Market News - Weekly Wrap-up - 02.29.08

Market and Economic Recap

News on the new homes real estate industry, mortgage loans and the economy.

Business Week Ending February 29, 2008

News from the Commerce Department

• Gross Domestic Product (GDP): With the GDP showing a mere 0.6 percent increase in the last quarter of 2007, the economy has nearly stopped in its tracks.  Just the quarter before (the period from July - September), the economy was clipping along at 4.9 percent. 

News from the Labor Department

• Unemployment: The Labor Department said new applications for unemployment benefits rose 19,000 last week to 373,000 - another sign that the economic downturn is heavily impacting the job market.

The Stock Market

Stocks took a hit in early trading Friday on bad news from American Insurance Group (AIG) and Dell.  AIG reported a $5.3-billion loss in the fourth quarter of 2007 - the worst loss ever in the company’s 89-year history.  Dell reported a dip in its profits for Q4 2007, earning $679-million down from $726-million during the same period last year and forewarned that the economy and cautious consumer spending could hurt its earnings for the next several quarters.  Overall, the market remains volatile.  Since its mid-week high, the Dow Jones has shed 330 points - almost back to where it kicked off Monday morning.

The continued slide in value of the U.S. dollar and fears of inflation have boosted the commodities markets.  Tangible goods are not as susceptible to inflation as holding currency, so investors have been drawn to both the oil and gold markets.  Oil prices briefly edged past a record $103 a barrel and remain over $102 a barrel.  Gold prices hit a record-high of $975 an ounce on Thursday.

On the Consumer Front

Consumer confidence continues to erode with increasing energy, gasoline and food costs.  Job markets continue to weaken, and more employees are being impacted by layoffs expand beyond the housing, construction and financial sectors.  The University of Michigan Consumer Sentiment Survey measures showed confidence fell 7.6 points, down to its lowest level since February 1992, and consumer expectations rose that inflation would hit the economy in the near future.   

Consumers are feeling the financial pinch.  Personal income rose 0.3% in January - down from 0.5% in December.  But Moody’s Economy.com attributed that slight increase as a distortion, due to large bonus payments, pay raises for government employees and a hefty increase in rental incomes.  Consumer spending rose 0.4 percent last month, but when adjusted for inflation in food and energy costs, spending remained where it has been for three out of the last four months.  Consumers are tightening up their budgets and pulling back on spending, especially on large-ticket items.  Consumers are spending more on nondurable goods as costs rise.

The Fed

Federal Reserve chair Ben Bernanke testified before Congress Thursday, telling the Senate Banking Committee that where we are now is “not anywhere near” the economic mess we were in back in the 1970s.  The Fed chief said that high energy costs were complicating efforts to grow the economy and hold off inflation.  Bernanke indicated he was prepared to cut interest rates further to energize the economy when the Fed meets again March 18.  Lowering rates increases the risk of inflation, and the more inflation rises, the less the Fed can do about stimulating the economy.  As Bernanke stated his challenge to Congress, “we are trying to balance a number of different risks against each other.”  Who has the most difficult job in the country?  Bernanke has my vote.

Stay tuned for more news on the economy, mortgages, and the new homes real estate industry.

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