Posts Tagged ‘Economic Recovery’
Cautious consumers rein in economic growth
Consumers are cutting up their credit cards, hunting for back-to-school bargains and otherwise pinching pennies, applying the brakes to an already wobbly economic recovery. Two reports from the Federal Reserve on Wednesday underscored consumers’ caution: • Consumer credit slid at a 1.8 percent annual rate in July, the sixth straight monthly drop. Since July 2008, consumers have shed more than $163 billion in debt. Revolving consumer debt, including credit cards, dropped at a 6.3 percent annual pace in July. “Even if consumers are ready to spend a little more, they are still reticent to use their credit cards and prefer cash,” Gregory Daco, U.S. senior economist at IHS Global Insight, wrote in a report Wednesday. “Households continue to show signs of caution as they face high unemployment, minimal wage increases and poor housing conditions.” Economist John Canally of LPL Financial reckons that families are about halfway finished slashing their debts. • The Fed’s beige book survey of its 12 reserve bank regions is filled with anecdotal evidence of consumer frugality. Back-to-school shoppers in Boston stuck to necessities. Cleveland’s consumers looked for seasonal bargains. Shoppers snapped up bargain-bin specials in St. Louis, Kansas City and San Francisco. “People are still buying what they need and not what they want,” Canally says. Perhaps it’s no surprise that consumers are sobering up from a mid-2000s debt binge. The job market is a wasteland: Unemployment is at 9.6 percent, and the Bureau of Labor Statistics reported Wednesday that there were 4.8 unemployed people for every job opening in July, an improvement from a peak of 6.2 last December but still up sharply from 1.8 when the recession began in December 2007. But the economy can’t fire on all cylinders without a strong contribution from consumers: They account for more than two-thirds of economic output. In its beige book, the Fed saw “widespread signs of deceleration” in the economy from mid-July through mid-August. Conditions were either mixed or deteriorating in New York, Philadelphia, Richmond, Atlanta and Chicago, the Fed reported. Brian Bethune, IHS’ chief U.S. financial economist, said the Fed was “surprisingly frank in describing an economy that is in the process of losing momentum.” The gloomy report is raising questions about whether the Fed’s policymaking committee will do more to jump-start the economy when it meets next on Sept. 21. Speaking last month at an economic conference in Jackson Hole, Wyo., Fed Chairman Ben Bernanke promised to take “unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.” Bethune says the time is now for Bernanke to take steps such as pumping money into the financial system by buying Treasury debt and mortgage-backed securities. “The buttons are sitting there waiting for the (Fed committee) to push them, and the ailing economy needs more oxygen pumped into it in order to nurse it through a critical phase of the recovery,” he says. But LPL’s Canally saw no reason for panic in the beige book findings. “We’re just in a soft patch here, not a double-dip (recession). ... There’s nothing in here that says, ‘Oh my gosh, we need another dose of stimulus.’ “ He expects the Fed to wait and see if the next few beige books and other economic reports show continued deterioration. He doesn’t expect the Fed to do anything until after November’s midterm congressional election. President Obama isn’t waiting. Wednesday, he announced plans for $180 billion of tax breaks and transportation projects – opposed by congressional Republicans. “I know that folks are worried about the future,” Obama said in Parma, Ohio. “I know there’s still a lot of hurt out here.” © Copyright 2010 USA TODAY, a division of Gannett Co. In
Feds: Economy edges closer to stalling
The economy turns out to be weaker than we thought, and the outlook for the rest of the year is now looking dimmer. New figures issued Friday show the economy struggled this spring, growing at a meager 1.6 percent annual pace. The initial estimate was 2.4 percent, and even that was anemic. Analysts say the summer should be disappointing, too. Shortly after the government’s revision, Federal Reserve chief Ben Bernanke said the Fed was ready to take additional steps to prevent a second recession if the economy deteriorates further. But he stopped short of promising any action. The Fed “will do all that it can to ensure continuation of the economic recovery,” he said. Several economists said they expected the economy to keep growing slowly for the rest of the year. That would almost certainly not be enough to bring down the jobless rate, already at 9.5 percent, and unemployment could actually increase. The performance is “very disappointing,” said Ethan Harris, an economist at Bank of America-Merrill Lynch. “Usually you get a bigger bounceback.” In the first quarter of the year, the economy grew much faster, at a 3.7 percent pace. Since then, though, the housing market has slumped after the expiration of a homebuyer tax credit, and business spending and manufacturing activity are both cooling off. Bernanke, speaking to a Fed conference in Jackson Hole, Wyo., acknowledged the economy has slowed more than policymakers had anticipated and said it is “vulnerable to unexpected developments.” He did say he expects growth will pick up next year. The central bank chairman also sought to reassure the financial markets that he has the tools needed to bolster the economy and will use them if business activity slows further. Bernanke outlined several options, including having the Fed buy more securities, most likely government debt or mortgage investments, as a way to drive down interest rates on all sorts of debt and spur more spending that might get the economy going. Bernanke made clear “he is willing to act to ensure that the recovery remains on the right path,” said Zach Pandl, an economist at Nomura Securities. That reassured the financial markets, which rose sharply after the Fed chairman’s speech. The Dow Jones industrial average finished 164 points higher and back over 10,000, and broader markers registered solid gains. Wall Street looked past a disappointing statement from computer chip maker Intel, which said it was cutting its sales forecast for the quarter after sensing weaker demand from customers in the U.S. and Europe. A little more than a month ago, Intel reported its biggest quarterly profit in a decade. How much the government could help at this point is an open question. The Fed has already lowered its key short-term interest rate to nearly zero, but that has yet to rejuvenate the economy. The benefits of federal stimulus programs are fading, and Congress has declined to pass any major new aid. Bernanke said the prospect of high unemployment for a long period is a central concern for the Fed. He also made clear that he is determined to prevent the United States from slipping into a deflationary spiral – a prolonged drop in wages and prices. The Fed chief said the foundation is being laid for stronger growth in 2011: Households are saving more and healthier banks are more willing to lend. That should boost consumer spending, which makes up 70 percent of U.S. economic activity. Corporate profits and personal incomes also rose in the second quarter, noted Rebecca Blank, undersecretary for economic affairs at the Commerce Department. “There is some good news here,” she said. “Those are the things that will fuel a longer-term recovery.” Still, the report for April to June showed that economic growth was reduced by a surge of imports in June and a smaller buildup in business inventories than previously estimated. Without the trade deficit, the economy would have grown at a healthy 5 percent pace. Instead, the gap essentially subtracted 3.4 percentage points, the biggest hit from a trade imbalance since 1947. Business investment in new machinery, computers and software rose nearly 25 percent, driving much of the growth last quarter. But much of that spending was on goods from other countries – a 32 percent increase in imports, the most since 1984. Bernanke and many private economists seem to think that was mostly an aberration. As businesses pare back their spending on inventories and reduce investment in new equipment, imports should decline and come more into alignment with exports, they say. Americans personally spent a bit more in the second quarter than previously calculated. Their spending rose at a 2 percent annual rate, above the 1.6 percent estimated last month. The government’s report measures the gross domestic product, which covers goods and services from autos to haircuts. Friday’s report is the second of three estimates the government makes each quarter. Copyright 2010 The Associated Press, Christopher S. Rugaber, AP Economics Write
July new home sales fall to slowest pace on record
Sales of new homes dropped sharply last month to the slowest pace on record, the latest sign that the economic recovery is fading. The Commerce Department says new home sales fell 12.4 percent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600. That was the slowest pace on records dating back to 1963. Economists surveyed by Thomson Reuters had expected a pace of 330,000. June’s sales figures were revised downward to an annual pace of 315,000. May’s figures were revised upward and are now the second-slowest pace on record. The median sales price in July was $204,000. That was down 4.8 percent from a year earlier and down 6 percent from June.
