Posts Tagged ‘economy’

U.S. Economy: Home Resales Fall to Nine-Year Low (Update1)

Monday, February 25th, 2008

By Courtney Schlisserman

Feb. 25 (Bloomberg) — Sales of existing homes in the U.S. fell in January to the lowest level since records began nine years ago and prices slid for the sixth time in seven months, posing a threat to consumer spending, the largest part of the economy.

Resales declined 0.4 percent, less than forecast, to an annual rate of 4.89 million from a revised 4.91 million in December that was higher than previously reported, the National Association of Realtors said today in Washington.

The figures indicate declines in home prices so far aren’t sufficient to entice more buyers. Former Federal Reserve Chairman Alan Greenspan said today that the deepening rout in housing is having a “broader effect” on spending, and that a recession this year may be deeper than previous downturns.

“The Federal Reserve’s efforts to restore the mortgage market so credit is available so people can buy houses has largely failed,” Peter Morici, an economics professor at the University of Maryland, said in a Bloomberg Radio interview. “There really isn’t a lot of hope that things are going to turn around soon.”

Economists had forecast home resales would fall 1.8 percent to an annual rate of 4.8 million, according to the median of 63 estimates in a Bloomberg News survey. Estimates ranged from 4.65 million to 5 million.

The Standard & Poor’s Supercomposite Homebuilding Index, which had fallen earlier in the day, rose following the report. The measure was up 2.2 percent to close at 347.38. Treasuries fell, with 10-year note yields rising to 3.90 percent at 4:18 p.m. in New York, from 3.81 percent on Feb. 22.

Unsold Properties

Mounting foreclosures are adding to a glut of unsold homes that is driving down property values. The number of homes for sale at the end of January rose 5.5 percent to 4.2 million. At the reported sales pace, that represents 10.3 months’ supply, compared with 9.7 months in December.

“The past five months’ sales activity has been very soft, but stable,” said Lawrence Yun, the real-estate agents group’s chief economist. A fiscal stimulus that included tax cuts and relaxed restrictions on so-called jumbo mortgage loans may lead to better sales late this year, he said.

Elevated inventories are driving down prices and causing some potential buyers to stay on the sideline to see if prices will go down further.

Prices Fall

The median sales price fell 4.6 percent to $201,100 from January 2007. The median cost of a single-family home decreased 5.1 percent to $198,700, while that of condominiums and co-ops fell 1 percent to $220,400.

“The general trend is down, especially in home sales,” Anirvan Banerji, director of research for the Economic Cycle Research Institute in New York, said in a Bloomberg Television interview. “There is quite a bit of overhang in inventory.”

“There is more adjustment that is required” in housing, Greenspan told a conference in Abu Dhabi, United Arab Emirates, today. “There is a broader effect on consumer expenditures.”

Resales fell in three of four regions, led by a 3.6 percent drop in the Northeast. They declined 2.1 percent in the West and 0.5 percent in the South. Sales were 3.4 percent higher in the Midwest.

Sales of single-family homes increased 0.5 percent to a 4.34 million pace from a 10-year low in December, according to today’s report. Sales of condos and co-ops fell 6.5 percent to an annual rate of 550,000.

Inventory Glut

Housing “is going to be subdued” until inventories are reduced, Federal Reserve Bank of Minneapolis President Gary Stern told reporters Feb. 19 after a speech in Golden Valley, Minnesota.

The effects of the worst housing recession in 25 years have spread into other areas of the economy. The Fed Bank of Philadelphia’s general economic index fell this month to minus 24, the weakest reading in seven years.

Economists surveyed by Bloomberg News earlier this month put the chance of the U.S. entering a recession at 50-50, up from 40 percent odds a month earlier.

The Fed last week said it lowered its growth forecast and now expects the economy to expand 1.3 percent to 2 percent in the fourth quarter from the same period of 2007, compared with the 1.8 percent to 2.5 percent it projected in October.

The Commerce Department is scheduled to release the January report on new home sales on Feb. 27. While economists forecast a decline, some measures indicate demand for new homes may be near the bottom.

Builder Confidence

For example, confidence among U.S. homebuilders rose for a second straight month in February and companies said there were more prospective buyers touring properties, the National Association of Homebuilders said on Feb. 19. In addition, the Reuters/University of Michigan index of consumer sentiment showed a record number of Americans said lower home prices made home buying conditions favorable.

“We’re seeing prices now that are basically back to ‘02, ‘03 levels,” Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., said in a Bloomberg Television interview on Feb. 21. “That begins to get compelling for customers.”

