Clay & Kathie Kime : Industry, Economy

Producer Price Index Release - Ahead of the Fed's FOMC Rate Decision Meeting

Clay & Kathie Kime — Tue, 18 Sep 2007 13:17:00 GMT

This morning, September 18th, the Bureau of Labor Statistics reported that The Producer Price Index for Finished Goods fell 1.4 percent in August, seasonally adjusted. This decrease followed a 0.6-percent increase in July and a 0.2-percent decline in June. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved down 1.2-percent in August compared with a 0.6-percent advance in July, and the crude goods index dropped 3.0-percent after climbing 1.2-percent in the prior month.

Overall, however, Core PPI actually increased 0.2-percent in August.

The Producer Price Index (PPI) of the Bureau of Labor Statistics (BLS) is a family of indexes that measure the average change over time in the prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI). CPIs measure price change from the purchaser's perspective. Sellers' and purchasers' prices can differ due to government subsidies, sales and excise taxes, and distribution costs. (It is the index of Inflation at the "Wholesale" level.)

This report should provide increased pressure on the Federal Reserve to lower the Federal Funds Rate, and perhaps the likelihood of a rate cut of 0.5% has increased over most analysts' estimate of a 0.25% rate reduction. How this continuing news of broad economic weakening is viewed by the Fed, with their primary focus on containing inflation will be more evident at 2:15 p.m. this afternoon, when the Fed will announce its decision.

After the BLS' release of the PPI numbers, early trading in the finance markets saw investors leaving bonds (increasing yields) and headed for the equity markets in anticipation of a larger-than-planned rate cut by the Fed, which would improve corporate profitability.

Volkswagen Headquarters Moving to Herndon, VA

Clay & Kathie Kime — Mon, 10 Sep 2007 16:02:00 GMT

Volkswagen Arrives Bearing Gifts

To lure Volkswagen of America to Herndon, Virginia Gov. Tim Kaine (D) worked for seven months and authorized $6 million in incentives.

So when he arrived this morning for the formal announcement ceremony to talk about the importance of Volkswagen's move to Northern Virginia, he first stopped a quarter mile from the Woodland Park site, exited his official Suburban and got into an Audi 8A, one of the major brands manufactured by Volkswagen.

Volkswagen is moving from Auburn Hills, Mich., near Detroit, as part of a corporate restructuring (see story) that will slash 400 jobs in Michigan and move 400 additional jobs to Herndon. It will also result in $100 million in investment in the new headquarters.

Kaine, Volkswagen of American chief Stefan Jacoby, Fairfax Economic Development Authority chief Gerald Gordon and Fairfax County Board of Supervisors chairman Gerald E. Connelly made the announcement this morning in front of about 60 people overlooking the new building. A handful of reporters, photographers and and cameramen chronicled the event.

Kaine presented Jacoby with Virginia's flag. Then Jacoby spoke, discussing his vision for his company -- which has experienced sagging sales in the United States -- and announced he had a small present for Kaine.

Kaine wondered whether it was the keys to a a silver Audi R8 over his right shoulder. (That's a $130,000, 420 horsepower beauty that can go from zero to 60 in four seconds.)

Alas, his gift wasn't so elaborate. Jacoby gave Kaine a toy model of the original red Volkswagen Beetle, perhaps the car most associated with the company in the United States.

In his talk, Connelly (D) used the opportunity to tout the new rail to Dulles that Virginia wants to build. After the event, both he and Kaine were peppered with questions about how Virginia would meet cost caps for receiving federal help.

Guests snacked on water and Panera pastries as they inspected the selection of Volkswagen cars, including a Eos convertible and modern Beetle.

--Zachary A. Goldfarb - Washington Post.com Biz Blog

Don't Miss the Boat! Mortgage Rates are Falling!

Clay & Kathie Kime — Fri, 07 Sep 2007 18:56:00 GMT

If you've been waiting for the right time to buy . . . it's now!

