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March Home Prices See Best Annual Rise in Seven Years

May 28, 2013 by Leave a Comment

The data on Tuesday also suggested the two segments could act as buffers as the broader economy faces the pinch of belt-tightening in Washington.

The SP/Case Shiller composite index of 20 metropolitan areas climbed 10.9 percent year over year, beating expectations for 10.2 percent. This was the biggest increase since April 2006, just before prices peaked in the summer of that year.

Prices in the 20 cities gained 1.1 percent in March compared to the month before on a seasonally adjusted basis, topping economists’ forecasts for a 1 percent rise.

The housing market turned a corner in 2012, several years after its far-reaching collapse. The recovery has picked up since as inventory has tightened, foreclosures eased and historically low mortgage rates have attracted buyers.

A Reuters poll showed the recovery in the housing market likely has momentum through the rest of the year, with economists ratcheting up their forecasts for price gains in 2013.

Separate data showed consumer confidence picked up in May to its highest in more than five years in the midst of a stock market rally and lower gasoline prices.

Housing and the consumer have shown strength even as there have been hints that tighter fiscal policy is starting to bite in the broader economy. Across-the-board U.S. government spending cuts of $85 billion went into effect in March, while the payroll tax holiday expired at the beginning of the year, raising taxes for many Americans.

The data suggested both areas were performing better than the overall economy, said Sam Bullard, senior economist at Wells Fargo in Charlotte, North Carolina.

“There are some individual circumstances that are helping to propel both of these a little bit stronger than what the actual underlying strength would suggest,” said Bullard, pointing to the effect of higher stock prices on consumers, and investor demand for homes in beaten-down regions lifting prices.

Economists expect the pace of growth likely cooled in the second quarter, partly due to tighter fiscal policy, but the second half of the year is seen regaining traction. Investor attention has turned to when the Federal Reserve might start to slow its economic stimulus efforts.

The data lent support to equities where Wall Street rallied more than 1 percent after comments from central banks around the world reassured investors supportive monetary policies would remain in place. U.S. 10-year Treasury yields were at their highest in over a year.

Housing-related shares gained following the Case-Shiller report, with the SP homebuilders ETF up 1.1 percent. The ETF is up more than 20 percent for the year, outpacing the more than 16 percent surge seen in the benchmark SP 500.

Home prices in Phoenix continued their sharp ascent, rising 22.5 percent from a year earlier. Other standouts included San Francisco, up 22.2 percent, and hard-hit Las Vegas, up 20.6 percent.

For the first quarter of this year, the seasonally adjusted national index rose 3.9 percent, stronger than the 2.4 percent gain seen in the final quarter of last year.

“Low inventories and gradually improving housing demand have combined to push housing starts higher and support home price appreciation,” said Michael Gapen, an economist at Barclays in New York.

“We see these factors as remaining in place and expect residential investment to add to GDP growth in the coming quarters. We also expect rising real estate wealth to support household balance sheets and underpin consumption, helping the broader economy to offset a substantial fiscal drag in 2013.”

The Conference Board, an industry group, said its index of consumer attitudes jumped to 76.2 from an upwardly revised 69 in April, topping economists’ expectations for 71. It was the best level since February 2008.

In a sign of confidence among high-end consumers, jeweler Tiffany Co reported better-than-expected sales for the first quarter.

Consumer activity accounts for about two-thirds of the economy and while improved sentiment does not necessarily translate into more spending, the improvement was encouraging.

Still, even with the gain in confidence in May, second-quarter consumption growth is likely to have slowed to a 2.5 percent annualized pace from 3.2 percent in the first quarter, according to Capital Economics.

The expectations index rose to 82.4 from 74.3, while the present situation index climbed to 66.7 from 61.

Consumers’ assessment of the labor market improved. The “jobs hard to get” index slipped to 36.1 percent from 36.9 percent the month before, while the “jobs plentiful” index gained to 10.8 percent from 9.7 percent.

(Editing by Chizu Nomiyama)

Article source: http://www.nytimes.com/reuters/2013/05/28/business/28reuters-usa-economy-homes-index.html?partner=rss&emc=rss

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Off the Charts: Dow Index Sets New High, but Not With Inflation

March 8, 2013 by Leave a Comment

The Dow, the American market barometer with the longest history, has recorded only four longer periods in which the market was unable to set a new high. It came nowhere near, of course, the quarter-century it took the market to recover all of the ground lost in the Great Depression, but in magnitude it was second only to that fall among long-lasting declines.

At the worst, almost exactly four years ago, the Dow was down 54 percent from its closing price on Oct. 9, 2007. While that was nowhere near the 89 percent disaster seen during the Depression, it exceeded the 47 percent fall after the 1919 peak and the 46 percent plunge after the 1973 high.

All of those figures are in nominal dollars, excluding the effect of inflation. As can be seen in the accompanying charts, the Dow remains nearly 10 percent below its 2007 level when adjusted for changes in consumer prices. That peak, too, was a little lower than the 2000 high when adjusted for prices. So on an inflation-adjusted basis, the market is still below where it was 13 years ago.

The Dow contains 30 stocks at any given time, but SP Dow Jones Indexes, which now manages the index, periodically removes companies and replaces them with others. The accompanying charts list the performance of the 36 stocks that were in the Dow over some part of the period since 2007.

