, it’s no big deal as long as you don’t eat. For those of us who actually look to consume food on a regular basis, this report is very troubling. Why?
Prices of food products rose 1.5%!! Including a rise of 43.7% for eggs, 5.2% for vegetables, 4.5% for beef, and 2.5% for pork.
Sense on Cents did receive very interesting color the other day about the state of produce in California. A reader shared:
The cost of food is on the rise faster than you can eat.
Now the feds have cut off water to the central valley and fields are not being farmed. I do not about you but ya might want to watch the price of a head of lettuce in NYC go through the roof.
Additionally, I was surprised to see a rise in prices for cars of .2% and light trucks of 1.1%. Despite the fact that car and truck sales are at depressed levels, the auto companies are in such desperate straits that they need to squeeze revenue wherever possible. That said, the asking prices of these vehicles may have risen, but who pays asking?
Please share insights on these fronts or any others from your local economies so we all can more effectively navigate the economic landscape!!
LD
Economic Update: Housing and Retail Sales
Posted by Larry Doyle on May 13th, 2009 8:39 AM |
Ultimately, all economic roads lead back to the housing market. The breakdown in the integrity of housing finance led us into this economic mess and any self-respecting economist (or financial commentator) will tell you that a healthy housing market will lead us out. Let’s check the patient.
The Fed has supported housing by effectively “overpaying” for refinancings. Mortgage rates relative to rates on U.S. government debt are at 17 year narrows. This development is great for homeowners who can and have refinanced. However, the pool of eligible homeowners is finite and seems to have run its course for now as recent data indicates that refinancing filings have declined while purchase activity has been unchanged. This data is reflected in the U.S. MBA Mortgage Applications Index Fell 8.6% Last Week, as reported by Bloomberg.
How about new supply of homes coming onto the market? Well, certainly home building has come to a virtual standstill with over a year’s worth of homes currently on the market. As new housing starts occur this supply can be gradually absorbed. Thus, we once again are back to the concept of needing time for the patient to heal. However, are we subject to another bout of housing sickness to hit our economy? I believe we are. Why? Two reasons:
1. government programs forestalled but did not eliminate a number of “sick” mortgages. These mortgages would likely have defaulted with banks forcing foreclosures a few months ago.
2. a large supply of adjustable rate mortgages will soon reset to a considerably higher rate leading to payment problems for homeowners and likely foreclsoures. Data indicating increased rates of delinquency (late payments) clearly points to increased foreclosures.
In fact, foreclosure filings just hit a record level of 342k as reported by RealtyTrac which monitors this data nationwide. Foreclosure activity also seems to be spreading from California, Florida, Nevada, and Arizona to other parts of the country. In fact, Idaho has recently had a surge in foreclosure activity as the unemployment rate in and around Boise has spiked.
What about home prices? The declines in home prices have certainly sparked renewed interest in prospective homebuyers. Will they enter the market at this stage? Data indicates prospective buyers continue to be patient as Bloomberg reports, Home Prices In U.S. Drop Most On Record In Quarter.
When may consumers feel confident enough to enter into the market and purchase a home? The largest factor in that decision is consumer’s confidence in their employment situation. In my opinion, with the rate of unemployment nationwide likely to hit double digits by year end, housing will remain under pressure.
On a separate economic note, the retail sales figures for April were just released and declined .4%, and excluding auto sales, declined by .5%. The market expected April retail sales to be unchanged. This report is a clear indication the economy remains on life support. Not surprising to me, March retail sales were revised even lower from a decline of 1.1% to a decline of 1.3%.
With all due respect to credible journalists, analysts, and financial commentators, I personally do not see enough green shoots in the midst of reviewing the entire economic landscape.
The equity markets are moving sharply lower on this news.
LD
P.S. Sense on Cents welcomes feedback. Let us know what you are seeing in your local economies.
