Economic Indicators for Week of December 20-23, 2010

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The Research staff analyzes the week's key data releases and tell you what they mean for you and your business.

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Economic Indicators for Week of December 20-23, 2010

  1. 1. Week of December 20–December 23, 2010 Produced by NAR Research
  2. 2. Weekly Economic Forecast <ul><li>NAR's monthly official forecast as of December 2 </li></ul>Produced by NAR Research Indicator Updated Forecast Past Week’s Forecast Directional Shift GDP 2010 Q4: 2.6% 2.2% ↑ GDP 2011 Q1: 2.8% 2.7% ↑ GDP 2011 Q2: 3.1% 3.0% ↑ Unemployment rate by mid-2011: 9.3% 9.4% ↓ Average 30-year fixed mortgage rate by mid-2011: 5.2% 5.2% ↔
  3. 3. Monday, 12/20/10 <ul><li>The Federal Reserve recently released its quarterly data on homeowner and renter finances for the U.S. In particular, the homeowner financial obligations ratio declined by 2.3% in the third quarter. </li></ul><ul><li>The homeowner financial obligations ratio is calculated as the ratio of total homeowner financial obligations (such as mortgage debt service, homeowner’s insurance, property taxes, consumer debt, and automobile lease payments) to total disposable personal income. An increase in the ratio suggests homeowners are more indebted, and a decline suggests they are less indebted. </li></ul><ul><li>The primary cause for the decline in the financial obligations ratio for homeowners was a 2.3% decline in the consumer obligations ratio (obligations include consumer debt and automobile lease payments). Although, the mortgage/home related obligations ratio (obligations includes mortgage debt service, homeowner’s insurance, property taxes) declined by 0.9% in the third quarter, these financial obligations still remain at approximately 2005 levels, or approximately ten times disposable income. </li></ul><ul><li>The high level of mortgage/home related obligations helps explain some of the current lethargy in the housing market. </li></ul>Economic Updates Produced by NAR Research
  4. 4. Tuesday, 12/21/10 <ul><li>Oil prices have been creeping upwards, now at nearly $90 per barrel. </li></ul><ul><li>Prior to the recession oil hit highs of $140 per barrel in 2008, before falling to around $30 a barrel amid financial turmoil. </li></ul><ul><li>Anecdotal evidence has shown DC rents rising at very high rates. This has been confirmed by a report from the Washington Post today , which showed rents in the DC area rising over 22% in 2009. </li></ul><ul><li>DC has some differences from the rest of the country, with a more stable employment situation due to government and government related jobs. However, part of the reason for higher rents was people being apprehensive about buying, as well as an increase in single-family homes on the rental market (which are often bigger and higher priced rentals). Some of these factors may become apparent in other markets in the near future. </li></ul><ul><li>The 2010 Census is released later today. Check out this interactive map for some interesting statistics: http://2010.census.gov/2010census/data / </li></ul>Economic Updates Produced by NAR Research
  5. 5. Wednesday, 12/22/10 <ul><li>The Bureau of Economic Analysis revised its 3 rd quarter estimate of GDP up to 2.6% from 2.5% on stronger estimates of exports (both goods and services) and inventory investment as well as a moderation in the severity of the decline in fixed investment in non-residential structures. This third revision fell below what most analysts expected led by a decline in the estimate of personal consumption expenditures from the 2 nd revision. </li></ul><ul><li>Corporate profits rose 27.2% in the 3 rd quarter compared to the same period in 2009. Cost cutting and low-interest loans have helped corporations to boost profit margins. </li></ul><ul><li>Mortgage purchase applications fell a seasonally adjusted 2.5% from last week, the second straight decline. Higher mortgage rates, which averaged 4.83% last week according to Freddie Mac and were 4.17% roughly a month ago, are creating headwinds to new purchases. Refinance applications fell 24.6% to their lowest level since the week of April 30 th , which could drag on personal consumption in the future. </li></ul>Economic Updates Produced by NAR Research
  6. 6. Wednesday, 12/22/10 (cont’d) <ul><li>Existing home sales rose 5.6% to a seasonally adjusted figure of 4.68 million in November. The median national home price rose 0.4% from a year earlier to reach $170,600 in November of 2010. Inventories shrank 4.0%, which drew down the months supply of homes on the market from 10.5 months in October to 9.5 months in November. </li></ul><ul><li>The Federal Housing Finance Agency’s Housing Price Index rose 0.7% in October relative to September, but was down 3.4% compared to a year earlier. </li></ul><ul><li>The economy continues to strengthen, but the pace is slow. Furthermore, consumer demand was revised downward and higher mortgage rates will drag on consumer spending as the refi volume falls. The housing market is clawing its way back with stronger sales volume in the fall after the sharp summer drop. Prices show modest improvement from the earlier dip, which is important for preventing foreclosures and the health of the greater economy. Falling inventories and the months supply bode well for the stability of prices going forward. Rising mortgage rates will reduce affordability, but monthly payments will remain historically strong in an environment of improved employment. </li></ul>Economic Updates Produced by NAR Research
  7. 7. Thursday, 12/23/10 <ul><li>The initial jobless claims continued to edge down last week, falling 3,000 to 420,000.  New claims still need to fall to the 400,000 level before the economy can sustainably create jobs. The largest increases in initial claims for the week ending Dec. 11 were in Kentucky, California, Iowa, Puerto Rico, and Massachusetts, while the largest decreases were in New York, North Carolina, Georgia, Pennsylvania, and Washington, where the construction and manufacturing industries showed improvement. </li></ul>Economic Updates Produced by NAR Research
  8. 8. Thursday, 12/23/10 (cont’d) <ul><li>A separate report on income and spending showed income growth of 0.3 percent in November after a 0.4 increase in October. The wages and salaries components were quite slow though, edging up only 0.1 percent. Consumer spending continued to rise due to holiday season shopping and indicates that consumers are relatively more confident about the economy. Personal consumption expenditures increased 0.4 percent, following a 0.7 percent jump in October, suggesting healthy growth for the last quarter of 2010. </li></ul><ul><li>Finally, consumer sentiment and new housing sales reports, both released today, show improvement in the economy overall. New home sales increased 5.5 percent to a 290,000 unit annual rate. Regional data are still mixed, with South showing biggest increased of 5.8 percent. Prices were also up a solid 8 percent, while the supply fell to 8.2 months from 8.8 months but is still above September's 7.9 months. Consumer sentiment increased slightly from October and is still at the best levels since the second quarter. </li></ul>Economic Updates Produced by NAR Research

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