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Time To Focus On Firming Housing Market Fundamentals


The U.S. housing market has been a silver lining in the cloud, even as the improvement is only a modicum, paling comparisons with the pre-crisis levels. Nevertheless, the recovery has revealed a consistent upward trend, particularly in existing home sales. House prices have also been trending higher. The improvement is expected to have a cyclical impact of boosting consumption expenditure and in turn growth. Construction employment is also benefiting from the improvement.

Despite the uptick in a number of housing market indicators, lenders have become more wary. The era of unscrupulous approval of mortgage loans is a thing of the past. Lenders now apply stricter conditions before approving loans and approval periods are also much longer. This is one of the prime reason why the central bank's ultra loose monetary policy has not have had the desired effect on mortgage lending.

The current account data released last week also was a reason to cheer, as the U.S. current account deficit shrank to $470 billion in the second quarter and consequently has eased to 3 percent of GDP. A weaker dollar along with firm net export figures have led to an improvement in the numbers. That said, the job market has not budged. Employment has not grown rapidly enough to push down the jobless rate to everyone's liking. The main reason as to why trend-like growth is eluding us is the lackadaisical job market.

Meanwhile, across the Atlantic, things are still hazy. The question of will or won't Spain seek a bailout has been pressuring markets. The unfolding week will render better clarity on the issue. Spain is due to table its reform program along with its 2013 budget on Friday. Markets widely expect the government's reform measures to allow it to seek a credit line. A report on Spanish banks is also due this week and serves as the basis for the release of 100 billion euros in bailout funds to the nation's banking system.

Domestic manufacturing conditions continued to be weak. The results of a survey by the New York Federal Reserve released last week showed that manufacturing activity in the region contracted for the second straight month in September. The current conditions index fell to -10.4 in September from -5.9 in August. The new orders index declined to -14 from -5.5 and the order backlogs index slipped 4 points to -14.9. The employment indexes also declined, with the number of employees index dropping to 4.3 from 16.5, while the average workweek index slid to -1.1 from 3.5. Meanwhile, the 6-month outlook index rose to 27.2 from 15.2.

The results of the Philadelphia Federal Reserve's manufacturing survey showed that manufacturing activity continued to contract, albeit at a slower pace, in September. The manufacturing index came in at -1.9. The shipments index fell 10 points to -21.2, while the new orders index rose 6.5 points to 1 and the order backlogs index rose 8 points, although it remained negative at -8.2. On a positive note, the 6-month outlook index improved notably to 41.2 from 12.5 in August.

Meanwhile, the housing market continued its resurgent run. A report from the National Association of National Home Builders showed that its housing market index rose to 40 in September from 37 in August, marking the highest level in 6 years. The current sales conditions index rose 4 points to 42 and the sales expectation index surged up 8 points to 51. Additionally, the index measuring prospective buyer traffic rose 1 point to 31.

Additionally, the Commerce Department said housing starts came in at a seasonally adjusted annual rate of 750,000 in August, up 2.3 percent month-over-month, with single family starts rising by 28,000 to 535,000, while multiple family starts declined by 11,000. July's starts were downwardly revised to 733,000 from 746,000. Meanwhile, building permits fell to 803,000 from 811,000 in July.

The National Association of Realtors' reported that existing home sales rose to 4.82 million units on a seasonally adjusted annualized basis compared to 4.47 million in July. Inventories as measured in terms of months of supply fell to 6.1 months from 6.4 months in July. Distressed properties accounted for 22 percent of the sales compared to 24 percent in July. The median price of an existing home was almost flat compared to the previous month at $187,400, while on a year-over-year basis, prices were up 9.5 percent.

Additionally, the Conference Board said its leading economic indicators index for the U.S. edged down 0.1 percent month-over-month in August compared to July. In July, the index rose 0.5 percent. The lagging economic indicators index rose 0.2 percent compared to a 0.1 percent increase by the coincident economic indicators index.

With doubts surfacing about the efficacy of the benign stimulus measures, traders are expected to focus on each incoming evidence to gauge if the economy has been responsive enough. The unfolding week presents a few housing reports, some regional manufacturing readings and a couple of consumer confidence readings.

The spotlight is likely to be on the Commerce Department's new home sales report and the house price surveys of S&P Case-Shiller and the Federal House Finance Agency. Also among the widely watched reports are the consumer sentiment surveys of the Conference Board and the Reuters/University of Michigan combine, durable goods orders report for August, the results of the ISM-Chicago's manufacturing survey for September, the Commerce Department's personal income and spending report for August and the weekly jobless claims report.

The results of some lesser important regional manufacturing surveys, the final second quarter GDP estimate and the results of the Treasury auctions of 2-year, 5-year and 7-year notes round up the Main Street events of the week.

Keeping in line with the recent theme of a rejuvenated housing market, the S&P/Case-Shiller's survey is expected to reveal that house prices continued to rise on a seasonally adjusted basis compared to the previous month. New home sales are expected to have risen, while pending home sales may have remained almost flat.

Durable goods orders may have seen a sharp retreat, going by the anemic commercial airplane order of just 1 plane reported by Boeing for August compared to 260 in July. Order growth, excluding transportation orders, may have remained anemic due to caution among consumers engendered by the fluid macroeconomic situation, both globally and domestically.