1 out of 4 renters never plans to own a home
According to Trulia.com’s American Dream survey on attitudes toward homeownership, 27 percent of renters do not plan to buy a home – ever. Of those renters who do plan to purchase someday, 68 percent said it would be more than two years before they do. “Large numbers of people delaying their plans to buy a home, or not planning to buy at all, could have an enormous domino delaying effect on economic recovery in the U.S.,” says Pete Flint, CEO of Trulia. “Renters converting into buyers are crucial to turning around the housing slump, but the current economic crisis is causing people to become very hesitant to get off the fence and buy a home.” According to the study, many Americans still maintain a core belief in the inherent value of owning a home: 72 percent believe homeownership is part of their American Dream. While it’s a decline from 77 percent six months ago, it shows that the American Dream of homeownership is still alive. Nearly one in five Americans (19 percent) said that their attitude toward homeownership has grown more negative over the last six months; however, more Americans – 23 percent – said that their attitude toward owning a home has grown more positive in the same time frame. Tipping factors: From renter to buyer in one year Seventy-nine percent of renters who plan to buy homes one day said something could inspire them to buy a home within the next 12 months. The changes in circumstance most frequently cited as the “tipping factors” were: being able to save enough money for a downpayment, getting a new job, getting a promotion/raise, and interest rates staying low or getting even lower. The McMansion Era is over According to the survey, Americans are also veering away from the “McMansions” that grew popular before the recession. Adults who might buy a house displayed a preference for smaller homes, with only 9 percent saying their ideal home size is more than 3,200 square feet – the same number of who said they’d like their home to be between 800 and 1,400 square feet. Fifty-five percent of Americans would prefer a home between 1,401 and 2,600 square feet. Harris Interactive conducted this July 2010 survey online within the United States via its QuickQuery online omnibus service on behalf of Trulia between July 22-26, 2010, among 2,055 U.S. adults aged 18 years and older. The sample included 1,345 homeowners and 663 renters. Figures for age, sex, race/ethnicity, education, region and household income were weighted where necessary to bring them into line with their actual proportions in the population. Propensity score weighting was used to adjust for respondents’ propensity to be online. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated.
Housing construction rises 1.7 percent in July
New home construction edged up slightly in July but applications for building permits tumbled to the lowest point in 14 months, a sign of continued stress in housing. Construction of new homes and apartments rose 1.7 percent in July, the Commerce Department reported Tuesday. Still, applications for building permits, considered a good sign of future activity, fell 3.1 percent. A rebound in housing is considered critical for a sustained economic recovery. But builders continue to struggle with weak demand for new homes caused by high unemployment and a glut of foreclosed homes on the market. The July increase in housing construction pushed total activity to a seasonally adjusted annual rate of 546,000 units. Building activity in June was weaker than first reported. It fell 8.7 percent to an annual rate of 537,000 units, the slowest pace since October of last year. Housing construction got a boost earlier in the year when the government offered buyers up to $8,000 in federal tax credits. But after the incentives expired at the end of April, sales and constructions activity slumped. Driving the July increase was a 32.6 percent surge in construction of apartments and condominiums, which jumped to an annual rate of 114,000 units. The bigger single-family sector declined 4.2 percent, falling to an annual rate of 432,000 units. The drop in building permits left applications for new construction at a seasonally adjusted annual rate of 565,000, the slowest pace since May 2009. Construction activity surged 30.5 percent in the Northeast and was up 10.7 percent in the Midwest. However, construction fell 6.3 percent in the South and was flat in the West. In advance of the report on housing starts, the National Association of Home Builders reported Monday that its monthly index of builder sentiment dropped to 13 in August. That was the lowest reading in 17 months. Readings below 50 indicate negative sentiment about the housing market. The last time builders’ index was above 50 was in April 2006. Builders say consumers remain worried about the weak economic recovery and the sluggish jobs market. Among those who are buying, many are opting for deeply discounted foreclosed properties. Copyright © 2010 The Associated Press, Martin Crutsinger, AP economics writer.
CoreLogic releases 2010 Short Sale Research Study
CoreLogic, a provider of consumer, financial and property information and business services, released its 2010 Short Sale Research Study. According to the study, lenders should continue to view short sales with a skeptical eye. CoreLogic says the estimated financial impact of short sale fraud is $310 million annually, with the risk of “unnecessary losses” occurring in one in every 53 short sale transactions. The average amount of unnecessary loss is $41,000 per short sale transaction. The results are derived from a representative data sample of single-family residence (SFR) short sale transactions from the past two years. CoreLogic says the transaction data used for the study represents 98 percent of real estate transactions and 85 percent of mortgage financing details. The study can be downloaded (registration required) at: http://www.corelogic.com/shortsalestudy. “A jobless economic recovery and weak home prices are fueling short sales volume,” says Craig Focardi, senior research director of consumer lending at The TowerGroup. “In many instances, government-sponsored or private short sale programs are a preferable alternative to foreclosure. However, important aspects of the short sale transaction are disclosure of all potential buyers to the seller and accurate home price comparables.” “By definition, short sales constitute a financial loss to lenders but will continue to be a necessary part of the mortgage industry as it seeks stabilization,” says Tim Grace, senior vice president of Fraud Analytics, CoreLogic. “The primary objective for lenders is to eliminate unnecessary loss CoreLogic 2010 Short Sale Research study highlights • The number of short sales in the market has more than tripled since 2008, with the estimated annual volume at 400,000. Multiple variables indicate short sales will continue to be a frequent and important part of the mortgage industry. • Over half (55.8 percent) of all short sales occur in four states (California, Florida, Texas and Arizona). • Approximately 4 percent of short sales have a subsequent resale within 18 months. • Investor-driven short sales are not inherently bad. Investors provide the industry with necessary liquidity.
