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Tuesday, July 03, 2007

No Good News

Pending sales report for May came out and it was a dud. The really depressing thing is that the interest rate rise mostly affects June, so this makes already poor June projections look overly optimistic. The bottom line for May's report is that both non-seasonally adjusted and seasonally adjusted pending sales dropped from April and from May a year ago. Needless to say, the drop from April is an extremely bad sign. From the beginning of the year the seasonally adjusted numbers go as follows:
Jan: 108.5
Feb: 109.7
Mar: 104.8
Apr: 101.2
May: 97.7
For the pending sales report, 100 is equivalent to sales in 2001. The annual pending indexes for the last three years run as follows:
2004: 120.9
2005: 124.4
2006: 111.9
We will not get anywhere close to 2006 numbers. The best it looks like we can possibly do is around 100. This report pretty much burnt the housing toast for 2007. It is practically impossible to see a sales recovery by the end of this year. It's looking increasingly unlikely to see a recovery in 2008. Since prices continue to fall for at least a year after sales begin to recover, it looks set in stone to have several more years of falling prices.

NSA numbers have also fallen for the second month. I could go on and on about how terrible this pending report is, but I won't. Let this suffice - the seasonally adjusted May figures show only one region exceeding 2001 sales, and that region is the south. Sounds great? Not really, because the south took the worst YoY drop. It is also likely that sales in the south will be affected the most by the FNMA subprime tightening, which has yet to show in these figures. Calculated Risk comments on just how addled Paulson at the Treasury is on housing.

We also got the updated May (preliminary) Mfr's Shipments, Inventories & Orders. It's not very different than the advance report. There was a slight upward revision for new orders; durables only decreased 2.4%, while non-durables increased 1.6%. Shipments of durables increased .5%, while shipments of non-durables increased overall 1.6%, mostly due to petroleum and coal shipments which increased 5.4%. Inventories were up again, leading me to suspect that we are either seeing inflation in inventory valuation or that new orders have or are close to peaking. Most of the real activity is in energy. If we all decide to turn out the lights and turn the thermostats up this summer, industrial production could be badly impacted.

As of this report (download the "highlights" release you can get on the left of the link above):
There is a nice summary on page 6 of the pdf. Spookily, the consumer goods inventory values are up 2.3% - very close to "core" inflation. Anyone who sits down and actually reads these reports has to realize that we are not seeing a whole lot of growth based in economic activity. I believe, based on rail figures, that things looked up in June. However, it doesn't seem as if there is a big surge underway.

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