|
|
JULY 2008 W5 ALERT Economic News: The Good, The Bad, and The Ugly<Reuters><July 30, 2008>Several stories have appeared recently giving mixed signals in the direction of the U.S. economy. While this is typically the case, given the severity of the current downturn many analysts are struggling to find concrete evidence that the economic slide has hit bottom. Did I find any?
THE GOOD
The Housing Bill - President George W. Bush signed a bi-partisan bill that will attempt to positively influence the housing market. The housing bill provides a back stop to Fannie Mae and Freddie Mac the two government sponsored private companies that are said to be responsible for more than 50% of the nation’s $12 trillion in home mortgages.
Rumors of possible failure by one or both of these companies caused their shares to drop by 50% in the last few weeks, destabilizing them and setting the stage for a possible home mortgage disaster of epic proportions. The new bill stabilizes these companies and provides for greater regulatory oversight to ensure that they stay healthy and secure.
The bill also sets up a $300 billion fund under FHA control that will allow homeowners to refinance their exotic and expensive mortgages that they can not afford with a more affordable government backed mortgage.
 Credit Card Spending Down - Depending on your perspective, a report from Reuters says that Americans are cutting back on credit card use and focusing on purchasing essentials in cash. The story says that thirty-seven percent of Americans say they are cutting back on credit card spending, while only ten percent say their credit purchases are up.
While this study tends to suggest that Americans are beginning to get their financial houses in order, cutting spending can be a drag on economic growth as well. And also, few consider electronics products “essentials.”
Still, for the long term, consumers staying financially healthy will reduce defaults and create a healthier long term spending pattern.
Consumer Confidence Rises - Reuters is also reporting that the Conference Board’s survey of consumer confidence actually showed a small increase in July. With a rating of 51.9, July showed a small but significant increase over June’s 51.0 level.
Yes, the June level was the lowest reading in sixteen years…and yes, the July level is still down by more than half over its level a year ago. But still, this is the first increase since December…and could possibly represent confidence turning up from last month’s bottom. Only time will tell with subsequent month’s readings.
THE BAD
Online Job Vacancy Advertising - The Conference Board also conducts another survey called the Help-Wanted OnLine Data Series (HWOL) which is an indicator of changes in the jobs environment. Unfortunately, online advertisements of job vacancies stood at 3,864,100 in the month of July which was down substantially from June’s 4,194,900 or 330,800 fewer job opportunities.
According to Senior Economist for The Conference Board Gad Levanon, “July is typically a slow month in terms of labor demand, but this month advertised vacancies were weaker than we would expect.” Gad went on to say, “Changes in the volume of job advertising typically lead employment trends, and considering the declines in advertised vacancies for all of 2008, the outlook for the labor market remains gloomy – exactly the sentiment weighing on consumer attitudes.”
Consumer Spending Trends – A new study is suggesting that the economic downturn is forcing consumers to search the Internet for the lowest price on any item that they need to purchase. The study, called the Consumer Behavior Report, is the result of three surveys conducted from late March to late June and involved 7,170 shoppers who were asked to describe how they have been saving money…including what they did with tax refunds and economic stimulus checks.
Consumers responded by saying that they are continuing to cut back with 55% citing the economy and inflation as the reason. 42% pointed at retail shopping as the area that they were cutting back on most. 33% said that they were using comparison shopping engines on the Internet to save money.
As far as their tax refunds, 65% of the respondents said they will spend (not save) their tax refunds with 45% saying it will be spent to pay down debt. 22% of respondents indicated that they will spend their refunds on home improvements while another 11% plan to spend it on a vacation.
And the government’s economic stimulus checks that were meant to encourage consumers to increase their spending…well, 33% of the survey respondents said they will use this money to pay down their debts as well. Of those who indicated that they will spend their checks, 27% used it to buy one large item while 25% bought multiple smaller items.
Keep in mind that this survey was conducted by PriceGrabber.com.
THE UGLY
Bankruptcy - What does Fremont General Corp. and SemGroup LP have in common? Did you guess bankruptcy? Well, you’re almost correct…they are both billion-dollar bankruptcies!
It turns out that 2008 has the highest level of billion dollar bankruptcies in the last five years. Fremont General was involved in sub-prime mortgage lending and SemGroup is an energy trader. They are two of seven billion dollar bankruptcies this year. Last year, there were only one bankruptcy in this category. What concerns analysts is that we are only half way through 2008…and we already have seven times more billion dollar bankruptcies than last year.
Housing Prices – Finally, we’ve become somewhat used to the Standard & Poor’s/Case Shiller report indicating a decline in home prices and unfortunately, in May the report showed a decline of 15.8% over last years level in twenty leading metropolitan markets. This rate shows an accelerated decline over the previous month’s rate.
On a positive note, this rate was slightly less than some analysts had expected. And seven other metropolitan markets actually increased. Still, the housing market is feeling a lot of pain. |
|
|