Slew Of Bad Data: June 2012 Existing Home Sales, LEI – July 2012 Philly Fed, Jobless Claims; Is QE3 Ready Yet?
Existing Home Sales Fall by 5.4 Percent
Existing home sales fell by 5.4 percent month over month, the National Association of Realtors said today as real estate investors focused on high-end properties that are fewer in number and demand. Existing home sales data suggests the housing market may be in turnaround mode but hasn’t bucked the downward trend significantly. Sales of existing homes were up year over year by 4.5 percent but well below the annual sales rate that would be considered expansionary. Real estate investors are the main source for current demand and have helped to stabilize prices but with a low unemployment rate as well as tight consumer incomes, housing cannot rebound fully. Last week RealtyTrac Inc. said June 2012 foreclosures increased 9 percent quarter to quarter and 6 percent year over year. The robo-signing halt by the U.S. government may have only slowed down the inevitable.
June Leading Economic Indicators Decline
The Conference Board Leading Economic Index (LEI) declined 0.3 percent in June to 95.6 (2004 = 100). The decrease comes after a 0.4 percent increase in May leading economists to believe the U.S. is poised for extended recessionary pressures. The LEI also declined 0.1 percent in April and suggests the economy is contracting, perhaps at a faster rate. The composite economic indexes consist of the key elements in an analytic system designed to signal peaks and troughs in the business cycle and the lack of activity in the overall economy does not appear to be subsiding.
Philly Fed Shows Factory Activity In U.S. mid-Atlantic Region Contracted
According to the Federal Reserve Bank of Philadelphia, factory activity in the U.S. mid-Atlantic region contracted in July. This was the third consecutive month that indications trended to the downside and the evidence is mounting that the U.S. is on the cusp of a double dip recession if action isn’t taken to stabilize the economic system.
Note From MICHAEL TREBING, ECONOMIC ANALYST, FEDERAL RESERVE BANK OF PHILADELPHIA:
“The Federal Reserve Bank of Philadelphia’s business activity index suggested business conditions were weaker again this month. The broadest activity measure remained negative. New orders and shipments also remained negative, though they rebounded from lows. Average work hours were lower.
“Future expectations diminished, but most firms believe recent weakness will be temporary. The forward-looking numbers held up okay. Thirty-seven percent of the firms still expect increased activity over the next six months and 18 percent expect less activity.
Jobless Claims For The Week Ended July 14, 2012 Increase
Initial jobless claims for unemployment benefits increased 34,000 the Labor Department said today for the week ended July 14, 2012. This brought the four-week moving average for unemployment claims benefits, a less volatile measure, up 1,500 to 375,000. Claims decreased by 26,000 in the prior week but are back to levels that have been sticky for most of 2012. The unemployment rate for July 2012 could be around 80,000 similar to June and May was a dismal 69,000, well below levels needed to jumpstart the economy. Right now our unemployment estimate for July 2012 is 75,000 +- 25,000.
Is QE3 Ready Yet?
There was no good economic data news today. Along with unimpressive earnings news via lowered expectations, the second quarter has been an economic disaster on all fronts. The saving grace- housing data reports, recently showed there is no steadiness to U.S. growth and the economic data released today is likely to increase calls for QE3 before the September 2012 meeting.
The economic decay in the U.S. is increasing and we are considering lowering our outlook for the U.S. economy based on these numbers. World central banks are somewhat ahead of the U.S. Fed. For example, China lowered rates 2 times in a month and is likely to announce more liquidity actions as the Shanghai stock market continues to stay under pressure.
The financials have moved to the downside while the overall market remains relatively healthy but we believe this will change soon if economic data decreases with no signal from the Fed. Tech is outperforming the market and is on our benchmark-monitoring list. We are looking to buy sectors we like on weakness and believe investors are taking long positions in this low volatility environment.