The last several months have show the economy on a downward path due to the demise of the housing market, rapid rise of the commodities market and the fall of the dollar against other currencies. The reaction by the Federal Reserve, Treasury, President Bush, and Congress has been has been impressive to watch with a vast amount of liquidity released in the market, aggressive rate cuts by the Federal Reserve, legislative relief, changes in standards made by government backed lenders, etc.
Though we are not out of the woods yet, there are some positive signs emerging at this time. The Conference Board, a research group, reported on 4/17/08 that the index of leading economic indicators actually went up in March. The index seeks to predict the rise or fall of the economy over the next 3 to 6 months. However, the Conference Board index also shows an annual rate of decline for the last 6 month period from October 2007 to March 2008. This is not a surprise, unless of course you live in a cave with no access to the outside world.
The Economic Cycle Research Institute, an independent economic forecasting institute based in NY, reported that’s its Weekly Leading Index showed a slightly positive increase over the prior week. This index is a gauge of future predicted national economic growth and annualized growth rate. The rise is due to lower interest rates and higher stock market prices. However, the rise was not as much as it otherwise could have been because of soft home sales and construction along with higher unemployment claims being made.
The Atlanta District of the Federal Reserve reported this week that economic activity in its district contracted; however, this is no surprise and is in line with other parts of the country. The Atlanta Fed’s “Beige Book”, as it is called, reported slowdowns in the real estate and retail sectors. Again, this was not a surprise to anyone. The Philadelphia Federal Reserve’s General Economic Index fell in March to its lowest level since 2001. The same index has shown contraction of the economy for all of 2008 – once again, no surprise.
The Federal Reserve is scheduled to meet again this month and is considering another short-term interest rate cut. There is some sentiment that they will, in fact, cut rates again; however, there is also some bias that they will not do so. If they cut rates yet again, it will be because there is still generalized economic weakness and threat to the economy. If they do not cut rates, it is because they believe the economy is stabilizing and perhaps turning the corner. They may also not cut rates again based upon concerns that doing so would be inflationary and contribute to rising prices and therefore have the potential effect of further dampening the economic recovery. Stay tuned!
It was also reported that demand for cash and reserves by large commercial lenders from the Federal Reserve decreased this past week. The findings suggest that not only is lending down but that lenders don’t want to lend and because companies are showing signs of being recessed because of sluggish demand for goods and services.
Confidence among small businesses fell in March to their lowest level in the last 28 years. This was shown by the latest report from the National Federation of Business Optimism Index. You may wonder why that is important to real estate. The answer is simply that if businesses don’t hire people, in turn, people don’t buy real estate. Companies are cutting back on expansion plans, hiring and productivity as demand for products weakens. This sounds recessionary and serves as one indicator (but only one) of a looming recession.
This is in tandem with the Labor Department reporting that application for unemployment benefits rose this week to a four year high. However, in context, the four-week average of unemployment claims is slightly down. In reality, it is stable – that is good news.
There were other reports this week that factory production in New York State is stabilizing. The New York Fed reported on 4/15 that its manufacturing index was up for April compared to March when it fell to its lowest level on record.
Most economists now see a contraction in economic growth and activity for the entire first half of 2008. However, they also believe there will be a pick-up in the second half of the year. This is consistent with what Lawrence Yun, NAR's Chief Economist has been saying for a long time. Hmm! No wonder he is one of the most reliable economists (the 5th most reliable economist according to USA Today).
This coming week will feature some reports and indicators on the economic calendar being made public. The first report will be made on 4/22 about Existing House Sales. It is expected that the numbers which surveys the prior month of March will be down compared to prior months. On Thursday 4/24, Durable Goods will probably report an increase. At least, this is what is expected. On the same day, the Labor Department will release the Jobless Claim numbers, which are expected to be up again compared to this week; however, it isn’t expected that claim numbers will greatly increase. Also on Thursday, there will be a report about new home sales, which is expected to slow a decline. While houses in many parts of the nation are more affordable, credit is tighter and this is the reason why there isn’t an increase in purchasing. Lastly, on Friday 4/25, the University of Michigan will release its survey of consumer sentiment. It is expected to remain relatively unchanged compared to last month’s numbers.
Expect that the numbers reported in the weeks ahead, as well as next month, will show signs of gains and improvements. This will be due to seasonal changes that will contribute to some economic growth, which is the case every year at this time,as well as a possible tepid improvement of consumer confidence. It will take some months before the full effect of any economic stimulus and injection of liquidity in the market will be felt. However, it will happen and it is therefore only a matter of time, provided that there is no further slippage in the economy.