The one that many readers will not recognize is Mondelez. It was known as Kraft Foods when it replaced the American International Group, the disgraced and bailed-out insurance company, in the index in 2008. But last year, Kraft split up and was taken out of the index. There is still a company called Kraft, which sells products in North American grocery stores, but Mondelez is the larger part, selling snack foods around the globe.

Mondelez, by whatever name, is one of seven Dow companies that outperformed the index both on the way down — from Oct. 9, 2007, through March 9, 2009 — and on the way back, through Tuesday, when the index first closed over its 2007 peak. The charts end on that day. The others are Altria, I.B.M., Home Depot, Travelers, Pfizer and United Technologies.

Altria, the tobacco company, was kicked out of the index in 2008. Had it stayed, it would have been the best-performing Dow company from peak to peak, gaining 117 percent. Among the companies now in the index, Home Depot was the best performer, with a 108 percent gain.

The charts show the large benefits, and large risks, available to those who speculate in stocks that have lost nearly all their value. Four of the companies — Bank of America, General Motors, Citigroup and A.I.G. — were off more than 90 percent when the market hit bottom. Three of them have since tripled or better. The fourth, General Motors, continued to fall, and the old shares became worthless after the company went through bankruptcy. The current G.M. shares went to creditors of the old company, not to shareholders.

Percentage gains from very low levels can be deceptive, however. A.I.G. is up more than 500 percent over the last four years, but it is still 97 percent lower than it was when the market peaked in 2007. Similarly, Citigroup is down 90 percent, and Bank of America is off 78 percent.

Four Dow stocks did worse than the index on the way down and also on the way up. Besides General Motors, they are Alcoa, Cisco and Merck.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/03/09/business/economy/dow-index-sets-new-high-but-not-with-inflation.html?partner=rss&emc=rss

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Germany’s Low Unemployment Rate Stokes Inflation Fears

April 30, 2011 by Leave a Comment

 But the latest decline in joblessness  also raised fears among some economists that the pace of German growth  could become unsustainable.

On a seasonally adjusted basis, unemployment fell below three million people for the first time since 1992, as Germany continued to benefit from strong exports of autos and other products. The jobless rate, 7.1 percent,  was unchanged from March, but down  from 7.8 percent last April. 

“The order books are full, capacity usage is high and help-wanted ads are  rising every month,” Rainer Brüderle,  the German economics minister, said in  a statement. The news came a day after estimates that inflation in Germany rose to an annual rate of 2.6 percent this month, well above the European Central Bank’s goal of 2 percent. The drop in unemployment also highlighted the divergence between booming Germany and slow growth in most of the rest of Europe.

 The average unemployment rate in  the euro zone last month was 9.9 percent, and Ireland and  Spain have jobless rates more than  twice as high as Germany’s.

Monetary policy in the euro zone is probably too loose for Germany, some economists say. Excessively low interest rates can lead to asset bubbles  and inflation, and set the economy up  for a painful retreat. “I see a long-term risk that Germany could overheat,” said Jörg Krämer, the chief economist at Commerzbank in Frankfurt. “It’s an ugly situation for the E.C.B.”

Just this month, the central bank raised its official rate to 1.25 percent, the first increase since 2008. The appropriate rate for Germany would be closer to 3 percent, Mr. Krämer said.

The euro has risen steadily against the dollar since January because of expectations that the central bank will continue to raise rates, in part because of the need to slow the German economy. On Thursday the euro rose to just short of $1.49, its highest level since the end of 2009, before falling back slightly.

Higher interest rates tend to raise the value of the euro by making it more attractive for investors to own euro assets.

As unemployment in Germany falls, companies may need to pay more to attract workers, which could further fuel inflation. In the prosperous southern states of Bavaria and Baden-Württemberg, home to the carmakers BMW and Daimler, jobless rates were only about 4 percent in April. Companies report problems finding skilled workers.

 “Price and wage inflation should remain moderate,” economists in London  for Nomura wrote in a note, but added,  “German trade unions have become  more vocal in their wage demands.”

Still, various factors could limit wage inflation. Mr. Krämer noted that most union wage contracts did not expire until next year. In addition, beginning in May companies will be allowed to freely hire people from European Union countries like Poland or the Czech Republic. And jobless rates in much of eastern Germany remain above 10 percent.

However, Mr. Krämer said, “The time of ultralow wage increases in Germany is definitely over.”

Jean-Claude Trichet, the European Central Bank president, has consistently denied that there is any inherent problem in fashioning a monetary policy that fits fast-growing countries like Germany and poorer members of the euro zone.

Speaking to reporters earlier this month, Mr. Trichet said Germany’s return to growth after years of stagnation was good for its neighbors.

“We had an episode of a return to competitiveness, of hard work, and now we see the result of this hard work,” Mr. Trichet said in Frankfurt on April 7. “It is good for Germany and good for the euro area as a whole.”

Central bank data published this week  showed that negative pressures on the euro area continue even as  inflation quickens. Banks remain reluctant to lend because some are having  trouble raising capital, while demand for  home loans is decreasing, according to a bank survey published Wednesday.

 The information could reassure the  central bankers that they do not need to  be unduly hasty to raise rates.

While seasonally adjusted unemployment fell below three million, the absolute number of jobless people remained above that milestone, at 3.08 million. Economists consider the seasonally adjusted number a more reliable indicator of the strength of the economy.

In any event, the absolute number of jobless people will probably fall below three million next month, economists said.

Article source: http://feeds.nytimes.com/click.phdo?i=713c1066388469b61742c405f70e4c65

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