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Economic reports show weakness in economy and rising inflation pressures. However, oil prices are not seeing gains, which is at least leaving some hope for pricing pressures to ease down the road. Data on existing home sales, jobless claims and the Fed Beige Book have all painted a disappointing picture.

On Wednesday, oil prices fell sharply despite the fact weekly inventory levels fell by 1.6 million barrels. The fact that gasoline reserves rose helped ease crude prices yesterday and this declines are holding Thursday. The September crude futures contract is down nearly half a dollar Thursday to a price near $124. Record high crude prices during the past year have definitely hurt corporate earnings, so the bulls are hoping that further declines in oil prices will help improve sentiment and profits down the road.

The housing sector is in focus this week with data on existing home sales out this morning and new home sales data on tap Friday. On Wednesday, the weekly data on mortgage applications showed a decline of 6.7 percent to 335.6. The refinance index fell 5.6 percent on a 37-basis point rise the 30-year mortgage rate to 6.59 percent. The news didn’t get any better this morning with existing home sales results below expectations.

Existing home sales fell 2.6 percent in June to an annualized rate of 4.86 million units. This figure also was worse than expectations for a reading of 4.94 million units. In the past year, existing home sales are down 15.5 percent. This is better than the consistent declines of 20 percent earlier in the year, but we are seeing easier comparisons. Another major concern in the report was the continued rise in inventory levels to 11.1 months. This is up from 10.8 months in May, yet the median price of a home rose 3.5 percent to $215.100. Even so, home prices are down 6.1 percent year on year.

Further data on the housing sector will be available Friday when new home sales for June are released. Expectations are for new home sales to come in at 505,000 during the month on an annualized basis. The fact is that a bottom in the housing sector continues to be pushed out further and further and gains in mortgage rates aren’t helping the sector either. Of course, the increased difficulty in securing credit for consumers is also a problem for the sector.

Jobless claims soared for the week ending July 19 to a level of 406,000. This was a gain of 34,000 claims though the four-week moving average rose by just 4,500 to 382,500. The Labor Department stated that there were several factors that led to these gains, so the data is being taken with a grain of salt and this is why the four-week moving average is a better gauge.

The Fed Beige Book showed that the economy continues to slow and that pricing pressures continue to rise. Though every Fed district reported elevated and/or increasing pricing pressures, at least wage pressures have not risen sharply. There are signs that consumers are retrenching, much of this could have been due to the tax rebate checks. Overall, there is a battle brewing between Fed leaders wanting to immediately hike rates and those that feel we need to see some stabilization in the economy first.


Jody Osborne

Senior Staff Writer & Options Strategist

Optionetics.com ~ Your Options Education Site

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