T oday's Employment Report from the U.S. Department of Labor showed marked and unexpected weakness in non-farm payrolls, sending the stock market downward and the bond market upward (lowering bond-yields.)

The 10-Year Treasury Note's yield is down nearly 3% and the 30-Year Note's yield is down over 2%. And "Two-year notes haven't been this low since December 2004," noted Tom diGaloma, head of Treasury trading at Jefferies & Co..

Although long-term mortgage loan rates are more closely tied to the Mortgage Backed Securities market, the Treasury's long-term bonds are competitive products in the marketplace and will necessarily have an affect on mortgage rates.

Further, even the most conservative pundits are forecasting a drop in the Federal Funds Rate by one-quarter (1/4%) to one half percent (1/2%) by the September 18 FOMC Meeting. This will be great news to anyone with an adjustable rate mortgage as well as anyone planing to use adjustable rate loan products to purchase a home.

With home prices having already moderated significantly, this situation will dramatically increase home ownership affordability.

There has not been a more favorable time to consider a home purchase since early 2005.

Don't miss the boat! Be sure your lender offers a free "float-down" on their rates. You'll be so glad you did.

Cautiously Optomistic finish to 1st Half of 2007

Clay & Kathie Kime — Fri, 29 Jun 2007 18:14:00 GMT

At the end of the 2^nd quarter of 2007 the economy continues to stagger, although optimistically.

Existing Home Sales for May (Nationally) were off slightly from the previous month, but still above analysts’ estimates with 5,990,000 units sold.

New Home Sales came in at 915,000 units and were off by 15,000 units from both the analysts’ estimates and the prior months actuals of 930,000 units.

U. Michigan’s Consumer Sentiment Survey showed slight improvement in contrast to the Conference Board’s Consumer Confidence Index which was slightly lower at the end of the 1^st half of the year, perhaps reflective of a lower than expected rise of 0.4% in Personal Income, where analysts were predicting a 0.6% increase. This is also consistent with Consumer Spending which remained unchanged at 0.5% while analysts had been forecasting an increase of 0.7%.

Perhaps the shining light for the future was manifest in the Core Inflation Index of 0.1%, which represents no change from the previous period and gives comfort to the FED-Watchers that inflation seems to be curtailed and the likelihood of a FED Rate-Hike is substantially diminished. The current Core Rate puts the rate for the year at 1.9%, which is just under the FED’s unofficial comfort range of 1.0% to 2.0%. This news results in higher bond prices which result in lower yields and, for the consumer, consequently in lower “long term” interest rates.

The Status is “quo!”

For economic indicators for the first week of the 3^rd Quarter (next week) we will be looking at Factory Orders, Employment/Unemployment data and more importantly Hourly Earnings and Hours Worked Weekly as they weigh in as potentially inflationary factors.

We will have to wait until the end of July to see the 2^nd Quarter GDP (Gross Domestic Product) reports.

Drop in Consumer Confidence.

Clay & Kathie Kime — Tue, 26 Jun 2007 14:47:00 GMT

On the heels of the Conference Board's report last week of increases in the Leading Economioc Indicators, the Board reports this week that Consumenr Confidence is weakening.

The Conference Board Consumer Confidence Index, which had bounced back in May, reversed course in June. The Index now stands at 103.9 (1985=100), down from 108.5 in May. The Present Situation Index decreased to 127.9 from 136.1 in May. The Expectations Index edged down to 87.9 from 90.1.

The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. TNS is the world's largest custom research company. The cutoff date for June's preliminary results was June 19th.

Says Lynn Franco, Director of The Conference Board Consumer Research Center: "A perceived softening in present-day business and employment conditions are the major reasons behind this month's pull-back in confidence. In fact, the Present Situation Index now stands at levels not seen since the final quarter of last year. Looking ahead, consumers remain rather subdued about short-term economic prospects. All in all, the glass remains half empty and half full."

