Posts Tagged ‘Capital Economics’

July Jobs Numbers Disappoint

Monday, October 3rd, 2011

ADP, a leading payroll services company, is reporting that private companies added 114,000 jobs in July.  Many analysts had projected an increase in hiring from June, but it is not likely that the unemployment rate will decline even if job growth rose sharply.  ADP’s forecasts are frequently used to measure how the labor economy is performing, but the firm has had its share of missteps, with some estimates on target and others varying sharply from actual government-issued data.  In June, ADP projected that more than 140,000 jobs were added.  The official government report showed that the labor economy had experienced anemic growth during the month, with a net total of only 18,000 jobs created.  Many economists and industry believe that private employers likely added more jobs than previously projected during July.

Not all the news was good, however. Employers announced 66,414 planned layoffs in July, an increase of 60.3 percent over the 41,432 announced in June, according to a report from consultants Challenger, Gray & Christmas, Inc.

Any gain or loss in jobs above 100,000 is considered statistically noteworthy by economists.  Expectations were rather low, however, given the recent bad news about GDP, consumer spending and manufacturing recently.  “We still expect that actual payrolls may have risen by around 50,000 in July,” according to Capital Economics.  “That would be better than the previous two months, but hardly reason for cheer.”  “This pace of job creation usually implies a steady unemployment rate,” according to ADP’s employment report.  Capital Economics said that the latest job gains would not reduce the unemployment rate.  “We are in a process of discovery over whether the slowdown we have seen since March in the U.S. is over and we are entering a new phase of faster growth or that we are in a slump,” said Francisco Torralba, economist at Morningstar Investment Management.

Recently released Institute of Supply Management (ISM) numbers indicate an economy that continues to move barely at a snail’s pace.  The non-manufacturing ISM report showed expanding business activity, new orders and employment, but at a slowing pace.  Planned layoffs reached a 16-month high while the private sector added 114,000 jobs in June, most of them in the small business and the services sector.  “Today’s report shows modest job creation for the month of July at a rate of half what is needed for meaningful employment and economic recovery,” said Gary C. Butler, Chief Executive Officer of ADP. Approximately half of June’s private sector job additions came from small business, which added 58,000 employees, and medium businesses (+47,000).  These statistics mesh with the Challenger, Gray & Christmas job-cuts report, which showed planned layoffs hitting a 16-month high on a “sudden and unexpected burst” in downsizing by large companies.  Merck, Borders, Cisco, Lockheed Martin, and Boston Scientific announced plans to cut 38,000 jobs in July, 58 percent of the 66,414 announced.   According to Dave Rosenberg, who is viewed by many as a perma-bear, it will be really hard for a self-sustaining recovery to pick up.  “The overhang of excessive debt burdens is still with us today and the problem with the government stimulus programs that were put into place is that they were not designed properly; the multiplier impacts never did kick in,” said Rosenberg. “So we can’t ‘grow’ our way out.  Now government sectors in nearly every jurisdiction are tightening their fiscal belts.  Companies and banks retain their extreme stash of cash, if we dare suggest, because they see the economic environment that we do and want to survive the next downturn.”

In the meantime, 400,000 Americans filed for first time unemployment claims in the last week of July, according to the Department of Labor.  Coupled with a revision of initial claims in the previous week to 401,000, the latest update means claims have yet to dip below the 400,000 mark for 17 weeks.

Writing for The Hill, Vicki Needham says that “Economists say these figures are in line with the economy’s slowing expansion and are expecting growth to accelerate through the second half of the year as temporary factors such as high gas prices fade.  While companies aren’t hiring, consumers are being cautious with their money, spending less for the first time in 20 months.  Consumer spending rose only 0.1 percent in the 2nd quarter and households tucked away more savings.”

Portugal Becomes Third of PIGS To Seek EU Bailout

Monday, June 6th, 2011

Portugal has become the third European nation to accept a financial bailout to the tune of € 78 billion, with € 12 billion going directly to the Iberian nation’s banks.  It is the third of four PIGS nations (Portugal, Ireland, Greece, Spain) to require a bailout.  Caretaker Prime Minister Jose Socrates announced that he had reached preliminary agreement with the European Union (EU), International Monetary Fund (IMF) and the European Central Bank (ECB) for a three-year package of support, including help for Lisbon’s banks.  Portugal’s bailout means three of the eurozone’s 17 countries can be described as being in financial intensive care.  Greece accepted €110 billion of bilateral loans last year; Ireland signed an € 85 billion bailout last November — with the long-term fiscal and economic prognosis for all three nations still uncertain.  Socrates believes that he has secured a good deal, saying, “There are no financial assistance programs that are not demanding.”

The eurozone’s three patients are on three different medicine regimes: Greece’s loans must be repaid over seven years at an average 4.2 percent interest rate; Ireland’s over seven years at an average 5.8 percent rate (although it is trying to change the rate); and Portugal’s is still under discussion.  “I think the terms inevitably are going to be different in each country because the circumstances are…different,” said Eamon Gilmore, Ireland’s minister for foreign affairs.  “The government would be very fed up too if another country was getting a bailout deal better than the terms that we are getting,” he said.

The capital of these banks isn’t really the main problem at the moment.  The focus is their dependency on the ECB for liquidity and how they can get out of that and somehow fund themselves in the wholesale market again,” said Carlo Mareels, banks analyst for RBC Capital Markets.  Portugal’s banks have been unable to raise funds in wholesale markets for the last year, demonstrating exactly how intertwined the fortunes of the state and lenders has become in eurozone countries.  Margins have been squeezed as banks compete for retail deposits, which strains their capital positions.  The declining value of their government bonds makes a bad situation even worse.

