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Thursday, August 27, 2009

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,Initial Jobless Claims Fell 10,000 to 570k Last Week a higher level than forecast, in the week ended Aug. 22 from a revised 580,000 the week before. Continuing claims plunged by 119,000 in the week ended Aug. 15 to 6.13 million, the least since the week ended April 4. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, fell to 4.6 percent in the week ended Aug. 15, from 4.7 percent the prior week.

.Gross Domestic Product Shrank at a 1% percent annual rate in 2Q09, unrevised from last month  The drop was the fourth in a row, the longest contraction since quarterly records began in 1947. The world’s largest economy has shrunk 3.9 percent since last year’s second quarter, making this the deepest recession since the Great Depression.   Consumer spending, which accounts for about 70 percent of the economy, fell at a 1 percent pace, less than anticipated, following a 0.6 percent increase in the prior quarter. The decrease subtracted 0.7 percentage point from GDP. Residential fixed investment, which includes spending on housing, dropped by 22.8%, revised from a 29.3% plunge first reported. price index for personal consumption expenditures climbed an unrevised 1.3% in the second quarter. The PCE price gauge excluding food and energy rose an unrevised 2.0%. The price index for gross domestic purchases, which measures prices paid by U.S. residents, rose 0.5%, revised from a previously reported 0.7% climb. The chain-weighted GDP price index was flat; originally, Commerce reported a 0.2% climb.

Treasuries Decline After Economy Contracted Less Than Forecast and Lacker Remarks.  Treasury prices were down Thursday after better than expected data and comments from Federal Reserve President Jeffrey Lacker suggesting the Fed may not need to spend the full amount it pledged to buy mortgages.  The market had been lower early on as investors geared up for the week’s third and final note auction, a $28 billion offering of seven-year notes. Prices fell further after the data though and following Mr. Lacker’s comments.  Mr. Lacker said the Fed is evaluating the need for purchasing the maximum amount authorized under its mortgage backed securities buying plan, $1.25 trillion. The Fed has been buying mortgages to help knock borrowing rates down, inspire borrowing and get the economy back on its feet.  Meantime, data Thursday was not bond market friendly. The government unexpectedly left its estimate of the U.S. economy in the second quarter untouched, noting that consumer spending was not as weak. Investors had expected a revision to -1.5% from -1%. Weekly jobless claims also fell, in line with economists’ observations that labor market conditions look to be slowly stabilizing.

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2009-08-25 13:00:34.482 GMT

By Shobhana Chandra

 

     Aug. 25 (Bloomberg) — Home prices in 20 U.S. cities fell in June at a slower pace than forecast, signaling the real- estate crisis that triggered the worst recession since the 1930s is dissipating.

     The S&P/Case-Shiller home-price index declined 15.4 percent from a year earlier, the smallest drop since April 2008, the group said today in New York. The gauge rose from the prior month by the most in four years.

     Lower prices and government stimulus efforts have made homes more affordable to first-time buyers, spurring increases in sales that will eventually stem the slide in property values.

Gains in housing and stocks will speed the process of restoring the record loss of wealth that has shackled consumer spending, which accounts for 70 percent of the economy.

     “We’re starting to gain some traction in prices,” Maxwell Clarke, chief U.S. economist at IDEAglobal in New York, said before the report. Even so, “we have some ways to go before people see real returns on investment in property.”

     The index was forecast to fall 16.4 percent after a 17 percent drop in the 12 months ended in May, according to the median forecast of 31 economists surveyed by Bloomberg News.

Estimates ranged from declines of 15.7 percent to 17.1 percent.

     Year-over-year records began in 2001 and the gauge has fallen every month since January 2007.

To contact the reporter on this story:

Shobhana Chandra in Washington at +1-202-624-1888 or schandra1@bloomberg.net

To contact the editor responsible for this story:

Chris Anstey at +1-202-624-1972 or canstey@bloomberg.net

 

  Bernanke to Be Nominated for Second Term as Fed Chief (Update2)

2009-08-25 11:29:04.180 GMT

By Julianna Goldman and Scott Lanman

 

     Aug. 25 (Bloomberg) — Federal Reserve Chairman Ben S.Bernanke, who led the biggest expansion of the central bank’s power in its 95-year history to battle the worst economic slump since the Great Depression, will be nominated to a second term by President Barack Obama.

