Vital Signs: Housing and Subprime Hangover
When will the housing market finally stabilize? After showing tentative signs of steadying in the winter, housing activity sank further, while the deteriorating subprime mortgage sector has turned Wall Street into a bundle of nerves.
Investors will certainly pay lots of attention to the latest new and existing home sales figures for June due out in the coming week. The consensus view among economists is demand was somewhat steady from May. New home sales are the more important figures to look at, as the results have a direct bearing on residential construction and economic growth. The number of homes still on the market is also an important number. Inventories have eased a little, but the level is still high and should continue to suppress building activity.
There are also plenty of existing homes to choose from. In May, the number of units on the market topped 4.4 million, or nearly nine months worth of sales. That extremely high number will certainly weigh on home prices in the coming months.
An ongoing concern is the potential for housing's downfall to hurt other parts of the economy. The latest numbers should show the sector's impact remains well contained. Economists expect second-quarter real gross domestic to post a big rebound after a substantial slowdown in the first three months. June durable goods orders will probably back up the strength in the latest industrial production data showing increased factory output. And July consumer sentiment will most likely improve from June, as many consumers appear to be more focused on the recent plateauing in gasoline prices than housing woes.
So far, the economy and financial markets seem to be taking everything in stride, but evidence that the worst is over for housing would certainly be reassuring.
Here's the weekly economic calendar from Action Economics.
|Report||Date||Time||For||Median Estimate||Last Period|
|Existing Home Sales (Mln)||July 25, 2007||10 am||June||5.950||5.990|
|Durable Goods Orders||July 26, 2007||8:30 am||June||1.5%||-2.4%|
|New Home Sales (Mln)||July 26, 2007||10 am||June||0.902||0.915|
|Advance GDP||July 27, 2007||8:30 am||Q2||3.2%||0.7%|
|Advance Chain Price Index||July 27, 2007||Q1||2.9%||4.2%|
|Univ. Mich. Consumer Sentiment (final)||July 27, 2007||10 am||July||90.0||92.4|
MEETINGS OF NOTE
Tuesday, July 24, 9 a.m. EDT - Federal Reserve Board Governor Frederic Mishkin takes part in a policy panel discussion at European Central Bank conference on globalization and the macroeconomy in Frankfurt, Germany.
5:30 p.m. EDT - Federal Reserve Bank of St. Louis President William Poole gives a speech entitled "Energy in the U.S. Macro Economy" in Wilmington, Del.
ICSC-UBS STORE SALES - Tuesday, July 24, 7:45 a.m. EDT
This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the week ended July 21. Sales edged up 0.3% in the week ended July 14, after two straight weekly gains of 0.1%. The yearly pace of growth picked up to 3.4%, from 2.4% for the week ended July 7.
JOHNSON REDBOOK INDEX - Tuesday, July 24, 8:55 a.m. EDT
This weekly measure of retail activity will report on sales for the first two fiscal weeks of July, ended July 21. In the first week of July, sales were up 0.4% from the same period in June. For the full month of June, sales were off 1.3%.
RICHMOND FED SURVEY - Tuesday, July 24, 10 a.m. EDT
The Richmond Federal Reserve Bank's survey of manufacturing activity struck a more optimistic chord in June. The seasonally-adjusted composite index turned up to a positive reading of 4, after running in negative territory for six straight months. The shipments and new orders indexes also turned positive after spending all year below zero. The backlog orders index was -5, but that was far better than -18 in May. The labor market readings were still a little soft.
Expectations in June were not as positive as May. The shipments index fell to 21, from 30 in May. The new orders and backlog orders indexes also lost some ground after improving in May. Overall, the Richmond Fed's survey moved back in line with other regional factory activity reports showing stronger activity in recent months.
MEETING OF NOTE
Wednesday, July 25, 5:45 p.m. EDT - Federal Reserve Bank of New York President Timothy Geithner gives a speech at the IBM Forum on Global Leadership: U.S. Competitiveness in a Globally Integrated Economy, in Washington, D.C.
MORTGAGE APPLICATIONS - Wednesday, July 25, 7 a.m. EDT
The Mortgage Bankers Association releases its mortgage Weekly Mortgage Applications Survey of home buying and refinancing application activity for the week ending July 20. In the week ended July 13, the purchase index eased off to 446.5, from 453.9 in the prior week. The refi index bounced back by 4.9%, to 1717.4, from 1636.9 for the period ended July 6.
