Economic Watchdog, Mar. 26
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March 26, 2008
Recession or no recession, economic data these past two days has been disappointing. On Tuesday, data on consumer confidence and same-store sales was below expectations and Wednesday’s data continued the bearish tone. Durable goods orders and new homes sales both fell, leaving stock prices down on the session. Oil prices are on the rise Wednesday following weekly inventory data, which could worsen sentiment as well.
Crude prices are up more than three dollars Wednesday to a price near $103.50 a barrel. The EIA reported that crude inventory levels were flat for the week ending March 21 when estimates were for a gain of 1.5 million barrels. However, gasoline reserves remain well above average, but this hasn’t helped keep fuel prices down at the pumps. Record high energy prices have been one reason for the decline in consumer sentiment, which continues to soften.
On Tuesday, the Conference Board released its confidence index for March, but the data was a huge disappointment. Estimates were for the index to fall to 73.0 during the month from a level of 76.4 in February. However, the index plummeted to 64.5, its lowest reading in more than five years. Within the report there are two main components; the present situation index and the expectations index. The latter is the more heavily weighted component and it fell to 47.9, nearly an 11 point decline. The present situation index fell 15 points to 89.2.
If this information wasn’t bad enough, the report also has an inflation component. The one-year inflation expectations component rose 7-tenths to 6.1 percent. Of course, the rise in food and energy prices has created the problem and these components are volatile, but it does raise concerns about pricing pressures even as the economy continues to slow.
Durable goods orders for February fell 1.7 percent when a gain of 0.7 percent was expected. This decline follows a 4.7 percent drop in January. Orders the exclude transportation were even worse, falling 2.6 percent. This data, along with many other manufacturing reports, definitely points to the fact the U.S. economy is already in a recession. This is especially true when we see that nondefense capital goods orders, a proxy for business spending, fell 1.0 percent.
The housing sector has of course been a huge factor in the economic slowdown and new home sales data did little to ease concerns. New home sales fell to a 13-year low in February, though the figure was a bit above expectations. New home sales came in at an annualized rate of 590,000 units, down 1.8 percent from January. Year on year, new home sales are down a stunning 29.8 percent. Part of the reason home sales are week has to do with the surprising strength in new home prices. In fact, new home prices rose 8.2 percent to $244,100 during the month. However, the Case-Shilling home price index yesterday fell sharply, showing the year on year decline in home prices at more than 10 percent.
Of course, a soft labor market, falling home prices and a credit crunch are taking a toll on consumer spending. Same-store sales data for the week ending March 22 were once again very soft. The ICSC-UBS report showed a week on week drop of 0.4 percent with the year on year gain at a meager 1.0 percent. The Redbook report, which has been consistently weaker than the ICSC data, was actually stronger this go around at growth of 1.4 percent year on year.
The calendar the rest of the week will remain heavy with data on GDP and jobless claims due out Thursday and then consumer sentiment data and the personal income and spending report released Friday.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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