Tag: Economy

Weekly Economic Summary – Feb 29, 2012

There was good news on Friday as Consumer Sentiment rose to 75.3, which is the best level since February of 2011. However, this news was tempered by the rise in oil prices.

On the one hand, high oil prices can be detrimental to the fragile U.S. economy, as consumers have to put more of their discretionary dollars into their gas tanks.  High oil prices are also inflationary as the added shipping and material costs apply upward price pressures on producer or wholesale goods. The upward prices either have to be absorbed by the producer, thus hurting profits and the ability to expand or hire; or the added costs get passed onto the consumer.

The silver lining is that the dampening effect on economic growth produces a sluggish economic environment in which bonds (including mortgage bonds, to which home loan rates are tied) thrive. This is an important topic to continue watching in the weeks and months ahead.

Last week, investors and central bankers came to an agreement to provide Greece with 130 billion Euros ($172 Billion) in financial aid. This will help the country fund itself through March and into the future, as long as it institutes economic reform, austerity measures and meets deficit targets.

Between some of the overseas uncertainty being lifted, a lower unemployment rate, and better than expected economic reports, home loan rates have struggled to improve beyond levels seen over the past two weeks.

Weekly Economic Summary – Feb 22, 2012

Housing Starts came in better than expected, while both the New York Empire State Index and the Philadelphia Fed Index reported positive manufacturing news. The Weekly Initial Jobless Claims fell by 13,000 in the latest week to 348,000 — the lowest level since March 2008. Meanwhile, Retail Sales rose in January by 0.4%, the largest gain since October.

Remember, strong economic news often causes money to flow out of bonds and into stocks, as investors hope to take advantage of gains. That’s partly what caused bonds (including mortgage bonds, to which home loan rates are tied) to worsen late last week.

Also weighing on bonds and home loan rates was the news that inflation is heating up. Despite the Fed’s claim that inflation is moderating, the Core Consumer Price Index (CPI), which excludes high volatility items such as food and energy, rose to its highest levels since October 2008. The Core Producer Price Index (PPI), which is an indicator for wholesale inflation, rose double the expectations of 0.2%, coming in at 0.4%.

Last week’s uncertainty in Greece was another key factor, as it also impacted bonds and home loan rates. Eurozone finance ministers completed a deal early this week that will provide Greece with the funding it needs to avoid default next month. U.S. bonds and home loan rates have benefitted from all the uncertainty in Greece, as investors have seen our bond market as a safe haven for their money. While Greece’s uncertainty seems to have resolved, time will tell whether this safe haven trading will continue in the face of other European countries’ economic uncertainty.

Commercial Real Estate Outlook

The third quarter of 2009 brought signs of relief to a U.S. economy fighting to emerge from what has been coined the Great Recession. Most measures of economic activity moved in upwards. However, commercial real estate did not find its footing in the constantly shifting terrain of weak fundamentals and timid transaction activity. Demand for commercial properties continued on a downward path, adding pressure on prices and rents. Moreover, credit conditions continued to tighten as banks moved to strengthen their balance sheets. As a result, vacancy rates have been rising and the volume of distressed properties has grown. Nonetheless, it is worth noting that the pace of decline in fundamentals is slowing, and sales transactions are posting positive growth.

You can download the Outlook in its entirety from here.