Experts on Bernanke Speech, Home Sales

By BusinessWeek staff

Once a year, central bankers head west for their annual August jamboree, a symposium at Jackson Hole, Wyo., sponsored by the Kansas City Fed. It would be an understatement to say that much has changed on the global financial scene since last year's gathering, and indeed, the theme of Federal Reserve Chairman Ben Bernanke's speech delivered Aug. 21 was "Reflections on a Year of Crisis."

What did market experts have to say about Bernanke's speech and other key topics, including a much better than expected report on U.S. existing-home sales released Aug. 21? BusinessWeek rounded up comments from Wall Street economists and strategists on Aug. 21.

Action Economics

Fed Chairman Bernanke remained focused on the past, for the most part, in his speech on "Reflections on a Year of Crisis." He indicated that the global economy is starting to emerge from the recession, and that fears of a financial collapse have receded "substantially." However, he had several caveats, noting that there are still strains in the global financial markets, that financial institutions likely face more losses, that credit is likely to be tight, that the rebound is likely to be slow at first, and that unemployment will decline only gradually. As for regulatory reforms, he advocated a macro prudential approach to monitoring interdependencies of firms.

There really wasn't anything new in his rundown of the crisis, as we suspected, and there will be no Q&A.

Beth Ann Bovino, Standard & Poor's

Existing-home sales jumped 7.2% to a 5.24 million unit annual pace in July, and the fourth straight monthly increase. The reading was much better than the 5.0 million expected by markets and was also well above January's 4.49 million trough. It is 5% above the 4.99 million unit pace seen in July 2008. Single-family sales rose 6.5%, month-over-month, and are 5% higher than last July. Condo/co-op sales jumped 12.5%, month-over-month, and are up 5.9% over last July.

The months' supply of homes held at a still-high 9.4, though down from the 11 reading seen last July. The median sales price fell to $178,400 from $182,000, and is down 15.1% over last year. The still high months' supply of unsold homes should put further downward pressure on prices.

The report is better than expected, to add further support to news that the housing sector is stabilizing.

Marc Chandler, Brown Brothers Harriman

The U.S. dollar is on its back foot. Boosted by stronger than expected [euro zone business sentiment] readings, the euro is at new highs for the week … [N]ews that China may be raising the capital requirements for its banks appeared to inject some uncertainty in the regional markets, though Chinese equities continued to recover from their recent slide.

Sentiment toward the dollar broadly remains poor, with recent comments by PIMCO portfolio managers and former World Bank economists and general curmudgeon Joseph Stiglitz questioning the dollar's reserve status adding to the angst. The yen has participated in the move against the greenback, helped by talk of strong Japanese corporate interest to sell dollars.

Jan Hatzius, Goldman Sachs

The continued high level of jobless claims prompts us to take a closer look at this part of our "Road Map for the First Stage of Recovery." Whereas in the business cycles of the 1960s-1980s both new and continuing claims moved down steadily after the recession's end, in more recent cycles (beginning in 1991 and 2001) the pattern was different. In these cycles, new claims moved down 10%-15% in the first few months after recession, then stuck stubbornly at that level for up to 18 months longer. A similar pattern was observed for continuing claims. The critical period during which "jobless recoveries" became evident in the claims data was 4-12 months following the trough of the recession, a period which we expect to correspond roughly to Q4 2009-Q2 2010.

Since we expect the labor market to behave in a similar fashion this time, we think jobless claims could remain in the 500,000-550,000 range well into next year; a move well below 500,000 would correspond to a more "traditional" recovery in employment.

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