Economic Indicators: Weekly Update for August 5, 2011

A weekly analysis of the economic data released during the past week, and how current economic conditions are affecting the real estate market.

Palm Coast, FL – August 5, 2011 – Every week the National Association of Realtors® Research staff analyzes key data releases and explains what they mean for you and your business. In this update, we give the highlights of the most important data releases for the week of August 1 – August 5, 2011, along with graphs that show the latest movement and overall trends.

At a glance, this table shows the forecast for some of the most pertinent weekly data for REALTORS® to keep in mind. This changes from week to week as new data becomes available. For the full forecast from the latest Pending Home Sales release, click here (PDF).

Highlights for Monday, August 1, 2011:

• The manufacturing sector is on the verge of contracting after having notched 22 straight months of expansion. The latest reading of the ISM index, which surveys managers in the manufacturing industry, was 50.9 in July. It had been reading 55 to 60 in the first half of this year. Any reading below 50 is considered contraction in the industry.
• The component on new orders showed contraction, though actual current production and employment showed slight expansion.
• The constant discussion over the debt ceiling in July no doubt caused many business decision makers to halt purchase orders. A resolution to the debt debate may slowly restart the manufacturing sector.
• This data is one of the timeliest economic indicators. The weak July reading implies that the third quarter GDP will continue to underperform with no notable downward movement to the unemployment rate.
• GDP in the third quarter is expected to show 1 to 2 percent growth. It needs to grow at 3 percent or higher for firms to hire new workers in a meaningful way.

Highlights for Tuesday, August 2, 2011:

• On a down note this morning, personal income continued its 6-month pattern of easing to a gain of just 0.1% in June. Not surprisingly, personal spending followed suit as it has been limited by the decline in income growth and turned negative (-0.2%) in June.
• The personal saving rate rose for the 4th consecutive month to 5.4% in June from 5.0% a month earlier. However, under the qualified residential mortgage (QRM) regulation, even at this unsustainable rate of savings, it would take 13 years for a household with the median income of $52,000 to save the 20% downpayment on the median priced home of $184,300. All the while, this family would be forced to forgo saving (or spending) on other large expenditures like schooling, childcare, cars, or retirement.
• On a positive note, the muted spending and slight moderation in gas prices caused core price index associated with this release, the personal consumption expenditures chain price index is another measure of inflation like the CPI, to ease to 0.1%. Slack prices and concern about the budget debate have caused the 10-year Treasury bond to fall to roughly 2.7%…a remarkably low figure. Since the 30-year fixed rate mortgage closely tracks the 10-year Treasury, it too has fallen and is near historic lows. As the budget picture and bond market’s response to it become clearer, rates are likely to rise suggesting that today’s low rates are an opportunity that will not last long.
• The economy continues to sputter, but has created an opportunity at the same time with mortgage rates at remarkably low levels for those with stable employment. However, the proposed QRM regulation could create a hurdle for the housing market in the future if regulators leave it unchanged.

Highlights for Wednesday, August 3, 2011:

• A heavy data day shows a mixed picture of activity in June and July that seems to suggest that growth is continuing, but not very rapidly. One bright spot came from CoreLogic’s data which showed that home prices increased for the third month in a row, but even this news is tempered by the year over year performance which is still a slight decline in prices.
• Mortgage applications increased 7.1 percent from one week earlier driven by a 7.8 percent increase in refinances and a 5.1 percent increase in purchases. A decrease in 30-year fixed rate mortgages to 4.45 percent likely spurred some of the refinancing. Compared to a year ago, the purchase index is up 6.3 percent while refinance applications are down nearly 30 percent.
• While mortgage applications are an indicator of home sales, all cash purchases, which have accounted for 29 percent of sales in June, are not picked up in demand for mortgages.
• In other data news, payroll processing firm ADP showed growth of 114,000 in nonfarm private business payrolls. ADP data foreshadows the BLS Employment Situation release on Friday and in the last 2 years has typically underestimated the private payroll increase reported by the government, but in June government data showed 88,000 fewer job gains. Directionally, when the ADP report shows an increase, the government report has also shown an increase, so expect private sector job gains on Friday though these gains may not be large enough to offset the recent trend of government payroll job declines.
• In other news, ISM data showed that while non-manufacturing sectors continued to grow in July, they did so at a slower rate than in June. Business Activity was growing at a faster rate, but new orders and employment grew at a slower rate. By industry, 13 including Real Estate reported growth while 5 including Construction reported contraction in July.
• A heavy data day shows a mixed picture of activity in June and July that seems to suggest that growth is continuing, but not very rapidly.
• Mortgage applications increased 7.1 percent from one week earlier driven by a 7.8 percent increase in refinances and a 5.1 percent increase in purchases. A decrease in 30-year fixed rate mortgages to 4.45 percent likely spurred some of the refinancing. Compared to a year ago, the purchase index is up 6.3 percent while refinance applications are down nearly 30 percent.
• While mortgage applications are an indicator of home sales, all cash purchases, which have accounted for 29 percent of sales in June, are not picked up in demand for mortgages.
• In other data news, payroll processing firm ADP showed growth of 114,000 in nonfarm private business payrolls. ADP data foreshadows the BLS Employment Situation release on Friday and in the last 2 years has typically underestimated the private payroll increase reported by the government, but in June government data showed 88,000 fewer job gains. Directionally, when the ADP report shows an increase, the government report has also shown an increase, so expect private sector job gains on Friday though these gains may not be large enough to offset the recent trend of government payroll job declines.
• In other news, ISM data showed that while non-manufacturing sectors continued to grow in July, they did so at a slower rate than in June. Business Activity was growing at a faster rate, but new orders and employment grew at a slower rate. By industry, 13 including Real Estate reported growth while 5 including Construction reported contraction in July.
• Factory orders, reported by the Census, showed a decline in July of 0.8 percent after growth of 0.6 percent in May. The decline in orders came from durable-goods manufacturers. Non-durable goods orders were flat in June. Factory orders bounce around quite a bit from month to month. Compared to one year ago, orders are up nearly 13 percent for all manufacturing, nearly 8 percent for durable goods and more than 17 percent for non-durable goods.