The four-week moving average for the purchase index edged down to 441.6, from 442.8 in the week ended July 6. The four-week average for the refi index dropped to 1693.3, from 1708.1 for the period ended July 6. The average 30-year fixed-rate mortgage was 6.61%, from 6.65% in the previous week.
EXISTING HOME SALES - Wednesday, July 25, 10 a.m. EDT
Existing homes probably held steady in June, after falling for a third straight month in May. Sales came in at an annual rate of 5.99 million, from 6.01 million in April, and 6.15 in March. The inventory of homes for sale shot up to 4.4 million units, or 8.9 months worth of sales in May, from 8.4 months in April, and 6.4 months a year ago.
Among condos and single-family homes, the former appears to be stabilizing more quickly. Condo sales are down just 6.7% from a year ago, while single-family home sales are off 10.8%.
Based on the latest figures, sellers will keep facing pressure to lower prices. In May, the median sales price was down 2.1% from a year ago, with the price of a single-family home off by 2.4%.
BEIGE BOOK - Wednesday, July 25, 2 p.m. EDT
The Federal Reserve will release its compilation of regional economic activity, based on survey responses from each of its 12 districts. The Beige Book will come ahead of the two-day monetary policy meeting on Aug. 7. Economists surveyed by Action Economics fully expect the Fed will leave interest rates at 5.25%, and many now expect rates will hold steady through the rest of 2007.
The markets will browse this report for any signs of changes in current economic conditions. The report does come on the heels of Chairman Ben Bernanke's semi-annual testimony before Congress that included the release of the Fed's monetary policy report, as well as the minutes to the Federal Open Market Committee's monetary policy meeting on June 27-28. Therefore, few surprises are likely to show up in this report.
JOBLESS CLAIMS - Thursday, July 26, 8:30 a.m. EDT
Jobless claims for the week ended July 14 shrank to 301,000, after easing to a revised 309,000 for the week ended July 7. The original level for the previous week was 308,000. The four-week moving average dropped to 312,000, from 318,250 in the week ended July 7. Continuing jobless claims for the week ended July 7 rose to 2.57 million, from 2.55 million.
DURABLE GOODS ORDERS - Thursday, July 26, 8:30 a.m. EDT
Durable goods orders probably rebounded in June, after a sizeable drop in May. A 22.6% plunge in orders for civilian aircraft helped pull down overall orders by 2.4%. Outside of aircraft, orders were off 0.6%. Construction machinery and home appliance orders both posted double-digit drops as weakness in housing continues. However, computer orders rebounded 18.1%, after a 10.3% fall in April.
An area to watch is capital goods orders minus defense equipment and civilian aircraft. Striping out defense and volatile aircraft orders gives a better sense of business investment trends. This core capital goods measure was off 2.1% in May, after two solid gains of 2% and 4.6% in April and March, respectively.
NEW RESIDENTIAL SALES - Thursday, July 26, 10 a.m. EDT
New single-family homes sales probably slowed a little more in June. Sales in May fell to an annual pace of 915,000, after jumping to 930,000 in April, from 827,000 in March. The May decline was centered in the Northeast and South, while sales in the Midwest jumped to the highest level since a weather-aided January performance.
One good sign from the May numbers was a small decline in the number of homes for sale -- falling to 536,000, or about 7 months worth of sales. In April, the inventory of unsold homes was 542,000, or a 7.1 month supply. The number of unsold completed homes is also beginning to edge down, while the median sales price of a home fell 0.9% from a year ago -- signs that home builders are making the needed concessions to start working off inventories.
HELP-WANTED INDEX - Thursday, July 26, 10 a.m. EDT
The Conference Board issues its May index of help-wanted ads, based on ads gathered from major newspapers across the nation. The index eroded to 27 in May. That's below the reading of 29 for April and March, as well as the May, 2006 reading of 33. Help-wanted ads declined in six of the nine U.S. regions during the three month period ended in May. At the same time, the percentage of markets with rising want-ad volumes plummeted to 18%, from 49% in April and 45% in March.