Dallas Federal Reserve is scheduled to release the results of its manufacturing survey at 10:30 am ET. The index is expected to improve to 0.5 in September from -1.6 in August.

San Francisco Federal Reserve Bank President John Williams is due to speak to the S.F. City Club Roundtable at 3:10 pm ET.


The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 am. Economists expect a 1.2 percent year-over-year increase in the 20-city composite house price index for July.

The Conference Board is scheduled to release its consumer confidence report for September at 10 am ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index decline to 64.8 in September.

In August, the consumer confidence index fell to 60.5 from 78.4 in July, with the confidence dipping to the lowest level since late 2011. The present situation index remained almost unchanged at 45.8, while the expectations index declined sharply to 78.4.

The Federal House Finance Agency, or FHFA, is set to release its house price index for July at 10 am ET. The index is a weighted, repeat-sales index, which measures average price changes of single-family houses in repeat sales or refinancings on the same properties. Economists expect a 0.8 percent increase in the house price index compared to a 0.7 percent increase in June.

The manufacturing index based on the Richmond's manufacturing index is due to released at 10 am ET. The index is expected to improve to -4 in September from -9 in August.

The Commerce Department is due to release its new home sales report for August at 10 am ET. The consensus estimate calls for new homes sales of 380,000.

New home sales rose 3.6 percent month-over-month to a seasonally adjusted annual rate of 372,000 in June. Inventories measured in terms of months of supply fell to 4.6 months from 4.8 months in June. The median price of a new home fell 2.5 percent year-over-year and dropped 2.1 percent month-over-month to $224,000.


The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended September 14th at 10:30 AM ET.

Crude oil inventories fell by 5.4 million barrels to 360.7 million barrels in the week ended August 17th. Inventories remained above the upper limit of the average range for this time of the year.

Gasoline stockpiles fell by 1 million barrels compared to a 1 million barrel increase in distillate inventories. Gasoline inventories were in the lower half of the average range, while distillate inventories were below the lower limit of the average range. Refinery capacity utilization averaged 92.1 percent over the four weeks ended August 17th compared to 92.6 percent over the previous four-week period.


The Commerce Department is set to release its durable goods orders report, which gives the value of orders placed for goods designed to last for more than 3 years, at 8:30 am ET. Economists expect a 5 percent decline in durable goods orders for August. Excluding transportation, orders may have risen 0.2 percent.

Durable goods orders rose 4.1 percent month-over-month in July following the 4.1 percent increase in June. Transportation equipment climbed 14.4 percent, contributing to the bulk of the upside. Shipments climbed 2.5 percent compared to a 0.8 percent increase in unfilled orders.

The Bureau of Economic Analysis is due to release its advance estimate of second quarter GDP at 8:30 am ET. Economists expect GDP growth estimate to be retained unchanged at 1.7 percent.

Preliminary estimates revealed that U.S. gross domestic product was revised up to 1.7 percent growth, somewhat stronger than the 1.5 percent initially reported. That revision, which the commerce department said came as a result of a downward revision to imports and inventory investment combined with an upward revision in consumer spending, was in line with the expectations of most economists. Despite the upward revisions, GDP growth remained lower than the 2 percent growth posted in the first quarter.

The Labor Department is due to release its customary jobless claims report for the week ended September 22nd at 8:30 AM ET. Economists expect claims to decline to 376,000 from 382,000 in the previous week.

Jobless claims fell to 382,000 in the week ended September 15th from 385,000 in the previous week. Claims were above 380,000 mark for a second straight week. The four-week average rose to 378,000 from 376,000. Continuing claims fell by 32,000 in the week ended September 8th.

Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. The index is expected to have rise 0.3 percent in August.

The pending home sales index rose 2.4 percent month-over-month in July, while on a year-over-year basis, pending home sales were up 12.4 percent. Pending home sales were up in Northeast, Midwest and South, while pending sales were down in the West.

The Kansas City Federal Reserve is due to release the results of its manufacturing survey for September at 11 am ET. Economists expect the manufacturing index to show a reading of 5 in September from 8 in August.


The Bureau of Economic Analysis is due to release its personal income & outlays report for September. Economists expect the report, which is due out at 8:30 am ET, to show that personal income rose 0.2 percent, while personal spending is expected to have increased by 0.5 percent.

Personal spending rose by 0.4 percent month-over-month in July, the biggest advance in five months. Real spending also rose 0.4 percent. At the same time, personal income rose 0.3 percent and the savings rate ticked down to 4.2 percent. The core price consumption expenditure index remained unchanged compared to the previous month. Annually, the index was up 1.6 percent, marking the slowest pace of growth since October.

The results of the Institute of Supply Management-Chicago's business survey for September are scheduled to be released at 9:45 am ET. Economists expect the business barometer index based on the survey to remained unchanged at 53.

The business barometer fell to 53 in August from 53.7 in July. The sub-indexes were slightly better than the headline reading, with the production index rising 3 points to 57.4 and the new orders index also rising to 54.8. The employment index rose about 4 points to 57.1, while the order backlogs index slipped about 11 points to 41.7.

Reuters and the University of Michigan are due to release the final report on the consumer sentiment index for September is scheduled at 9:55 am ET. The consumer sentiment index is expected to be downwardly revised to 79.

by RTTNews Staff Writer

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