US Residential Spending Up in Fourth Quarter

Published: Tuesday, 9 Mar 2010 | 4:20 AM ET Text Size
By: Reuters

A leading indicator of U.S. residential construction spending rose in the fourth quarter from a year earlier, but business conditions remained weak as the housing downturn lingers, an architects' trade group said Tuesday.

The Home Design Survey Index of residential billings was up 12 points year over year to 32 in the fourth quarter of 2009, according to the American Institute of Architects. A score below 50 indicates a contraction in demand.

But the index slumped from the third quarter of 2009, when it hit 38. A measure of inquiries for new projects was 45 in the fourth quarter, down a point from the third quarter.

"Residential architects continue to report declining business conditions, indicating that the housing market is not yet entering a full recovery phase," the AIA said in a statement.

After a federal tax credit fueled a surge in demand, the housing market recovery has stuttered recently.

In this uncertain environment, homeowners can not be certain their homes will appreciate in value, which has made them more restrained in their spending on kitchens and bathrooms, the AIA said.

Instead of larger kitchens and more bathrooms, homeowners are placing a priority on products and features that promote energy efficiency.

"Since kitchens remain the nerve center of the home, doing more with less space is a key consideration," AIA chief economist Kermit Baker said.

Architects are aiming to integrate kitchens with family space, including areas devoted to recycling and spaces devoted to recharging laptops and cell phones.

Home Loan Demand Nudges Higher in Latest Week

Published: Wednesday, 10 Mar 2010 | 7:06 AM ET Text Size
By: Reuters

U.S. mortgage applications nudged up last week, reflecting increased demand for home purchase loans even as interest rates trekked higher, data from an industry group showed on Wednesday.

If demand for purchase loans, a tentative early indicator of home sales, continues to climb it will bode well for the hard-hit U.S. housing market, which remains highly vulnerable to setbacks and heavily reliant on government intervention.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended March 5, increased 0.5 percent.

The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 0.8 percent.

Bill Emerson, CEO of Quicken Loans in Livonia, Michigan, said the lofty level of homes either on the market for sale or about to hit the market through foreclosures and short sales are the biggest threat to the U.S. housing market.

"This inventory will pressure prices, so many people are sidelined right now, waiting for prices to fall further," he said.

The MBA's seasonally adjusted purchase index increased 5.7 percent, while its seasonally adjusted index of refinancing applications decreased 1.5 percent.

"While many people have already refinanced over the past year, there is still a huge amount of borrowers who can benefit from it," he said. Many mortgages, however, are "under water," he said.

This negative equity has been one of the biggest banes of homeowners, making many unqualified for home loan refinancing and preventing some from selling.

Borrowers in negative equity, meaning they owe more on their mortgage than their home is currently worth, are more prone to defaults and foreclosures.

Stricter lending standards, higher fees, and declining incomes have also made it tougher on borrowers. Unemployment and underemployment is another huge problem.

The Labor Department last week said the U.S. unemployment rate held steady at 9.7 percent in February.

The MBA said borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.01 percent, up 0.06 percentage point from the previous week.

Interest rates were also above the year-ago level of 4.96 percent. An all-time low of 4.61 percent was set in the week ended March 27, 2009. The survey has been conducted weekly since 1990.

Mortgage rates are expected to rise when the Federal Reserve — the U.S. central bank — stops buying mortgage-related securities at the end of March.

"The Fed will likely take a step back to see if the private sector steps up and starts purchasing the bonds," Emerson said. "If they do not, mortgage rates could move significantly higher."

The lowest mortgage rates in decades and high affordability helped the hard-hit U.S. housing market find some footing in 2009 after a three-year slump. Recent data on new and existing home sales, however, point to a sector that is still struggling.

"It is a slippery slope right now in the housing market," he said.

The MBA said refinance share of mortgage activity decreased to 67.2 percent of total applications from 69.1 percent the previous week.

The adjustable-rate mortgage, or ARM, share of activity increased to 5.1 percent from 4.8 percent the previous week, the highest since November 2009.

The MBA said fixed 15-year mortgage rates averaged 4.32 percent, up from 4.27 percent the previous week. Rates on one-year ARMs increased to 6.80 percent from 6.77 percent

U.S. Economy: Consumer Confidence Falls to Lowest Since April

Feb. 23 (Bloomberg) -- Confidence among U.S. consumers fell in February to the lowest level in 10 months, a sign that concern about job prospects may hold back the spending needed to sustain the recovery.

The Conference Board’s confidence index slumped to 46, below the lowest forecast in a Bloomberg News survey of economists, from 56.5 in January, a report from the New York- based private research group showed today. A separate report showed home prices rose for a seventh month.