The Conference Board's tracking of online job ads did retreat a little in June. However, these figures are not seasonally adjusted. Total monthly online job ads fell by 25, or 94,000 persons. The number of advertised vacancies online for every 100 persons in the labor force slipped to 2.8, from 2.9 in the prior two months.
GROSS DOMESTIC PRODUCT - Friday, July 27, 8:30 a.m. EDT
Economic growth in the second quarter of 2007 probably looked a lot better than the first quarter. Economists queried by Action Economics are forecasting real GDP growth of 3.2% on an annualized basis after a paltry 0.7% increase in the first quarter.
Among the different areas of the economy, an increase in inventories, a rebound in price-adjusted exports, and another big increase in non-residential construction all juiced growth in the second quarter. But the gains in those areas will be countered by another decline in home building and a considerably slower pace of consumer spending growth.
CONSUMER SENTIMENT INDEX - Friday, July 27, 10 a.m. EDT
The University of Michigan and Reuters will issue the final reading of consumer sentiment for July. The index probably gave back some of the gains in the initial July results. The preliminary July reading was 92.4, as consumers felt better about current conditions. Most of the improvement came from a large jump in the future expectations index. The final level was 85.3 in June and 88.3 in May.
Respondents in the early July survey expressed a lot more optimism about the U.S economy for the coming year. The retreat in gasoline prices during June and early July may have consumers feeling more upbeat. However, the Energy Information Administration reports that the average price for a gallon of gasoline did increase in the past two weeks.
|Monday||Altera, American Express, Equifax, Halliburton, Hasbro, Hercules, Merck, Pactiv, Plum Creek Timber, Schering-Plough, Weatherford International|
|Tuesday||ACE Ltd., Amazon.com, AT&T, Avery Dennison, Biogen Idec, BJ Services, Boston Properties, Burlington Northern Santa Fe, C.H. Robinson Worldwide, Chubb, Commerce Bancorp, Countrywide Financial, Developers Diversified Realty, DuPont, Ecolab, Eli Lilly, EMC, ENSCO International, E.W. Scripps, Fidelity National Information, Kimberly Clark, Lexmark International, Linear Technology, Lockheed Martin, McGraw-Hill, Nabors Industries, Northrop Grumman, Occidental Petroleum, PepsiCo, Quest Diagnostics, Robert Half International, Rohm and Haas, Sigma-Aldrich, Smith International, Stanley Works, Supervalu, Synovus Financial, Tellabs, Unisys, United Parcel Service, United States Steel, Waters, Western Union, XL Capital|
|Wednesday||Air Products and Chemicals, Akamai Technologies, Allegheny Technologies, Ambac Financial Group, Ameriprise Financial, Anheuser-Busch, Apple, Ashland, Boeing, Colgate-Palmolive, ConocoPhillips, Convergys, Corning, Dover, E*TRADE Financial, Exelon, Express Scripts, Fiserv, Freeport-McMoRan Copper & Gold, General Dynamics, Genzyme, Hess, Hudson City Bancorp, LSI, MEMC Electronic Materials, Meredith, Murphy Oil, National Oilwell Varco, New York Times, Norfolk Southern Corp, Praxair, Pulte Homes, QUALCOMM, Questar, Rockwell Automation, Ryder System, Sealed Air, Snap-on, Symantec, Temple-Inland, Terex, Varian Medical Systems, WellPoint, Xcel Energy, Xerox, Zimmer Holdings|
|Thursday||3M, Aetna, Allegheny Energy, AmeriSourceBergen, Amgen, Apache, AutoNation, Ball, Becton Dickinson, Black & Decker, Bristol-Myers Squibb, Brunswick, Celgene, Coca-Cola Enterprises, Comcast, Compuware, Dow Chemical, D.R. Horton, Eastman Chemical, Embarq, ExxonMobil, Federated Investors, Ford Motor, Genworth Financial, Goodrich, Hartford Financial Services, Janus Capital Group, Kellogg, KLA-Tencor, L-3 Communications Holdings, MBIA, McKesson, National City, Newell Rubbermaid, Office Depot, PerkinElmer, ProLogis, Raytheon, Rockwell Collins, Southern, Travelers, Thermo Fisher Scientific, UST, VeriSign, Wendy's International|
|Friday||Baker Hughes, Chevron, Constellation Energy Group, ITT, KIMCO Realty, Medco Health Solutions|