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THE NORTHWEST ECONOMIC MAINLINE 07·13·2009
What to Watch This Week
- This is the start of the earnings season and much of this week's focus will be on the performance of publically traded companies. Of particular interest to us will be the financial sectors that start reporting their performance for the second quarter. It will be interesting to see where they end up.
- The Consumer Price Index will be released on Wednesday and I expect that it will be flat. My major concern is over deflation, rather than inflation.
- Retail Sales figures are going to be released on Tuesday, and I expect them to remain weak with consumers saving more and spending less. I am afraid that I don't see much light for the retail sector yet.
- Building permits popped last month but this flew in the face of the NAHB Builder Confidence Index that dropped. I don't see that we will see any significant gains in either permits or starts in Fridays report as any uptick in construction activity will require an improving employment situation that we have yet to see.
What I Saw Last Week
- Aprils Consumer Credit figures were announced by the Federal Reserve that showed overall contraction of 7.5 percent; revolving credit saw a greater contraction of 11 percent. This tells me that we are not out of the woods yet and that consumers are still concerned about the overall health of our economy.
- It was pleasing to see that demand for mortgages increased from a seven month low. The Index for overall loan applications rose a seasonally adjusted 10.9 percent.
Talking of mortgages, the long term fixed mortgage rate slid to a 6-week low as a weakening labor market dragged down government debt yields. The average 30-year rate dropped 0.12 percent to 5.20; the rate a year earlier was 6.3 percent.
- The services economy - from restaurants to real estate brokers - contracted less than expected in June. The Institute for Supply Management said that their index rose to 47 from 44 in May. Although any figure below 50 indicates contraction, it's still the best showing since last September!
That being said, both Costco and Nordstrom saw declines in June revenues compared to a year ago. Same store figures showed a contraction of 6 and 10 percent respectively.
- GM rose from the ashes last Friday a far leaner company. With a reduction of 35% of its management staff, it is now cleansed of the massive amount of debt that it had incurred. Bold statements abounded with their CEO, Fritz Henderson, announcing that they planned to pay the government back about $50B before the 2015 deadline. We will see!
I am particularly puzzled that shares in GM are still trading although they have absolutely no value! They no longer trade on the NYSE but still trade over the counter. After GM emerged from bankruptcy these shares should not even exist! Strange.
- The Northwest Multiple Listing Service announced their monthly statistics for residential sales that were very encouraging. The number of closed transactions in King County was up by 4 percent over a year ago and pending sales were up by a staggering 25 percent over June 2008. For the entire market area, overall pending sales were up by 1 percent over the previous year and by 4.5 percent for resale units. New construction numbers were lower as builders concentrated on inventory reduction and slowed delivery of new product.
- Alcoa was the first to announce their earnings and we were pleasantly surprised by the fact that they weren't as bad as we had expected! That being said, I am getting the feeling that cheer over "not so bad" news is starting to fade. We need positive data, and we will not be content until we see it!
Quote/Link of the Week
Here's an interesting take on residential demand for housing. An economist who specializes in the wood products industry explains why he believes that forecasts for new starts are too low!: Read the Article »
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