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US housing market still in the doledrums

March 4th, 2010 · No Comments

This is pretty bad news…

Plunge in Home Sales Shows Recovery Continues to Crumble
Thursday, 04 Mar 2010 10:05 AM
 
The number of buyers who agreed to purchase a home fell sharply in January, a sign that demand for housing is sinking this winter as stormy weather slammed Eastern states.

Record snowstorms in January and February had many Americans shoveling sidewalks and driveways instead of combing through listings for open houses. Partly as result, seasonally adjusted index of sales agreements fell 7.6 percent from December to a January reading of 90.4, the National Association of Realtors said Thursday.

It was the lowest reading since last April and a disappointment to economists, who had expected it would rise to 97.6.

The weakness, however, was not confined to the wintry Northeast. The biggest month-to-month drop was in the West, where sales fell 13 percent. Sales fell almost 9 percent in the Northeast and Midwest and 2 percent in the South.

The weather isn’t the only culprit, wrote Jennifer Lee, an economist with BMO Capital Markets. “The impact of government incentives … appears to be running out of steam, which is, frankly, a scary thought,” she wrote.

The index is considered a barometer for future sales because typically there is a one- to two-month lag between a signed sales contract and a completed deal. A reading of 100 is equal to the average level of sales activity in 2001, when the index started.

The index has declined for two out of the past three months because home shoppers feel less rushed after a deadline for a homebuyer tax credit was extended from Nov. 30 to April 30.

In addition, the Federal Reserve is on track to complete $1.25 trillion in purchases of mortgage-backed securities this month. That has kept interest rates low. The average rate on a 30-year fixed rate loan fell this week to 4.97 percent from 5.05 percent a week earlier, Freddie Mac said Thursday.

Despite lower rates, millions of homeowners are still facing foreclosure and government efforts to help them have largely failed. Droves of people who want to sell or refinance are stuck because their homes are worth less than they paid. Job losses also have led many homeowners to fall behind on their mortgages.

On Thursday, the government said new claims for jobless benefits fell last week in a sign that layoffs may be easing as the economy slowly recovers. The Labor Department said that initial claims for unemployment insurance fell by 29,000 to a seasonally adjusted 469,000.

Still, any improvement in the job market is likely to be slow, as companies are reluctant to add workers. Last week’s drop only partly reverses a sharp rise in claims in the previous two weeks.

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Luckily, there is also some good news. The economy might still be bad, but productivity is rising, which keeps profits up. In the end though, companies need to be able to sell what they make as well…

Productivity Jumps Sharply as Labor Costs Plunge
Thursday, 04 Mar 2010 08:39 AM

Productivity in the final three months of last year surged at a faster pace than previously thought as labor costs fell more rapidly.

The Labor Department reported Thursday that productivity jumped at an annual rate of 6.9 percent in the fourth quarter, even better than an initial estimate of a 6.2 percent growth rate. Unit labor costs fell at a rate of 5.9 percent, a bigger drop than the 4.4 percent decline initially estimated.

The combination of rising productivity and falling labor costs bolsters company profits and helps keep inflation at bay. But it also puts American households under stress, leaving them with less income to increase consumer spending, the key ingredient to economic growth.

Productivity has posted sizable increases for three straight quarters as companies squeezed more output from their reduced work forces. Companies, struggling with the deepest recession in decades, have cut 8.4 million jobs over the past two years.

Those job losses and fears of even more layoffs have kept a lid on wage increases and overall inflation. That has given the Federal Reserve the leeway to push a key interest rate to a record low and keep it there for more than a year in an effort to jump-start economic growth.

Economists believe that businesses at some point will have to start rehiring workers because they are close to exhausting the amount of growth they can achieve with their depleted work forces.

The productivity growth rate of 6.9 percent surpassed expectations for only a modest 0.1 percentage point rise from last month’s initial estimate of a 6.2 percent growth rate. Productivity is the amount of output per hour of work.

The revision reflected the fact that the government last week revised up its initial estimate for total economic output, as measured by the gross domestic product, to show a rise of 5.9 percent in the fourth quarter. That was up from an initial estimate that GDP was growing at an annual rate of 5.7 percent in the fourth quarter.

While the 5.9 percent GDP increase was the fastest growth pace in six years, two-thirds of that strength reflected a slowdown in the pace at which businesses are cutting inventories. That inventory swing is expected to be temporary.

The worry is that the economic rebound could falter in coming months if unemployment remains high and consumers don’t have the income growth needed to boost spending. Consumer spending accounts for 70 percent of total economic activity.

For all of 2009, productivity among nonfarm workers rose by 3.8 percent, nearly double the 2 percent increase in 2008. It was the fastest annual increase in productivity since a 4.6 percent increase in 2002, another year when the country was struggling to emerge from a recession.

Tags: Economy