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THE NORTHWEST ECONOMIC MAINLINE 06·01·2009
What to Watch This Week
- While trying to overlook headlines of missile threats and nuclear testing in North Korea, I will be closely watching construction spending figures and earnings from Toll Brothers early this week. A few weeks ago I had included a link to Toll Brother's "earnings" when in fact it was their "guidance." Nonetheless, I am always interested in information that the company has to offer and apologize for the inaccuracy.
- Factory orders, a leading indicator that we watch closely, will be useful in trying to base predictions as to what to expect as we continue through the summer, as will Institute of Supply Management statistics offered throughout the week. Auto and truck sales statistics will probably stir up the market and cause many to question whether, in fact, consumers have actually begun to open their wallet to big ticket items. This will be interesting given that sentiment is now at its highest level since September of last year.
- To round out the week, look for unemployment rate figures. As we saw a few weeks back when considering Washington State and local unemployment statistics, stabilization in unemployment rate is critical, and must occur before anyone can begin to proclaim a turnaround in the economic situation. I, for one, expect a slight stabilization but still question whether layoffs have actually slowed on an absolute basis nationwide.
What I Saw Last Week
- Revised Q1 Gross Domestic Product figures came in at -5.7 percent. This was below the -6.1 percent preliminary estimates, yet above that of analyst expectation of -5.5 percent.
- A less than favorable report from the Mortgage Bankers Association indicated that mortgage delinquencies hit a record high in the first quarter of this year. Statistics showed that approximately 12 percent of homeowners with a mortgage were delinquent; a dire number considering that analysts predict the wave of foreclosures won't peak until "the end of next year." Sand states such as California, Nevada, Arizona, and Florida, accounted for approximately 46 percent of nationwide foreclosures in the first quarter. Incredible...
- A report from the Federal Deposit Insurance Corporation surfaced on Wednesday showing that although the number of problem banks now stands at the highest level in 15 years the industry earned $7.6 billion in the first quarter, up from a record loss of $36.9 billion in the fourth quarter. Quotes hinted that the industry is in the rebuild phase.
- The Commerce Department announced on Thursday that new home sales increased by 0.3 percent in April to a seasonally adjusted annual rate of 352,000 units. Even more surprising were inventory statistics which revealed that there were 297,000 new homes for sale at the end of April, the lowest level in nearly eight years. This is VERY exciting and reaffirms what I have been saying for some time; that inventory levels are a key and preface to both price stability and a turnaround to the overall housing market.
- The following article provides excellent commentary on the issue of current levels of supply: Supply Article
- Thursday's news also included a report from the Labor Department stating that initial jobless claims dropped unexpectedly to 623,000, (below analyst expectation of 635,000) and well below the previous week when claims totaled 636,000.
- Short-lived panic on Wall Street stemming from a sharp increase in 10-year treasury yields also emerged last week, causing many to question the long-term consequences of the federal government injecting such massive amounts of dollars into the economy. This panic was quickly washed away, however, when many investors realized that it might be a bit premature to worry about hyper-inflation when we are still in the midst of trying to combat deflation! Mortgage rates, on the other hand, continue to be closely watched after having reacted almost immediately with a sharp increase.
- The GM saga continued, first with a rejected deal and then an ok'd "sweetened" deal by bondholders. In either case, our statement some months ago relative to our belief that bankruptcy was inevitable is probably going to be proved on Monday. This very much reminds me of the course of action that was taken for Citigroup a few months back.
Quote/Link of the Week
- The massive campaign by Microsoft to get the word out to consumers about its new search engine "Bing" is apparently starting to gain traction. I couldn't visit any news outlet without seeing the new brand that is setting the stage for a showdown with Google (hopefully). Let's hope Microsoft is successful as the result could quite well be new jobs created in the region!
Bing Link
- Also, here's an interesting chain of events that follows the WAMU collapse and Chase repurchase (which some have viewed as nearly-ruthless). Chase Purchase
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