Highlights for Thursday, August 4, 2011:

• Though there was no significant change on a weekly basis, new jobless claims are at the 400,000 level which economists generally view as a point at which the economy is creating more jobs than losing.
• The four-week average fell for the fifth consecutive week, down 6,750 claims to 407,750. This is about 20,000 claims lower from a month-ago. Continuing claims rose 10,000 for the week of July 23 to 3.730 million.
• The largest increases in initial claims were in Maine, Wyoming, North Dakota, New Mexico, and South Dakota while the largest decreases were in California, New York, North Carolina, Georgia, and South Carolina.
• Assuming that new jobless claims continue to trend down, NAR expects about 1.5 to 2 million net new jobs in the next 12 months.
• Separately, the 10-year Treasury borrowing rate fell significantly today to 2.66 percent. That is a 32 basis points drop from last week’s rate of 2.98 percent and 3.22 percent rate from the beginning of July. This sudden drop suggests mortgage rates should be following soon and a unique mortgage borrowing opportunity for homebuyers.

Highlights for Friday, August 5, 2011:

• A lot can happen in a day, and while the fundamentals on the ground may not change that quickly, our perception of them can adjust sharply. Yesterday, the Dow dropped more than 500 points or 4.3 percent on concerns over the trajectory of the economy, risk of recession, and debt conditions in Europe and the US. Today, the employment situation has much better news than most had expected which has eased some concerns for now.
• The data show that 117,000 jobs were added in July and June’s job growth was revised up by 28,000, from 18,000 to 46,000 while May’s data were revised back up to 53,000. (They’d been originally released at 54,000 and were revised down to 25,000 in June). These revisions highlight just how difficult it is to get an accurate assessment of what is actually going on, and it is good to keep this in mind when using data, particularly only one or two data points.
• The unemployment rate edged down a notch in July to 9.1 percent, though this was not due to households reporting job growth but rather workers exiting the labor force. Household reporting showed a decline in the labor force of 193,000 in July, and the labor force is 400,000 individuals smaller than one year ago. At the same time, those not in the labor force have increased by 2.2 million due to population growth in addition to labor force exits.
• The labor force is comprised of those employed and the unemployed, those who do not have a job but are actively seeking employment. Individuals not in the labor force include stay-at-home mothers, those in school, those unable to work, and those who are retired as well as those who believe that there are not jobs available and have given up searching for work (they have not actively searched in the past 4 weeks). About 8 percent, or 6.8 million, of those not in the labor force report wanting a job and only 3.3 percent, or 2.8 million, of those not in the labor force who want a job but are not currently looking report having looked for one at some point in the past year. The long run share of these workers, called the marginally attached to the labor force, is 2.2 percent. Altogether, the number of unemployed plus those not in the labor force who report wanting a job (whether or not they’ve looked in the past year) total 20.7 million. This is 8.7 percent of the total population; this figure has averaged 6.2 percent in the last 20 years.
• Job growth was concentrated in the private sector where payrolls expanded by 154,000. Job growth was broadly spread across industries, including construction. Only the information and financial activities sectors saw small job declines. Government jobs continued their downward trend, and again, the losses were concentrated in state and local governments.
• Average hourly earnings were up 10 cents, to $23.13 per hour. That is up 2.3 percent from one year ago, which is one of the better increases in the past two years. However, the earnings increase trails the rise in the consumer price index. Hours worked were unchanged.
• The economy has added 1.8 million private sector jobs in the last year and 2.4 million since the February 2010 trough on private payrolls. While today’s news is certainly better than many have recently expected, the job growth today is on the lower end of what is needed to drive down the unemployment rate. The economy still has a long way to go to fully recover, but this month’s job growth and the upward revisions reverse some of the negative momentum that had built in the last week.

 Source: National Association of Realtors®