Our Real Estate Blog

Real Estate and the Economy

October 22nd, 2007 10:56 AM by Lehel Szucs

I think that as part of being a real estate consultant it is important to know what is going on in other areas of the economy.  I read a number of e-newsletters and print publications to stay on top of things every week.  I also think that it is important to share this information and knowledge with everyone else.  In Forecasts & Trends, a weekly E-Letter by Gary E. Halbert I found the below.  I think it gives a fairly good picture of what is going on in the economy.  Give it a read and let me know what you think.....

The Latest Economic Reports

While not all of the economic news has been bad over the last month or so, most of it has not been encouraging. In September, the government released its final estimate of 2Q economic growth at 3.8% (annual rate), down from its previous estimate of 4.0%. 3.8% growth is very impressive, but quite a lot of bad news has appeared since the end of June, and few forecasters expect anything near 3% growth for the 3Q. We don't get the government's first estimate of 3Q GDP until October 31.

The Index of Leading Economic Indicators fell 0.6% in August (latest data available). The LEI report for September will be released this Thursday, and advance estimates suggest a modest improvement last month. We'll see.

On the manufacturing front, the ISM Index fell to 52.0 in September, the third monthly decline in a row. Factory orders fell 3.3% in August. Durable goods orders fell 4.9% in August. The good news is that industrial production and construction spending rose very modestly in August (also latest data available).

The unemployment rate rose to 4.7% in September. According to the Labor Dept., the largest job losses were once again in manufacturing and construction.

The Consumer Confidence Index plunged for the second month in a row in September, falling 5.8 points last month to 99.8, the lowest reading in almost two years. Likewise, the latest University of Michigan Consumer Sentiment Index remains very low at 83.4.

Surprisingly, consumers continue to spend, although the trends point to a slowdown. Retail sales rose 0.6% in September, above expectations, following a rise of 0.3% in August, and the latest we have on personal spending was a 0.6% increase in August. While the latest spending figures are positive, the sharp drop in confidence suggests that consumer spending is likely to slow in the months ahead on a seasonally adjusted basis. It will be interesting to see how consumer spending holds up during the upcoming holidays.

Since consumer spending makes up apprx. 70% of GDP, this is the key number to watch, since the level of spending will likely determine whether or not we have a recession next year. As long as consumer spending remains at least marginally positive, we should avoid a recession.

Much of that depends on the housing market which continues to slide. New and existing home sales fell again in August. Pending home sales fell another 6.5% in August, following a 10.7% decline in July. Pending home sales plunged 21.5% for the 12 months ended August, the largest one-year decline on record. The inventory of unsold homes rose another .4% in August, pushing the number of unsold homes to 4.58 million, a 10-month supply at the latest rate of sales according to the National Association of Realtors.

Posted in:General
Posted by Lehel Szucs on October 22nd, 2007 10:56 AM

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