Stocks fell and Treasuries gained after the confidence report also showed attitudes about current conditions fell to the lowest level in 27 years and the outlook for wages dimmed. The survey reinforces expectations Federal Reserve Chairman Ben S. Bernanke will repeat the central bank’s pledge to keep interest rates low for “an extended period” in testimony to Congress tomorrow.

“Consumer spending is going to disappoint throughout most of the year,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. The economy “may not be out of the woods.”

Economists forecast the confidence index would decrease to 55 from a previously reported 55.9 January reading, according to the median of 68 projections in the Bloomberg survey. Estimates ranged from 50.9 to 59.

The Standard & Poor’s 500 Index declined 1.2 percent to 1,095.25 at 12:22 p.m. in New York. The 10-year Treasury note rose, pushing down the yield eight basis points to 3.72 percent.

Chris Low, chief economist at FTN Financial in New York, said in an e-mail to clients that the larger-than-anticipated decline may have also reflected a drop in stock values. The S&P 500 fell 8 percent to a closing low this month of 1,056.74 on Feb. 8 from a January high of 1,150.23.

Home Prices

The S&P/Case-Shiller home-price index of 20 U.S. cities increased 0.3 percent. Compared with December 2008, prices fell 3.1 percent, the smallest year-over-year decline since May 2007.

“There’s no precedent for such a sharp turnaround in the data that we have going back to 1987,” Robert Shiller, co- founder of the index, said today on a conference call with reporters. He said the eventual end to the Fed’s purchase of mortgage-backed securities and expectations for a higher federal funds rate make it difficult to forecast home prices.

The Conference Board’s measure of present conditions decreased to 19.4, the lowest since February 1983, from 25.2.

Jobs Hard to Get

The share of consumers who said jobs are plentiful fell to 3.6 percent from 4.4 percent, according to the Conference Board. The proportion of people who said jobs are hard to get increased to 47.7 percent from 46.5 percent.

“The vicissitudes of the political situation in Washington cannot be helping,” said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “There has been a lot of sizzle on job stimulus proposals but no meat is coming out of the sausage factory. Now the focus seems to be moving back to the health-care reform issue.”

The gauge of expectations for the next six months decreased to 63.8, the lowest since July 2009, from 77.3 the prior month.

The proportion of people who expect their incomes to increase over the next six months declined to 9.5 percent from 11 percent. The share expecting more jobs in the next six months fell to 13.4 percent from 15.8 percent.

The report also showed the Middle and South Atlantic were among regions with declines in confidence, which sustained two blizzards this month. Sentiment also waned in areas not affected, such as the Mountain and Pacific regions.

Unemployment Outlook

The unemployment rate is expected to average 9.8 percent this year, according to the median forecast of a Bloomberg survey taken early this month.

An increase in initial jobless claims so far this year signals the labor market isn’t improving, said Ricchiuto. Claims rose to 473,000 in the week ended Feb. 13, compared with 432,000 at the end of 2009, the lowest since July 2008.

Consumer spending will grow 2 percent this year, according to the median estimate of economists surveyed by Bloomberg this month. That would follow last year’s 0.6 percent decline, the worst showing since 1974.

The world’s largest economy will expand 3 percent this year after shrinking 2.4 percent in 2009, according to the median forecast of economists.

Some retailers are turning more optimistic. Lowe’s Cos., the second-largest U.S. home-improvement chain, posted fourth- quarter profit that exceeded analysts’ estimates after better- than-forecast sales signaled a recovery in the housing market.

“While the psychological impact of falling home prices and an uncertain employment picture continue to weigh” on consumers, Americans are “gaining the confidence to take on more discretionary projects.” Robert Niblock, Lowe’s chief executive officer, said in a statement Feb. 22. “The worst of the economic cycle is likely behind us.”

Fed Won’t Lift Target in 2010, Pimco’s Clarida Says

Feb. 23 (Bloomberg) -- The Federal Reserve won’t raise its target lending rate while unemployment is still high, according to Richard Clarida, global strategic adviser at Pacific Investment Management Co.

“The Fed’s own forecast is for unemployment at year-end to be north of 9 percent,” said Clarida in a Bloomberg Radio interview today. “I just don’t see the Fed hiking until 2011.”

Pimco used the term “new normal” last year to describe what the Newport Beach, California-based company, the world’s largest bond fund manager, forecasts as a period of slower economic growth, high unemployment and heightened government regulation. Fed policy makers said last month that while consumer spending has picked up, it’s partly “constrained by a weak labor market.”

The Fed can only let its $2.26 trillion balance shrink to its level before the September 2008 collapse of Lehman Brothers Holdings Inc. by selling the securities it purchased, something the central bank doesn’t want to do, Clarida said.

