>> Market Update INFO THAT HITS US WHERE WE LIVE For the third month in a row, Existing Home Sales beat expectations, UP 7.6% for April and UP 22.8% over a year ago. A lot of the gain was put to the tax credit expiration that required a signed contract by April 30. But buyers have till June 30 to close, so observers feel sales will probably increase for the next couple of months, then take a short break before rising again. Inventories were up from 8.1 to 8.4 months, but this is similar to April gains in prior years, rather than evidence of some huge "shadow inventory" hitting the market. Meanwhile, the median price for an existing home went to $173,000, up 4.0% from a year ago.
April New Home Sales shot UP 14.8%, reaching a 504,000 annual rate, their highest level since May 2008. The supply fell to 5.0 months in March and inventories dropped to 211,000 -- their lowest level since 1968, down 63.1% from their mid-2006 peak. The tax credit expiration also contributed to these great numbers. But the fact remains, new homes are now significantly more affordable, thanks to prices that are the lowest since 2003 and extremely low mortgage interest rates.
Two home price indicators gave mixed signals. The Case-Shiller index for the 20 top metro areas was down 0.5% for March but UP 2.3% for the year. The FHFA price index for homes bought with conforming mortgages was UP 0.3% for the month but down 2.2% for the year. >> Review of Last Week THANK YOU, CHINA... Call it a somewhat volatile week in the stock markets, as investors continued to fret over Europe's financial health, the Gulf oil spill and North Korea. Then Thursday China stepped in as a solid buyer of Eurozone bonds, giving Wall Street ample reason to calm down, leaving two major indexes up for the week, with the Dow off just 0.6%.
We continue to get good factory data, with the Richmond Fed manufacturing index at +26 for May indicating continued expansion in the Mid-Atlantic region. The Chicago PMI manufacturing index also showed growth, though slightly slower than the month before. Durable Goods were UP 2.9% for April and UP 18.9% over a year ago. Especially encouraging, orders for capital goods used in production were UP 7.4% for April and UP 30% over a year ago, one of the steepest annual boosts in the last 20 years.
Real Q1 GDP was revised down slightly to 3.0% annual growth. But Q1 corporate profits grew at a 24% annual rate and are UP 31% over a year ago. Economists expect these profits to boost hiring and business investments. Q1 prices were up only 1% annually, so inflation is still under control. April Personal Income came in UP 0.4% and Personal Consumption was flat, but economists feel it's normal for consumers to take a break every few months. University of Michigan Consumer Sentiment was UP to 73.6.
For the week, the Dow ended down 0.6%, to 10136.63; but the S&P 500 was UP 0.2%, to 1089.41 and the Nasdaq was UP 1.3%, to 2257.04.
Bonds also had an up-and-down week, finally recovering on Friday to end in pretty good shape. The FNMA 30-year 4.5% bond we watch closed down 13 basis points for the week, ending at $102.03. National average mortgage rates continued near record lows, according to Freddie Mac's weekly survey. Their Chief Economist feels this should soften the effect of the expiration of the homebuyer tax credit. >> This Week’s Forecast LOOKING FOR JOBS... The economic news of the week is dominated by the May employment report on Friday. Expectations are that a substantial number of jobs will be added, but increases in the workforce population will cut the unemployment rate by just 0.1%. On our way to this big news, we'll be interested to check out April Pending Home Sales, which should continue to show gains. Tuesday's ISM manufacturing read and Thursday's ISM Services and revised Q1 Productivity should also provide more support for our continuing recovery. >> The Week’s Economic Indicator Calendar Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of May 31 – June 4 | Date | Time (ET) | Release | For | Consensus | Prior | Impact | | Tu
Jun 1 | 10:00 | ISM Index | May | 58.9 | 60.4 | HIGH | | W
Jun 2 | 10:00 | Pending Home Sales | Apr | 3.5% | 5.3% | Moderate | | W
Jun 2 | 10:30 | Crude Inventories | 5/29 | NA | 2.46M | Moderate | | Th
Jun 3 | 08:30 | Initial Unemployment Claims | 5/29 | 455K | 460K | Moderate | | Th
Jun 3 | 08:30 | Continuing Unemployment Claims | 5/22 | 4.600M | 4.607M | Moderate | | Th
Jun 3 | 08:30 | Productivity–Rev. | Q1 | 3.4% | 3.6% | Moderate | | Th
Jun 3 | 10:00 | ISM Services | May | 55.5 | 55.4 | Moderate | | F
Jun 4 | 08:30 | Average Workweek | May | 34.1 | 34.1 | HIGH | | F
Jun 4 | 08:30 | Hourly Earnings | May | 0.1% | 0.0% | HIGH | | F
Jun 4 | 08:30 | Nonfarm Payrolls | May | 500K | 290K | HIGH | | F
Jun 4 | 08:30 | Unemployment Rate | May | 9.8% | 9.9% | HIGH | >> Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months The sense among economists is becoming stronger that the Fed will hold interest rates at current levels through the end of the year, as inflation stays tame. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. Current Fed Funds Rate: 0%–0.25% | After FOMC meeting on: | Consensus | | Jun 23 | 0%–0.25% | | Aug 10 | 0%–0.25% | | Sep 21 | 0%–0.25% |
Probability of change from current policy:
| After FOMC meeting on: | Consensus | | Jun 23 | 2% | | Aug 10 | 7% | | Sep 21 | 11% | |
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