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THE NORTHWEST ECONOMIC MAINLINE 07·27·2009
What to Watch This Week
- New home sales numbers come out on Monday, and I am hoping that we will continue to see a continuation of the upward trend that has been quietly growing for over a year. Months of supply will probably still come in at above 10, but we will be coming increasingly close to breaking this psychological double-digit barrier.
- The Consumer Confidence Index for June is announced on Tuesday, and I hope to see an uptick from last month's disappointing numbers. The equity markets seem to be pretty happy right now, and I hope that some of this enthusiasm will rub off on it.
- 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.
- As always, we await the Case-Shiller housing value index with bated breath. Although year-over-year prices are down by 16.8 percent in our market, month over month, we eked out a gain of 0.2 percent last month. Not very much, but it was positive, and I hope that we will see further minimal gains on a monthly basis.
- The Fed's Beige Book is published on Wednesday, and it will be interesting to see what their take on the current economy is. Anecdotally, we are hearing some district heads suggesting that there appears to be a light at the end of the tunnel. Let's hope that they are right!
- Initial Unemployment Claims will also be announced, and this is an area that I am being questioned on consistently recently. Numbers have been far better than had been expected, but I have to point out that there is a substantial caveat to this. The figures are still filled with noise as the Labor Department sorts out its seasonal adjustment factors to account for the layoffs in the auto industry that occurred earlier than normal; this is skewing the numbers.
- Core Personal Expenditure figures are announced on Friday. These numbers look at how much we spent last month and are a very good indicator of our economy as a whole. My take on this is that we will see muted numbers. This is good, as it shows that there is little in the way of inflationary pressures, but not good for the economy as if we aren't consuming, we don't need to be growing.
- Finally, and in concert with the CPE numbers, initial GDP numbers for the second quarter will be announced. This is a critical number, but do remember that it is the advanced number and is open for adjustment. My own forecast is that it will come in at an annualized rate of minus 3.2 percent. This is a great improvement over the minus 5.7 percent seen in the last quarter and, it is my opinion that it will be the last negative figure that we see. I fully anticipate that the U.S. will turn to positive growth in the third quarter of this year.
What I Saw Last Week
- I was pleased to see that existing home sales numbers continued their upward trend. What was even nicer was that the pace of increase surprised many, although I did forecast this last week. Sales rose by 3.6 percent to an annualized rate of 4.89M units, from a downwardly revised 4.72M pace in May. This is the first time that we have seen three straight months of gains since early 2004!
- Weekly mortgage rates came in up a little from where they were last week, but they are still sharply lower than a year ago. I do not expect much in the way of further upward pressure on rates as the Federal Reserve continues to buy bonds, which, in turn, compresses mortgage rates.
- There were a plethora of earnings announcements made last week – many were good, but some were not. Boeing's profits rose 17 percent, but there are still concerns as to when we will actually see a Dreamliner fly; Starbucks easily topped analysts' expectations for net income, although a consequence of slashing costs and closing stores. Unfortunately, Microsoft did not fare so well with revenues declining by 17 percent. This is the first time that Microsoft has ever had negative revenue growth.
- On a separate but related note, we are hearing further rumors about a potential deal with Yahoo. Microsoft's fortunes are tied to the health of the PC market, and it would be a wise move to look at diversity in their business model.
Quote/Link of the Week
One of my analysts sent this over to me, and it is nice to see that not all equity analysts are bears. I'm not sure that I agree with him, but I know that my IRA would be very happy! Article 1 » And finally, on a personal note, the following article was sent to me that brought a tear to my eye. It appears as if my home country is not isolated from economic woes and real estate near and dear to my heart is being hit hard. I dearly hope that a stimulus package is forthcoming! Article 2 »
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