     Bernanke “has led the Fed through one of the worst financial crises that this nation and this world have ever faced,” Obama said in remarks prepared for delivery today at 9 a.m. in Martha’s Vineyard, Massachusetts, where Bernanke is to join him.

     “As an expert on the causes of the Great Depression, I’m sure Ben never imagined that he would be part of a team responsible for preventing another,” Obama said. “But because of his background, his temperament, his courage, and his creativity, that’s exactly what he has helped to achieve.”

     Bernanke’s nomination for a second four-year term starting Jan. 31 requires Senate approval and was endorsed by the head of the Banking Committee, Christopher Dodd. The Fed chief will still face tough questioning from lawmakers who say he was slow to recognize the severity of the mortgage crisis and didn’t do enough to protect American consumers while leading bailouts of financial firms including Bear Stearns Cos. and American International Group Inc.

To contact the reporters on this story:

Julianna Goldman in Washington at +1-202-654-4304 or jgoldman6@bloomberg.net

Michael McKee in New York at +1-212-617-1834 or mmckee@bloomberg.net

To contact the editor responsible for this story:

Chris Anstey at +1-202-624-1972 or canstey@bloomberg.net

 

  Treasuries Little Changed as Auctions Dent Demand for Safety

2009-08-25 10:57:01.438 GMT

By Matthew Brown and Wes Goodman

 

     Aug. 25 (Bloomberg) — Treasuries were little changed as the prospect of $109 billion of debt sales this week dented demand from investors seeking a refuge from declines in stocks.

     Ten- and 30-year securities climbed earlier before an industry report that is forecast to show U.S. home prices fell for a 30th month in June. The Treasury Department will sell a record-tying $42 billion of two-year notes today, followed by five-year and seven-year note sales in the next two days.

China’s Shanghai Composite Index fell as much as 5.7 percent today after Premier Wen Jiabao said authorities can’t be “blindly” optimistic about the economy.

     “The market is well supported, given the supply we have today,” said David Keeble, head of fixed-income strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “It’s mainly a risk-off day with the tail wagging the dog as the big Treasury market follows Chinese stocks.”

     The yield on the 10-year note climbed 1 basis point to 3.49 percent as of 6:50 a.m. in New York, according to BGCantor Market Data. The 3.625 percent security due August 2019 fell 3/16, or 94 cents per $1,000 face amount, to 101 4/32.

     The 10-year yield will rise to 4 percent by the end of the year as the Federal Reserve stops buying bonds and the economy improves, Keeble said. The median of 56 analysts’ forecasts compiled by Bloomberg is for the note to end the year yielding 3.80 percent.

To contact the reporters on this story:

Matthew Brown in London at +44-20-3216-4059 or mbrown42@bloomberg.net

Wes Goodman in Singapore at +65-6212-1568 or wgoodman@bloomberg.net

To contact the editor responsible for this story:

Justin Carrigan at +44-20-7673-2502 or jcarrigan@bloomberg.net

 

 

 Confidence Among U.S. Consumers Increased to 54.1 in August

2009-08-25 14:00:01.0 GMT

By Courtney Schlisserman

 

     Aug. 25 (Bloomberg) — Confidence among U.S. consumers increased in August as consumers became less worried about the outlook for the labor market.

     The Conference Board’s confidence index rose to 54.1, more than forecast and the first gain in three months, from 47.4 in July, a report from the New York-based group showed today. The figure reached a record low of 25.3 in February.

     Consumers this quarter have benefited from government efforts such as the “cash-for-clunkers” plan and extended jobless benefits aimed at buttressing spending, which accounts for 70 percent of the economy. Nonetheless, an unemployment rate that’s projected to reach 10 percent by early 2010 and stagnant wages will make the gains difficult to maintain.