Even so, the housing market “continues to be in a very difficult position right now,” and weaker sales are cutting into builders’ profits, Hovnanian said.

Lowe’s Cos., the world’s second-largest home-improvement retailer, forecast full-year earnings less than analysts’ projections after reporting a drop in sales and profits in the fourth quarter.

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahBPbcXuxJMs&refer=home

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U.S. Economy: Housing Slump Fails to Quell Inflation

Wednesday, February 20th, 2008

By Courtney Schlisserman and Bob Willis

Feb. 20 (Bloomberg) — The two-year housing slump pushing the U.S. economy toward a recession hasn’t alleviated inflation pressures, reports today showed.

Consumer prices rose 0.4 percent from December, with costs excluding food and energy climbing 0.3 percent, the most since June 2006, the Labor Department said. Builders started work on 1.012 million homes at an annual rate in January, close to a 16- year low, the Commerce Department reported in Washington.

The figures mean Federal Reserve Chairman Ben S. Bernanke will need to consider raising interest rates as soon as the economy stabilizes. Bernanke, who last week said the Fed is prepared to keep lowering interest rates, warned that faster inflation would “greatly complicate” the central bank’s job.

“What this means is that they don’t have as much comfort to play with rates,” Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said on Bloomberg Television, referring to Fed officials. “Once the U.S. economy looks like it’s started to stabilize, they’re going to have to jump right back in to that, raising rates back up to neutral.”

Treasury securities slumped after the consumer price report, while recouping most of the losses later. Ten-year note yields increased to 3.93 percent at 9:54 a.m. in New York from 3.90 percent late yesterday. The Standard & Poor’s 500 stock index lost 0.8 percent, to 1,337.97.

Lowest Since 1991

Building permits, an indication of future construction, fell 3 percent to a 1.048 million rate, the lowest level since November 1991, today’s Commerce report showed.

Housing starts were projected to rise to a 1.01 million pace from an originally reported 1.006 million rate in December, according to the median forecast in a Bloomberg survey of 72 economists. Permits were forecast to drop to a 1.05 million rate, from 1.068 million in December.

“We don’t think housing has hit bottom yet,” said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto. “Until we get some stabilization in sales or even a mild improvement, it’s likely that construction will continue to weaken.”

A jump in food and energy costs, rents and clothing prices led the consumer-price index higher last month. Economists had forecast a 0.3 percent increase, with the so-called core rate gaining 0.2 percent, Bloomberg surveys showed.

Today’s price report “certainly showed a broad-based intensification of inflation pressures,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. While the Fed currently “is looking at growth,” inflation “will come back on the radar screen” when economic data improve, he said.

Food Costs

Food prices, which account for about one-seventh of the CPI, rose 0.7 percent, matching the biggest gain since May 2004, after a 0.1 percent increase in January. Energy prices last month increased 0.7 percent, after rising 1.7 percent the previous month.

“Even if energy prices remain flat, the continued rise in retail food prices will damp consumer spending growth,” JPMorgan Chase & Co. economists wrote in a note to clients last week.

Fuel costs were up 4.5 percent. Apparel prices rose 0.4 percent after a 0.1 percent increase in December.

The consumer price index is the government’s broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices that consumers pay for services ranging from medical visits to airline fares and movie tickets.

Bond Yields

Some bond investors are concerned that the Fed’s interest- rate cuts, totaling 2.25 percentage points since September, threaten to stoke inflation. The reductions came at a time of rising energy and commodity costs, and a falling U.S. dollar.

“The trend is showing elevated levels of inflation above where the Fed would like it to be,” said Don Alexander, director of fixed income in New York at Citigroup Global Wealth Management, which oversees about $1.3 trillion in assets. “You’re not rewarded for taking the risk of” investing in longer-dated Treasuries, he said.

A measure of price expectations derived from the gap in yields between 10-year notes and 10-year Treasuries linked to inflation rose as high as 2.39 percent today, the highest since November, from a low of 2.20 percent last month.

Still, Fed Chairman Ben S. Bernanke and other officials this month indicated that price expectations have yet to reach a level triggering their concern. The Fed chief told lawmakers Feb. 14 that “inflation expectations appear to have remained reasonably well anchored.”

Rate Cuts

Citing a worsening economic outlook, the central bank last month lowered its benchmark interest rate by 1.25 percentage point during two meetings, the fastest rate reduction since the federal funds rate became the main policy tool around 1990.

