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THE NORTHWEST ECONOMIC MAINLINE 07·20·2009
What to Watch This Week
- Existing home sales figures will be released on Thursday, and I believe that we will see a further uptick in activity across the board. Much of this will be in the form of distressed transactions, but if early figures out of California are anything to go by, we should see a nice increase.
- Initial unemployment claims are announced on Thursday, and I also expect to see these coming in a little lower than consensus opinions. Although the longer-term trend is still upward, we will see the U.S. at an unemployment rate above 10 percent before the year is out. Initial claims have been declining in recent weeks.
- Consumer confidence, which saw a dip last month, will probably remain close to current levels when the announcement is made on Friday. Last month's drop was due to additional concerns over the employment situation, which may have eased somewhat as initial claims have subsided.
- Earnings season continues with many local companies such as Starbucks, Boeing, Amazon.com, and Microsoft reporting. If the positive trends from last week continue, we will be smiling about more than just the weather in Seattle.
What I Saw Last Week
- Retail sales figures were released and, as I suggested last week, they were disappointing. Although overall sales rose quite nicely, the figures were skewed by jumps in gasoline and auto sales. Excluding autos and parts, which rose by 2.3 percent, overall sales were up but by a paltry 0.3 percent. Consumers are clearly still uncomfortable with spending more than absolutely necessary.
- The Consumer Price Index, the measure for inflation, increased by 0.7 percent in June, demonstrating that we have no concerns of inflation at this point. In fact, overall prices have declined by 1.4 percent. As I have said before, I am more concerned over deflation rather than inflation at this juncture.
- Always interesting are the release of the minutes from the latest Federal Reserve meeting. I was encouraged by their remarks suggesting that, although the economy will shrink this year, it will be at a slower pace than was previously expected. The Fed now expects a contraction of between 1 and 1.5 percent, which is an improvement from its old forecast in May. They are also of the belief that the economy will grow during the second half of this year. Although I have been stating that the second half will see a turnaround, it is nice to hear it from somebody else!
- Earnings season is in full swing, and I continue be very pleasantly surprised. Goldman Sachs reported a 33 percent rise in quarterly earnings, and there were also positive earnings reports from JP Morgan Chase, Citigroup, Intel and IBM. The consensus seems to be that the worst has past for corporate America.
- Mortgage applications are on the rise again. Although most of the rise came through refinance activity rather than applications for new loans with borrowing costs driven down to an average of 5.05 percent for a 30-year fixed loan. Continued interest in 10-year treasuries, as well as the Federal Reserve's confirmation that they intend to continue to buy mortgages, should push rates down further. A figure of 5 percent or lower will have a significant impact on housing demand.
Quote/Link of the Week
Five Washington communities made Money Magazine's annual list of the best places to live. Well done Mukilteo (Number 10)! Read the Article »
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