We’re not out of the woods yet, there are undoubtedly tougher times to come, especially in Australia later in the year, but there’s a growing belief in the US that the economy’s rapid descent into recession is slowing.
Not only are there signs from the economy that this is happening, they are coming from the black hole that’s the US housing sector, which triggered the whole financial crisis.
In the US, demand is on the rise for housing at current ‘cheap’ levels, interest rates are lower than they have been and if the sudden upsurge in demand continues, the damaging fall in prices will slow, which would be a dramatic improvement on the situation in January when new home starts and sales hit record lows.
Business inventories have fallen sharply in February for a second successive month; durable goods orders rose and new home sales rose, joining surprise rises in sales of existing houses, plus a jump in new home starts and permits. Stocks of home builders, suppliers and other consumer related shares continued to rise: banks were more circumspect.
US Treasury bond auction saw yields higher than forecast, while in Britain a similar auction failed because of insufficient support. The moves in the bond markets were enough to get analysts wondering about the other news, which saw US analysts chattering about the economy ‘stabilising’ and finding ‘the bottom’.
The flow of economic news has suddenly turned more positive than it has been for a year, certainly since before the terrible days from mid-September when Lehman Brothers collapsed and the bottomless pit known as AIG was rescued.
But there are the now usual caveats to this outburst of bullishness.
Sales of new houses unexpectedly jumped 4.7% in February, to an annual rate of 337,000 that record low in January. Earlier in the week the US real estate agents group, the National Association of Realtors, said purchases of existing homes rose 5.1%, also confounding forecasts of a drop.
It was the first increase in new home sales since last since July. The rises in sales of new and existing homes, and last week’s rise in new home starts and permits came out of the blue, with not one economist in the various surveys getting it right.
This turnaround in housing has started just as The Fed and the US treasury move to shove a whole bunch of money into the financial system and banks to get lending back on track: seemingly in housing it has started.
The US Mortgage Bankers Association reported a 32% rise in new mortgage applications last week; it was the third week in a row of rising numbers of applications, much of it is for refinancing at lower interest rates, but watch the bond markets where there are signs of indigestion, forcing up professional rates.
US business inventories fall. In the US, the fall in business inventories was taken as the first clear sign that business has cut its cloth to fit the reality of the economy and is now positioning itself to start rebuilding stocks by lifting production in coming months. Business stocks fell 0.9% last month, after falling 1.1% in February, the first back to back fall since 2003.
Durable goods unexpectedly rose 3.4% in February on a rebound in demand for machinery, computers and defense equipment. It was the biggest rise in more than a year and the first in seven months. But there’s a note of caution. The January negative figures were heavily revised, downwards.
For example, the 4.5% fall in January was revised downwards to a 7.3% fall; non-defence capital goods orders excluding plans rose 6.6% in February, but that was from a revised downwards 11.3% plunge in January, from the original estimate of 5.7%.
US unemployment is rising. In Michigan, the capital of the near-bankrupt car industry, the jobless rate is now at a huge 12%; in California, its 10.5%, and house prices there continue to weaken: Californian real estate agents say the median price of homes sold was down 41% (yes 41%) in February on a year earlier, and 85% of all home sales last month were from foreclosure auctions.
A new bond flick? Investors are getting wary about buying US and UK Government bonds because there are going to be so many of them sold over the next few years (although getting a nice return on a Government guaranteed debt seems a better bet than company dividends at the moment).
A UK Government bond auction failed overnight when there was a shortfall of bids for the amount of bonds to be sold: investors didn’t like the rates being offered (even though rates are on the rise at 3.8% at the moment). It was the first time in seven years that a UK Government bond issue had failed.
In the US a Treasury bond auction was successfully completed overnight, but not before a fall in the level of interest exposed concerns in the markets about the size and volume of bonds. The bonds sold in the auction went at a yield higher than the market thought.
Japan in trouble. Japan’s terrible February export figures have economists worrying that the country is headed for a depression. Economists in Tokyo say Japan looks like seeing 1st quarter growth shrink by more than the 3.2%. The near 50% fall in exports was the steepest fall since 1957 (based on the two types of methods Japan has used to compile trade figures in the past half century).
Like China in the same month, Japan saw a very sharp rise in the rate of fall of imports as the economy contracted: down a record 43%: economists say that intra-Asian trade is plunging at rates approaching the fall in exports to the developed west. That’s a clear sign that China, which is the biggest importer of manufactured goods and parts from its fellow Asian economies, is not doing well.
Even if the US and Europe start recovering, Japan and parts of East Asia will lag behind any global upturn: that’s bad news for Australia if that happens.
Europe’s rate of fall slows. There were glimmers of hope elsewhere in the eurozone with a survey of purchasing managers in the area revealing a slowdown in the rate of fall in sentiment. It does point to a 10th successive month of contraction, but the plunging nature of the fall has stopped, for the time being at least.
German confidence. German business confidence fell to its lowest level in March since 1982.