     “Consumers were more upbeat in their short-term outlook for both the economy and the job market in August, but only slightly more upbeat in their income expectations,” Lynn Franco, director of the Conference Board’s consumer research center, said in a statement. “As long as earnings continue to weigh on consumers’ minds, spending is likely to remain constrained.”

     Consumer confidence was projected to rise to 47.9 from a previously reported 46.6 in July, according to the median estimate in a Bloomberg News survey of 67 economists. Forecasts ranged from 42 to 51. The index averaged 57.95 last year.

     Earlier today, a separate report showed home prices in 20 U.S. cities fell in June at a slower pace than forecast, signaling the real-estate crisis that triggered the worst recession since the 1930s is dissipating.

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There was a dearth of big economic news this past week, and that was sort of a good thing. The Existing Home Sales report showed that purchases in July rose 7.2 percent month-over-month to the highest level in two years. That was a big gain, and favorable news for the housing market. The dark cloud was that despite a large increase in the number of homes being sold, median prices fell 15 percent. This suggests that many of the sales were done on a distressed basis (such as foreclosures and short sales), and that many of the buyers were bargain hunters taking advantage of good deals coupled with low interest rates. Also, it’s likely that a lot of them were first time buyers taking advantage of the $8,000 tax credit available as part of the government’s economic stimulus package. The program ends December 1st, so that element of support for the real estate market will be going away in a couple of months.

Ben Bernanke and central bankers from around the world, as well as lots of esteemed economists and, of course, the media, descended on Jackson Hole, Wyoming for their annual summer get-together to have fun and discuss the economy. Bernanke’s comments from his keynote speech on Friday were viewed as cautiously optimistic, but also didn’t contain any suggestion that the Fed would need to raise rates anytime soon. That combination was music to the ears of the financial markets. It’s like the doctor telling your Mom that you’re well enough to go along on the family vacation, but not yet well enough to be back in school.

Bond prices were essentially unchanged for the week, though long term yields fell while short term yields rose, reflecting an overall easing of risk aversion. The equity markets rallied on the good news (or lack of news), with the S&P 500 up over 2 percent, and real estate investment trusts and foreign stocks up over 1 percent. We’ve seen a pretty consistent pattern in recent months that stocks, oil, and gold advance together, while bonds and the dollar fall (and vice versa during stock market retreats). That’s actually the old-fashioned textbook pattern for stock and bond price movements, although there have been long stretches in recent decades where it hasn’t held up.

Having gone through a recession and a financial markets crisis that were definitely way beyond the norm by contemporary standards, today’s state of affairs feels like a much more normal late-recession, early-recovery scenario. People are asking the normal questions like, “Will we see a double dip?” and “When will inflation start to reappear?” and “How much longer will unemployment keep rising?” It’s much better to be hearing those questions rather than questions like, “Will we be reduced to the barter system?” and “Is Communism the answer?” and “How much ammunition, canned food, and gold should I hoard in the basement to make it through the coming Armageddon?”

For the coming week, we have several interesting releases coming out. On Tuesday, the S&P/Case-Shiller home price indexes through June will be released. Market participants are hoping that June’s home prices repeated their May performance, when prices actually managed to edge up slightly, a welcome relief from the past several years’ norm of plummeting relentlessly. Also on Tuesday, we will see the Consumer Confidence Index, which is expected to show improvement. As indicators go, Consumer Confidence is one of the few that is fairly insightful as a leading indicator of future trends. On Thursday, we will see the updated revision to the second quarter GDP numbers. These are expected to be revised downward to show the economy shrinking at an annualized rate of 1.4 percent for the quarter, and that’s par for the course when you’re in a recession.

Finally, way out at the end of next week, it’s worth noting that we will be seeing the August Employment Report. It is expected to show a net loss of 231,000 jobs and an uptick in unemployment to 9.5 percent. Although those numbers aren’t wonderful, they would represent an improvement in the trend from prior months in the sense that things are getting worse more slowly. Employment is an indicator that lags other events in the economy, but it’s near and dear to the hearts of most working Americans, because it’s the one that affects our well being most directly.

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