Simonetta Nardin, a spokeswoman for the IMF, l confirmed that officials had reached an agreement with the Portuguese government ”on a comprehensive economic program.  We have said from the beginning that it is important that any program should have broad cross-party support and we will continue our engagement with the opposition parties to establish that this is the case.”  The bailout requires EU approval.  Portugal’s prime minister said that he would present the deal to opposition parties and called on them to show ”a sense of responsibility and a superior sense of national interest” to ensure Portugal receives emergency financing quickly.  Under the plan, the deficit would need to be reduced to 5.9 percent of GDP this year; 4.5 percent in 2012; and three percent in 2013.

Jonathan Loynes, chief European economist at Capital Economics, predicted that Portugal’s GDP will decline by two percent in 2011. “Against this background, while the confirmation of the bailout should provide some reassurance that Portugal will be able meet its upcoming bond redemptions, it won’t put an end to speculation that – along with Greece and perhaps others – it will sooner or later need to undertake some form of debt restructuring,” he said.

The bailout needs wide-ranging cross-party support because Socrates’ government collapsed last month, which set off a round of increased borrowing rates.  Additionally, it forced Lisbon to seek financial assistance from the EU.  The winner of the June 5 general election will implement it.  Agreement on the loan terms is required by June 15, when Lisbon needs to redeem € 4.9 billion worth of bonds.

Mortgage Applications Spike 16 Percent as Investors Take Over the Residential Market

Tuesday, March 29th, 2011

Although analysts are sounding a cautionary note, the number of Americans applying for mortgages rose by 16.1 percent in the first week of March – the largest monthly increase since June of 2009. The activity could be due to investors with money to spend, and not the first-time homebuyers who will play a vital role in the housing market’s recovery.  The refinance index increased 17.2 percent and the purchase index increased 12.5 percent, to the highest level this year.  The refinance share of activity increased to 65.5 percent of all applications from 64.9 percent the last week of February.  That’s the good news.  That bad news is that mortgage applications are likely to decline over the next several months because homeowners are unable to sell their current homes and trade up.  At present, cash buyers and investors — lured by low prices and soaring rents — represent the majority of sales, said Paul Ashworth, chief U.S. economist with Capital Economics.  Also, rates are low.  According to Zillow.com, the average 30-year fixed-rate mortgage is now 4.73 percent.

During January, first-time homebuyers fell to 29 percent of the market, the lowest percentage in almost two years.  Foreclosures made up 37 percent of sales and all-cash transactions were 32 percent of sales — twice the rate when compared two years ago when the National Association of Realtors began tracking these deals.  New-home sales fell to a seasonally adjusted rate of 284,000 in January. That is significantly less than the 700,000-to-800,000 pace considered healthy by a number of economists.

“Taking into account typical seasonal patterns, purchase applications rose to their highest level of the year last week.  On an unadjusted basis, purchase application activity is the highest since last May,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “An improving job market is beginning to pave the way for an improving housing market.  Additionally, mortgage interest rates remained below five percent for a second week, maintaining affordability for buyers and leading to an increase in refinance applications.”  The four week average for the seasonally adjusted Market Index rose percent.  The four week average rose 1.2 percent for the seasonally adjusted Purchase Index, while this average is up 3.6 percent for the Refinance Index.  The refinance share of mortgage activity increased to 65.5 percent of total applications from 64.9 percent the previous week.  Adjustable-rate mortgages (ARM) rose to 6.0 percent from 5.5 percent of total applications from the previous week.

“The housing market in the U.S. still has a lot of challenges ahead of it,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto.  “Ultimately it’s all about how many homes still are going to hit the market. People don’t want to buy homes because they feel prices could fall further.”

Housing Sales Plummet, Set Off New Economic Jitters

Wednesday, September 8th, 2010

Housing market has a 12 ½-month supply to work through.  Double dip ahead?  Are housing prices about to experience a double dip?  Existing home sales fell 27 percent in July to the lowest level reported since 1995.  The plunge occurred even though mortgage rates are at their lowest levels in decades and houses in most regions are priced to sell.  July sales fell to a seasonally adjusted annual rate of 3.83 million, according to the National Association of Realtors (NAR).  This was the largest monthly drop dating back to 1968, and the numbers raise questions about the overall health of the economy.

“The housing market is undermining the already faltering wider economic recovery,” said Paul Dales, U.S. economist with Capital Economics.  “With the increasingly inevitable double-dip in prices yet to come, things could yet get a lot worse.”  The weakest sales occurred in the lower- to mid-range prices.  In the Midwest, for example, homes priced between $100,000 and $250,000, plummeted by approximately 47 percent.

Although sales in spring were strong – spurred by a tax credit for first-time homebuyers that expired at the end of April – the inventory of unsold homes soared to nearly four million nationally at the end of July.  At the current pace of sales, that’s a 12.5-month supply and the highest level seen in more than 10 years.  A healthy level is considered to be six months.

“A pause period for home sales is likely to last through September,” Lawrence Yun, the NAR’s chief economist, said. “However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs.”

“A sustained upturn (in the housing market) will depend on an improvement in the jobs market, which at the moment is slowing down rather than gathering pace,” said Nigel Gault, an economist at IHS Global Insight.