Many months ago I had written that how given enough time, we get will get used to anything. Additionally, the more adversity we go through, the easier we are appeased. Well... this week my theory was proven true.
For nine straight weeks we have seen First Time Jobless Claims in the 420,000 to 430,000 range. This week they dropped to 414,000 which represents a 16,000 drop from the prior week. Any drop is good, however 414,000 claims is still very high. To prove my point about what we can get used to, Bloomberg.com reported that the drop of 16,000 is, and I quote, "very good news for the economy". (Since when is 414,000 people losing their job considered "very good news"?)
Housing is showing a little sign of life. Housing starts for new single family home construction rose 3.7% in May. This increase is a reversal from April's 3.3% decline. Most experts believe the increase is related to seasonal building as well as that some parts of the county have been facing abnormally harsh weather which delayed some builders from starting construction in the prior months. Housing permits also increased 8.7% in May which may lead to even more new construction later in the year. Future housing demand will determine if builders ultimately break ground on their permits.
Foreclosures have declined for the 8th straight month. In May they were down 33% from a year ago. Additionally the number of homes repossessed by banks declined 29% from a year ago as well.
Most of the other economic reports don't solidify that the economy is really going in one direction or the other. You may have been hearing in the media that there are many signs that the economy is once again slowing down. However, when you look into the actual reports, it appears that the economy is more like moving two steps forward and then two steps back.
Industrial production and manufacturing both showed modest increases in May. Although the increases did not meet economist expectations, overall manufacturing is fairly healthy. The main reason for the lower than expected production numbers is due to the March earthquake in Japan. Because of the damage to Japan's infrastructure, there continues to be a shortage of available automotive parts which has a direct impact on overall manufacturing.
Inflation on both the wholesale and retail levels remains very much in control. In recent months we were seeing that prices have been rising faster than we would have liked. Volatile fuel and energy prices contributed to the increases however we have seen recently that energy prices have declined somewhat. Oil prices have remained below $100 for more than a week, and now are actually below $95 which is the lowest we have seen in months. Can someone tell me why gas prices have not declined in line with oil price drops? (I really know the answer but I thought I would put it out there for comment)
In case you don't know the real answer...the reason gas prices are not dropping in line with oil prices is because the oil companies are padding profits. They will do this until Congress questions them about it. Unfortunately Congress has been unavailable to worry about gas prices because they have been focused on getting Anthony Weiner to resign, which finally happened. (Hallelujah, I will sleep better now - my apologies for the sarcasm)
Economic Reports on tap for next week:
o Tuesday June 21st - Existing Home Sales
o Wednesday June 22nd - FHFA House Price Index, FOMC Meeting Announcement & MBA Mortgage Apps.
o Thursday June 23rd - First Time Jobless Claims & New Home Sales
o Friday June 24th - Durable Goods Orders and National GDP

Your Mortgage Consultant,

JJ Mack
916-517-1800