How Is The Real Estate Economy?
The Federal Reserve has indicated that it expects a slow and gradual recovery, and the government's strong efforts to ignite the economy have starte...
The Federal Reserve has indicated that it expects a slow and gradual recovery, and the government’s strong efforts to ignite the economy have started to show results: TARP fund boosted the financial sector and cash-for-clunkers has raised vehicle sales from the dead. However, the sustainability for these efforts rest on a consumer that has seen 13 trillion dollars of wealth wiped out. The fact that US savings rate have risen from a pre-crisis 1% to 5.2% indicates just how hard it is going to be to invigorate consumer spending which accounts for 70% of the economy. If you look back at the state of the economy in July you will see that the improvements are not that dramatic today. The real estate cycle is likely to keep declining for a while.
- Factory Orders (July 2nd): Total factory orders rose +1.2% in May after +0.5% in April. Nondefence capital goods orders were signifi cantly stronger, rising +4.7%. Shipments, meanwhile, fell -0.9%, inventories
-0.6%and unfilled orders -0.2%. Orders less-transportation were +0.8% higher after -0.2%. This tells us the real estate cycle will remain on the down swing.
- Manufacturing & Trade Inventories (July 14th): Total inventories fell yet again in May, -1.0% after -1.3% in April and March. Sales, meanwhile, only fell -0.1% after -0.3%. This brought the I/S ratio down slightly to 1.42 from 1.43, though there was a much larger decline for retailers, where the ratio fell to 1.50 from 1.53. This is a good indication of where the real estate cycle is going.
- Industrial Production (July 15th): Industrial production has so far refused to follow the upwards burst in the ISM production index. It fell -0.4% in June, after -1.2% in May. It is also -13.6% lower than a year ago. Capacity utilisation, meanwhile, fell to 68.0% (another record low), from 68.2%.
- Housing Starts (July 17th): Starts rose for the second consecutive month in June, up +3.6% after +17.3%. Nevertheless, they are still -46.0% lower than a year ago. Single-family starts actually increased +14.4%, though are -28.2% lower than a year ago. Finally, building permits increased +8.7% after +4.0%, though down -52.0% annually. S&P500 -0.04%.
- Durable Goods Orders (July 29th): Durable goods orders fell a greater than anticipated -2.5% in June, where
- Employment Cost Index (July 31st): Q2’s ECI increased +0.4%, where +0.3% was expected. This was the result of a +0.3% increase in the benefi ts component and a +0.4% rise in wages & salaries. The ECI is now +1.8% higher than a year ago. While private sector wages and salaries are +1.8% higher annually.
Going into 2010 it is clear that there is a lot of work left to do.
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