Compared with a year earlier, consumer prices rose 4.3 percent, after a 4.1 percent gain in December. The core rate was up 2.5 percent from January 2007, the biggest jump since March 2007, compared with a 2.4 percent increase the previous month.

Rents, which make up almost 40 percent of the core CPI, rose 0.3 percent.

Slower economic growth may help damp price pressures.

Economic growth slowed to a 0.6 percent pace in the fourth quarter and the economy lost jobs in January for the first time in more than four years, according to government figures.

Wal-Mart Discounts

Wal-Mart Stores Inc., the world’s largest retailer, said yesterday that fourth-quarter profit rose more than analysts had forecast after it stepped up U.S. holiday discounts and boosted sales in Asia and Latin America. Before the holiday season the company made price cuts on 20 percent more items. Last month, it marked down groceries, medicine, fitness equipment and electronics as much as 30 percent.

The government said Feb. 15 that prices of goods imported into the U.S. jumped 1.7 percent in January, pushed up by higher costs for energy and food. The producer price index is scheduled to be released Feb. 26.

PPI and CPI have some differences in timing that may cause discrepancies. In calculating wholesale prices, the government asks survey participants to report costs as of the Tuesday of the week that includes the 13th. Consumer prices are based on average costs over the entire month.

To contact the reporter on this story: Courtney Schlisserman in Washington cshlisserma@bloomberg.net

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Sales of New Homes Fell by 26% in 2007

Friday, February 1st, 2008

January 28, 2008
Sales of New Homes Fell by 26% in 2007
By MICHAEL M. GRYNBAUM

The housing industry, caught in a maelstrom of sinking demand, rising foreclosures, and bulging inventories, is in its worst slump in decades, a growing body of economic evidence shows.

Sales of new homes fell last year by 26 percent, the steepest drop since records began in 1963, the Commerce Department said on Monday.

Last week, the National Association of Realtors reported that sales of previously owned single-family homes, a large portion of the overall housing market, suffered their biggest annual drop in 25 years. And the median price of those homes fell for the first time in at least four decades, and possibly since the Great Depression.

Some economists predict the market may start to recover in the summer. Others are less optimistic. “There is no sign of a bottom in any of these data,” wrote Ian Shepherdson, a London-based economist at High Frequency Economics.

Last month alone, sales of new homes tumbled 4.7 percent, to a 604,000 annual rate, the smallest monthly sales figure since February 1995.

Prices also fell sharply. In December, the median price of a new home fell to $219,200, down 10.9 percent from December 2006.

“No matter which way you look at it, the December new home sales report is simply awful,” wrote Dimitry Fleming, an economist at ING Bank.

December capped off a painful year for home builders, who have watched demand dry up as buyers abandon contracts or stay on the sidelines with the expectation that prices will fall further. For the year, the median price of new homes rose just 0.2 percent, to $246,900.

A wave of foreclosures and tightened lending standards have made it more difficult to obtain a mortgage, even for buyers with good credit ratings. And banks have been more reluctant to lend in light of the subprime mortgage crisis.

Builders are now trying to lure buyers by dropping prices and throwing in incentives like new appliances. They have also cut back on new construction.

But the strategy has failed to make a dent in inventories: the backlog of new homes on the market ticked up last month to 9.6 months’ supply based on the current sales rate, the Commerce Department said.

Sales of new homes were down in most regions of the country, with the steepest declines in the South and West. There was a slight sales uptick in the Northeast.

The Commerce Department also revised down its estimate for new home sales in November, to a 634,000 annual pace. It has originally estimated a rate of 647,000.

http://www.nytimes.com/2008/01/28/business/28cnd-econ.html?_r=1&oref=slogin&pagewanted=print

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Payrolls Drop for 1st Time Since 2003

Friday, February 1st, 2008

Friday February 1, 11:40 am ET
By Jeannine Aversa, AP Economics Writer

Employers Cut Payrolls for 1st Time Since Summer 2003; Jobless Rate Dips

WASHINGTON (AP) — Nervous employers cut 17,000 jobs in January — the first such reduction in more than four years and a fresh sign that the economy is in danger of stalling.

The Labor Department’s report, released Friday, also showed that the unemployment rate dipped slightly to 4.9 percent, from 5 percent, as the civilian labor force shrank slightly.

Job losses were widespread. Manufacturers, construction firms and a variety of professional and business services eliminated jobs in January — reflecting the toll of the housing and credit debacles. The government cut jobs, too. All those cuts swamped job gains in education, health care, retailing and elsewhere.

