Economic Update May 14
May 14th, 2008Steve Peterson, Branch Manager
Chase Home Finance
Office: (800) 894-5440 Ext. 214
Cell: (775) 219-7151
I realize I’m apparently in the minority, but I see a process of bottoming that includes gradual improvement. I expect plenty of bumps in the road ahead, but I also expect a much milder recession and sunnier real estate market than most people are predicting. (Not difficult, given how negative many predictions still are.)
I believe it is time to start marketing yourself solidly–standing out from the crowd. Those who are the most visible will do well in the coming months
Thumbnail Sketch: The recent data on productivity pretty well sum up the confusing signals being sent by the current economy.
“Productivity growth was 3.2% from the first quarter of 2007 to the first quarter of 2008. Nonfarm unit labor costs rose an annualized 2.2% in the first quarter, slightly below the consensus [of among forecasters]. Unit labor costs were up just 0.2% on a year-ago basis. The numbers indicate that productivity continues to increase, despite the weak economy, and there is little in the way of inflationary pressures coming from the labor market.” [Augustine Faucher, Moody’s Economy.com]
The rate of productivity growth—the rate at which our economy produces what it produces—is quite healthy and well above what most analysts thought it would be. If we are in a recession, after all—especially if the rate of inflation is rising ominously—then we would expect productivity to decline, slowing with the recession and price growth. Apparently not.
Rising levels of productivity indicate that inflation may not be worthy of the worry it’s received of late. Further, it suggests that the recession may be shallow.
Now, I must say that these suggestions fly in the face of a great many economic forecasters. Jim Rogers, for example, whose prediction many years ago that the commodities market would take off helped enshrine him in many investors’ hall of fame, is certain that we’re perhaps halfway through the financial meltdown and, as far as recession is concerned, we ain’t seen nothin’ yet.
But estimable investors like George Soros and market analysts with Warren Buffett believe we’ve hit the bottom and the financial markets will soon begin their recovery.
The differences in their opinions couldn’t be clearer (and Rogers used to work with Soros on a legendary fund). What do we lesser mortals make of all this?
Here’s an idea. It won’t help much, but it may work. We seem to have entered what could be called a trendless market, meaning that the market hasn’t established a predominant trend yet. But I continue to think that the real estate market, as an example, is bouncing rather painfully along a bottom, but that, of course, could be as wrong as either Rogers or Soros or Buffett will prove to be.
The point, perhaps, is that the markets have occasional obvious signs of recuperative strength, but the threats have not disappeared yet. It’s a good time to watch the circus, remaining as light on our feet as possible.
KEY INDICATORS
Gold $869.70/ounce [down]Crude Oil (Brent) $123.95/brl [up]U.S. Dollar to… Euro .6457 [up slightly] Japanese Yen 104.74 [up a smidge]6-mo Treasury Bill Yield 1.89%10-yr Treasury Note Yield 3.89%[6-mo up 13 bps, 10-yr up 1 bp]11th Dist Cost of Funds: 3.280%30-yr Fixed-rate Mortgage 6.54%15-yr Fixed-rate Mortgage 5.99%1-yr ARM 6.78%[HSH averages rates: 30-yr up 1 bp, 15-yr unchanged; 1-yr ARM down 26 bps]
Mortgage Bankers Association Mortgage Applications Index week ending 5/2 Overall 655.4 (up 15.6%; down 11.1% the week prior) Purchase Money Loans 381.3 (up 12.1%; down 4.8% the week prior) Refinancing Loans 2273.8 (up 19.3%; down 16.7% the week prior)
Weekly Jobless Claims 5/3 365,000 first computation – 383,000 prior week (with upward revision of 3,000)
Consumer Credit March Up 7.2% - Revolving up 8.2% - Non-revolving up 7%
Productivity and Costs 1st Quarter
Nonfarm productivity up 2.2% - nonfarm unit labor costs up 2.2%
