Economic Watchdog, December 23
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December 23, 2008
Despite many traders being gone for the holidays, economic news has been heavy Tuesday. A wide range of data has been released including releases on housing, consumer sentiment, same-store sales and GDP. This rash of reports will continue Wednesday as well with reports being pushed ahead due to the Christmas holiday.
Officially, the recession in the U.S. began in December 2007. However, GDP data shows that things didn’t worsen sharply until the third quarter. In the second quarter, GDP rose 2.8 percent, but this fell to a decline of 0.5 percent in the third quarter. The final revision to 3rd quarter GDP was unchanged from the preliminary figure. Weakness in the quarter was led by a decline in personal consumption and residential investment. The GDP price index was lower, down to 3.9 percent growth from 4.2 percent in the prior estimate. The year on year growth rate for GDP fell to 0.7 percent in the quarter, down from 2.1 percent in the second quarter. Unfortunately, projections are for a decline of at least 5.0 percent in the fourth quarter.
As we approach Christmas on Thursday, economists are looking for consumers to make a push to purchase gifts. The ICSC-Goldman same-store sales report showed that sales rose 2.6 percent compared to the prior week, but remain negative at a decline of 0.6 percent year on year. The Redbook report was even worse, showing a year on year decline of 1.0 percent for the week ending Dec. 20. Both reports talked about bad weather, though the Redbook report saw it as a larger problem. Even if spending does increase substantially this last few days before Christmas, retailers margins are likely to be depressed because of heavy promotions.
Consumer sentiment was slightly better than expected in December, coming in at 60.1 compared with estimates for a reading of 58.6. Though still extremely low, at least the figure is nearly 10 percent above the reading of 55.3 in October. Inflation expectations, at one time the focus of this report, continued to fall 1.2 percent points to 1.7 percent. Considering the huge amount of jobs being lost across the country, it isn’t a surprise to see sentiment at low levels.
Home sales continued to drop in November, including existing and new homes. Existing home sales fell more than expected to a level of 4.49 million annualized units. Expectations were for a small decline to 4.90 million in November after a reading of 4.98 million units in October. Overall, the year on year decline for existing home sales came in at 10.6 percent. Supply of existing homes rose to 11.2 months, nearly a full month higher than in October. Home prices continued to fall as well, putting the year on year decline at 13.2 percent.
New home sales fell 2.9 percent in November to an annualized level of 4.07 million units. This was worse than the expected figure of 420,000 annualized units. October’s figure was revised lower from 433,000 units to 419,000 units. Supply of homes remains elevated at 11.5 months, down 3-tenths. In the past year, the median price of a new home has fallen 11.5 percent to $220,400.
Though not a closely followed report, the State Street Investor Confidence Index fell sharply in December. This report measures the level of risk in investor portfolios to gauge sentiment. Unfortunately, the North America component of this report fell almost 15 points to 30.1. This could be pointing to doubt by investors about recent policy moves.
Unfortunately, a bottom in the housing market continues to be allusive and could remain this way for some time. Job losses are picking up and this will create more and more foreclosures. On Wednesday, we will get the weekly jobless claims report, which is expected to stay flat at a figure of 552,000. Other reports on the calendar tomorrow include durable goods orders and personal income and outlays.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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