Instead, the Fed will let the securities it purchased mature and “roll off,” according to the Pimco strategist. He said the central bank will carry out “plumbing” maintenance including repurchase operations.

Policy makers unanimously agreed at their January meeting that the Fed’s balance sheet will need to decrease “substantially over time” and return the Fed’s holdings to just Treasuries, according to the minutes of the Jan. 26-27 Federal Open Market Committee meeting. Some policy makers pushed to start selling assets in the “near future.”

To Lift Economy

The Fed and U.S. agencies have lent, spent or guaranteed $9.66 trillion to lift the economy from the worst slump since the Great Depression, according to data compiled by Bloomberg.

“The bottom line is they’re trying to do something that’s never been done before, which is to normalize policy without reducing the monetary base,” he said.

The number of Americans filing first-time claims for unemployment insurance unexpectedly increased in the week ended Feb. 13, the Labor Department reported Feb. 18.

Minneapolis Fed President Narayana Kocherlakota said in text of a speech two days earlier in St. Paul, Minnesota, that the unemployment rate is unlikely to fall below 9 percent this year and 8 percent in 2011.

Wall Street Bonuses Rise 17%, N.Y.’s DiNapoli Says

Feb. 23 (Bloomberg) -- Wall Street bonuses rose 17 percent in 2009 from a year earlier as the securities industry rebounded from the financial crisis, New York State Comptroller Thomas DiNapoli said.

Financial firms disbursed $20.3 billion compared with $18.4 billion in 2008, DiNapoli’s office calculated, basing its estimate on personal income-tax collections. It doesn’t include stock options or other types of deferred pay. The bonus pool was the second-largest ever, DiNapoli said in his yearly report.

Cash and stock bonuses fell about a third from 2007, he said. New York State’s budget deficit is estimated to be $8.2 billion, 10 percent more than estimated in January, because Wall Street’s cash bonuses are less than forecast, Governor David Paterson said Feb. 3. Personal income tax collections in January were $1 billion below the $7.08 billion the state projected.

“It would be preferable to have predictable growth and profitability,” DiNapoli said in an interview on Bloomberg Television today. “With New York depending on the sector for budget health, we need Wall Street to be profitable.”

The average bonus for the industry was $123,000 last year, the comptroller said. Wall Street has added 3,900 jobs through December and DiNapoli said he expects that trend to continue. He said the increase in tax revenue from higher bonuses won’t solve New York’s budget problems.

Bonus Pool

The size of the bonus pool was harder to determine since many firms paid a larger percentage of bonuses in stock and deferred compensation, DiNapoli said in the statement. Wall Street accounted for 24 percent of the wages paid to New York City workers in 2008 and 5 percent of the jobs.

In the most profitable years, high levels of compensation, corporate earnings and capital gains from Wall Street-related activity accounted for as much as 20 percent of the state’s total tax revenue and 12 percent of the city’s collections, DiNapoli’s office has said.

“The bonuses are welcome news in some ways for the New York City and New York State economies,” DiNapoli said at a press conference today. “There’s a great deal of resentment against the Street for its role in the global economic meltdown.”

New York City lost 26,300 jobs in the financial industry, including securities, insurance, credit, banking and commodities in the 12 months ending in December 2009, a 5.8 percent 12-month decline, the state Labor Department reported last month. For every new job in the securities industry, three others are created for New York’s economy, DiNapoli said.

Obama Criticizes Bonuses

President Barack Obama called bank bonuses “obscene” at least twice this year, and Democratic Representative Andre Carson of Indiana said the industry’s practices are “reckless” during a House Financial Services Committee hearing on compensation.

In the fourth quarter, Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co.’s investment bank slashed their compensation. The three Wall Street firms set aside $39.9 billion for pay in 2009, below the 2007 record of $44.7 billion.

Pay at these three firms increased by 31 percent in 2009, DiNapoli’s report said. Most top executives won’t receive a cash bonus for 2009 and will take pay in types of deferred compensation.

Obama, speaking in an interview earlier this month, said he doesn’t “begrudge” the $17 million bonus awarded to JPMorgan Chief Executive Officer Jamie Dimon or the $9 million paid to Goldman Sachs CEO Lloyd Blankfein. The president said compensation packages over the last decade haven’t always been commensurate with performance, and reiterated his call for shareholders to have a say in CEO pay.

Financial services companies employed 430,400 at the end of 2009, DiNapoli said. New York City unemployment was 10.6 percent in December, 3.6 percentage points higher than a year earlier. Unemployed city residents totaled 424,500, an increase of 44,700 in six months, the state labor department reported in January.