Wage growth also slowed, another indication that employers are tightening their belts amid the economic slowdown.

The unemployment rate declined a notch, from 5 percent in December to 4.9 percent in January. The jobless rate — calculated from a different statistical survey than the payroll figures — dipped as people, perhaps discouraged by their prospects, left the labor force for any number of reasons.

Taken together, the figures suggested that employers have grown cautious as they try to cope with fallout from housing and credit problems and rising worry about the ailing economy.

“It’s a weak report. It tells us the probability of a recession is rising, but we don’t know if we are there yet,” said Joel Naroff, president of Naroff Economics Advisors.

The mind-set of businesses people is one of some fear and uncertainty about the economy’s direction, he said. “They are thinking if there is some capital spending I should postpone for a while, I should do that. If there is some hiring I don’t necessarily need to do right now, I can put that off for a few months to see what happens,” Naroff said. “The problem with that thinking is that more economic weakness or a recession can become somewhat of a self-fulfilling prophecy.”

On Wall Street, stocks eked out a gain. The Dow Jones industrials were up around 12 points in morning trading.

To help ease the credit crisis, the Federal Reserve announced Friday that it will provide squeezed banks with another $60 billion in short-term loans through auctions on Feb. 11 and Feb. 25. The Fed started the auctions in December and since then has already provided a total of $100 billion in loans to banks.

Underscoring the depths of the housing slump, spending by private builders on residential projects last year plunged by a record 18.3 percent, the Commerce Department reported. Spending on all construction projects by both private builders and the government fell by 2.6 percent last year, also the biggest drop ever in records dating back to 1993.

Another report showed that manufacturing activity gained some ground in January, after contracting in December, said the Institute for Supply Management.

On the jobs front, economists were predicting employers would boost payrolls by around 70,000, and that the unemployment rate would stay at 5 percent.

Fears of a recession have grown.

The White House and Congress are working to enact a package to stimulate the economy. And, the Federal Reserve has gotten much more aggressive — ordering two big interest rate reductions in just over a week.

A severely depressed housing market, hard-to-get credit, turbulence on Wall Street and “some softening in labor markets” were cited by the Fed, when it lowered rates by a bold half point on Wednesday.

The unemployment rate had shot up in December to 5 percent, from 4.7 percent in November. The magnitude of that increase — something not seen since right after the September 2001 terror attacks — sent off alarm bells. In the past, such a big increase in the jobless rate signaled the economy was starting a recession or already in one.

The health of the nation’s job market is a critical factor shaping how the overall economy fares. Until now, job and wage growth have helped cushion people from the negative forces coming from the housing bust and credit crunch. If companies continue to cut back on hiring and put a lid on wages, though, that will spell more trouble for the economy.

Workers saw wages grow at a slower pace last month.

Average hourly earnings for jobholders rose to $17.75 in January, a 0.2 percent increase from the previous month. It was half the pace logged in December. Economists were predicting a slightly larger gain of 0.3 percent. Over the last 12 months wages went up by 3.7 percent. With high energy and food prices, though, workers may feel squeezed and feel like their paychecks aren’t stretching that far.

The 17,000 drop was in total payrolls — both government and private employers — in January. The government sliced 18,000 positions, while private employers added just 1,000 jobs.

The drop in payrolls marked a significant deterioration in employment conditions. In December, employers added 82,000 new jobs. January’s decline was the first since August 2003, when the labor market was still struggling to recover from the 2001 recession.

The government on Friday also released annual revisions — based on more complete information — to its payroll data. Those revisions showed job creation was even weaker last year than initially thought.

The economy added an average of just 95,000 jobs per month in 2007, versus an earlier estimate of 111,000 a month for the year. In 2006, payroll employment grew by an average of 175,000 a month.

Construction and factory workers have been especially hard hit by the meltdown in housing and other troubles in the economy.

In January, construction companies cut 27,000 jobs, with most of the decline concentrated in housing. The construction industry has lost a total of 284,000 jobs since its employment peak in September 2006.

Factories eliminated 28,000 positions in January, and have cut 269,000 jobs over the last 12 months.

The economy nearly stalled in the final three months of last year, and some economists believe it may actually be shrinking now.

Under one rough rule, the economy would have to contract for six months in a row for the country to be considered in a recession. The likelihood of a recession has risen sharply over the past year, and analysts increasingly believe the U.S. will be in one during the first half of 2008. The worry is that people and businesses will hunker down and pull back their spending, sending the economy into a tailspin.

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