Uncertainty dominates commercial concerns about economic recovery
Unstable market fundamentals and uncertainty over government policy are among the concerns voiced by senior real estate executives about the commercial real estate sector’s outlook for recovery, according to The Real Estate Roundtable’s 3rd Quarter 2010 Sentiment Index. “Uncertainty reigns. Whether it is job creation, unstable capital markets or a volatile mix of current policy and the upcoming mid-term elections – investors and businesses are skittish, causing the commercial real estate outlook to be flat,” said Real Estate Roundtable President and CEO Jeffrey DeBoer. “The good news is last quarter’s view that commercial real estate markets have stopped falling has been confirmed this quarter and values for high quality assets show strength. But the overall sentiment is that the industry is in for a long slow recovery characterized by extreme caution.” More than 110 executives from the commercial real estate sector – encompassing office buildings, shopping malls, warehouses, hotels, and apartment buildings – participated in the survey. For the first time, the survey’s current and future conditions indices merged, scoring an Overall Sentiment Index of 74 (down from 76 in the previous quarter). The score suggests a relatively positive trend and a flat trajectory. The Overall Sentiment Index is calculated based on averages of both current and future indices measured on a scale of 1 to 100. To reach an overall Index of 100, for example, all survey respondents would have to answer that market metrics are “much better” today (current conditions) compared to one year ago, and will also be “much better” 12 months from now (future conditions). Although 62 percent of survey participants reported conditions today as “somewhat better” than a year ago (down from 65 percent in Q2), only 19 percent said conditions are “much better” (up from 17 percent last quarter). Looking forward, 59 percent of respondents predicted conditions one year from now will be “somewhat better” (down from 60 percent in Q2), whereas only 20 percent expect conditions one year from now to be “much better” (down from 28 percent last quarter). However, the overall Current Conditions Index of 74 for Q3 2010 stands in stark contrast to a score of 36 for the same time period last year. One participant’s response: “The only certain thing in the world at the moment is uncertainty. Until companies begin re-hiring and the consumer regains confidence, we will remain stuck in the ditch.” For real estate asset values, respondents report some improvement in expectations, yet emphasize the gap between valuations for Class A assets and all others. According to a survey respondent, “The market remains very murky. The few quality assets that do come to market tend to attract rabid bidding, but there’s still general illiquidity.” Fifty-seven percent of participating executives report asset values are “somewhat higher” than a year ago (up from 35 percent in Q2); 56 percent expect asset values will improve one year from now (the same expectation of 56 percent was reported last quarter). Seventeen percent of survey participants stated that asset values are “much higher” than one year ago (up from 11 percent in Q2); 6 percent said values will be “much higher” one year from now (up from 3 percent last quarter). Instability of capital markets remains a significant cause of unease, although conditions have improved marginally since the previous quarter. Forty-two percent of respondents said debt capital is “somewhat better” today than one year ago (versus 38 percent last quarter); 36 percent characterized debt availability as “much better” (compared to 27 percent in Q2). On the equity side, 54 percent of participants said availability is “somewhat better” than one year ago (versus 50 percent last quarter); 24 percent characterized debt availability today as “much better” than one year ago (compared to 26 percent in Q2). Projecting availability one year from now, 62 percent of participating executives said debt capital will be “somewhat better” (versus 69 percent last quarter); 13 percent said debt availability will be “much better” (compared to 10 percent in Q2). On the equity side, 50 percent said availability will be “somewhat better” one year from now (versus 52 percent last quarter); 17 percent said availability will be “much better” one year from now (compared to 16 percent in Q2). A PDF of the entire Q3 Sentiment Survey Index is available online at http://www.rer.org/.
