PrintEconomic and housing indicators for this past week reveal the same old story—the recession is getting deeper and a recovery for the housing sector is not yet close. Retail sales for December fell 2.7 percent, worse than expected. This report suggests an even more severe retreat in consumer spending than previously expected. Excluding automobiles, retail sales fell by a whopping 3.1 percent for the month. This report does not bode well for future consumer spending and suggests that we are likely in the depths of the recession.
The University of Michigan/s consumer sentiment index rose slightly in early January, rising 1.8 points to 61.9. This index is hovering in a range that is consistent with an economy in a severe recession. Consumer prices, as measured by the consumer price index, fell 0.7 percent for December. Consumer prices were down 0.1 percent for all of 2008 but the real story is the last three months of the year where the index fell each month, prompting concern about deflation. Producer prices, as measured by the producer price index, fell 1.9 percent in December, the fifth consecutive decline in the index. It is clear that businesses are cutting prices in response to weak demand for their goods and services.
Jobless Claims Surge
Jobless claims surged by 54,000 to 524,000 for the week ending January 10. The claims data for the past several weeks have been somewhat erratic due to seasonal problems associated with the holidays. This increase was expected and is consistent with a deteriorating labor market. Business inventories fell by 0.7 percent in November, while the inventory/sales ratio increased to 1.41. It is clear that businesses are cutting inventories in response to a significant drop off in sales. Industrial production fell 2 percent in December with output declining in the three primary categories: manufacturing, mining and utilities. We expect this downward trend to continue into the New Year with manufacturers cutting back production in response to reduced aggregate demand.
The Federal Reserve’s Beige Book was released this past week and indicated continued economic weakness across the nation. Nearly all districts reported weaker economic activity. Retail sales were down in every district as well as manufacturing. This report is consistent with a severe recession that is touching every region of the nation.
Refi Index up 25 percent
Mortgage application activity was mixed for the week ending January 9. The purchase index fell 14.1 percent to 295.8, while the refi index increased 25.6 percent to 7,414.1. The surge in refinancing applications was consistent with an 18 basis point drop in 30-year mortgage rates to 4.89 percent. Refinancing applications accounted for 85.3 percent of total applications. It is difficult to interpret the purchase index which dropped off considerably despite a fall in mortgage rates. It might be that the previous two weeks numbers were unreliable because of the holidays. We suggest taking the average of the past three months to mute the holiday impact. The three month average is 320 which is more consistent with recent mortgage rate declines.
Foreclosures Set Record in 2008
The Realty Trac foreclosure numbers for all of 2008 are in and they are not pretty. Foreclosure filings surged by a record 81 percent in 2008. A total of 861,664 families lost their homes to foreclosure last year. There were over 3.1 million foreclosure filings issued during the year. Foreclosure filings were up 17 percent in December compared to November and rose 41 percent year over year. The large increase in December was somewhat disappointing because that was the period where Fannie Mae and Freddie Mac enacted a holiday moratorium on foreclosures. And the annual numbers are equally disappointing and suggest that the foreclosure prevention programs implemented by banks across America are not effective. Falling home prices and job losses are the primary contributors to foreclosures.
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