Though we are not out of the woods yet, there are some positive signs emerging at this time. The Conference Board, a research group, reported on 4/17/08 that the index of leading economic indicators actually went up in March. The index seeks to predict the rise or fall of the economy over the next 3 to 6 months. However, the Conference Board index also shows an annual rate of decline for the last 6 month period from October 2007 to March 2008. This is not a surprise, unless of course you live in a cave with no access to the outside world.
The Economic Cycle Research Institute, an independent economic forecasting institute based in NY, reported that’s its Weekly Leading Index showed a slightly positive increase over the prior week. This index is a gauge of future predicted national economic growth and annualized growth rate. The rise is due to lower interest rates and higher stock market prices. However, the rise was not as much as it otherwise could have been because of soft home sales and construction along with higher unemployment claims being made.
The Atlanta District of the Federal Reserve reported this week that economic activity in its district contracted; however, this is no surprise and is in line with other parts of the country. The Atlanta Fed’s “Beige Book”, as it is called, reported slowdowns in the real estate and retail sectors. Again, this was not a surprise to anyone. The Philadelphia Federal Reserve’s General Economic Index fell in March to its lowest level since 2001. The same index has shown contraction of the economy for all of 2008 – once again, no surprise.
The Federal Reserve is scheduled to meet again this month and is considering another short-term interest rate cut. There is some sentiment that they will, in fact, cut rates again; however, there is also some bias that they will not do so. If they cut rates yet again, it will be because there is still generalized economic weakness and threat to the economy. If they do not cut rates, it is because they believe the economy is stabilizing and perhaps turning the corner. They may also not cut rates again based upon concerns that doing so would be inflationary and contribute to rising prices and therefore have the potential effect of further dampening the economic recovery. Stay tuned!
It was also reported that demand for cash and reserves by large commercial lenders from the Federal Reserve decreased this past week. The findings suggest that not only is lending down but that lenders don’t want to lend and because companies are showing signs of being recessed because of sluggish demand for goods and services.
Confidence among small businesses fell in March to their lowest level in the last 28 years. This was shown by the latest report from the National Federation of Business Optimism Index. You may wonder why that is important to real estate. The answer is simply that if businesses don’t hire people, in turn, people don’t buy real estate. Companies are cutting back on expansion plans, hiring and productivity as demand for products weakens. This sounds recessionary and serves as one indicator (but only one) of a looming recession.
This is in tandem with the Labor Department reporting that application for unemployment benefits rose this week to a four year high. However, in context, the four-week average of unemployment claims is slightly down. In reality, it is stable – that is good news.
There were other reports this week that factory production in New York State is stabilizing. The New York Fed reported on 4/15 that its manufacturing index was up for April compared to March when it fell to its lowest level on record.
Most economists now see a contraction in economic growth and activity for the entire first half of 2008. However, they also believe there will be a pick-up in the second half of the year. This is consistent with what Lawrence Yun, NAR's Chief Economist has been saying for a long time. Hmm! No wonder he is one of the most reliable economists (the 5th most reliable economist according to USA Today).
This coming week will feature some reports and indicators on the economic calendar being made public. The first report will be made on 4/22 about Existing House Sales. It is expected that the numbers which surveys the prior month of March will be down compared to prior months. On Thursday 4/24, Durable Goods will probably report an increase. At least, this is what is expected. On the same day, the Labor Department will release the Jobless Claim numbers, which are expected to be up again compared to this week; however, it isn’t expected that claim numbers will greatly increase. Also on Thursday, there will be a report about new home sales, which is expected to slow a decline. While houses in many parts of the nation are more affordable, credit is tighter and this is the reason why there isn’t an increase in purchasing. Lastly, on Friday 4/25, the University of Michigan will release its survey of consumer sentiment. It is expected to remain relatively unchanged compared to last month’s numbers.
Expect that the numbers reported in the weeks ahead, as well as next month, will show signs of gains and improvements. This will be due to seasonal changes that will contribute to some economic growth, which is the case every year at this time,as well as a possible tepid improvement of consumer confidence. It will take some months before the full effect of any economic stimulus and injection of liquidity in the market will be felt. However, it will happen and it is therefore only a matter of time, provided that there is no further slippage in the economy.
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