Consumers' appraisal of present-day conditions was less upbeat in June. Those claiming conditions are "good" declined to 27.4 percent from 29.0 percent. Those saying conditions are "bad" increased to 16.4 percent from 14.6 percent. Consumers were also less positive about the job market. Those saying jobs are "hard to get" inched up to 21.1 percent from 19.7 percent. Those claiming jobs are "plentiful" fell to 27.0 percent from 29.1 percent in May.

Consumers remain guarded about short-term prospects. Those anticipating business conditions to improve in the next six months rose slightly to 16.1 percent from 15.3 percent. Those expecting business conditions to worsen, however, edged up to 11.0 percent from 10.2 percent.

Once again, the outlook for the labor market was mixed. Those expecting more jobs in the months ahead edged up to 14.0 percent from 13.6, while those anticipating fewer jobs also increased to 17.0 percent from 15.6 percent. The proportion of consumers expecting their incomes to increase in the months ahead was relatively unchanged at 18.7 percent.

Week to Watch the Markets for Interest Rate Trend Indications

Clay & Kathie Kime — Mon, 11 Jun 2007 16:28:00 GMT

Last week we witnessed an anomoly in the Financial Markets. Stocks went "down" and Bonds also went "down" (yields went up). These are nearly contradictory movements. Traditionally as money flees "from" equities (Stocks) it flees "to" Bonds, increasing Bond prices and simultaneously reducing yields. There were global events (New Zeland, et al.) in the financial markets that were probably the cause of this anomoly, but I don't think it is a sustainable anomoly.

This week we should see either a correction in the Stock Market (rising) causing Bonds to be less desirable and a sell-off in Bonds will drive yields (interest rates up). If the Stock market continues last week's decline, investors should flee to Bonds causing Bond prices to rise and therefore yields (interest rates) to go down.

The Treasury's auction of 10-Year Bonds tomorrow (Tuesday, June 12th) should give some indication for the market's movement direction. High demand for Bonds will result in lower yields and lower interest rates. Low demand for Bonds will continue to drive yields and interest rates up.

It has to go one way or the other!

It also appears that while the long-term interest rates will be affected by the volitility of the Bond Market, short term rates will most certainly continue to increase as pressure on the Fed's committement to curtail inflation will result in unchanged or increased Federal Funds Rates at the next FOMC meeting, or certainly by August.

This should be a telling week

Labor Stats Likely Efect on Interest Rates

Clay & Kathie Kime — Wed, 06 Jun 2007 21:45:00 GMT

The Bureau of Labor Statistics reported today (June 6th) on Productivity, which was down about .7 (Business previously at 1.3, revised down to .0.5 and Non-Farm Business previously reported at 1.7 and revised down to 1.0) and the number of hours worked was down. More troublesome though, were the BLS' revisions to previously reported unit labor costs which were up revised upward significantly (Business from 0.7 to 1.9 and Non-Farm Business from 0.6 to 1.8). Although the productivity numbers for Manufacturing were only revised from 2.7 to 2.4, the unit labor costs shot up from 2.7 to 4.5.

As wall Street eschews this data (lower productivity and higher labor costs) that will most assuredly negatively affect corporate profits, it is likely that we may see investors retreating from equities (stocks). Bonds will then become their safe-haven.

So the conundrum is that the Fed will likely see the BLS Manufacturing report as quite inflationary and will add lots of fuel to the fire for raising short term interest rates, which will reduce stock values and corporate profits further. But the flip-side is that as Bonds increase in investor attractiveness, long term interest rates should begin a downward trend.

For "Real Estate," Long Term Rates should become increasingly more attractive and short-term (ARM) rates and indexed loans are likely to continue to rise.

CLICK HERE TO READ THE BUREAU OF LABOR STATISTICS REPORT

Fed Chairman Speaks out on the Economy and Housing

Clay & Kathie Kime — Tue, 05 Jun 2007 15:36:00 GMT

At today's (June 5th) address to the 2007 International Monetary Conference, Cape Town, South Africa (via satellite) Ben Bernanke, Chairman of the Fereral Reserve Board noted:

"As you know, the downturn in the housing market has been sharp. From their peaks in mid-2005, sales of existing homes have declined more than 10 percent, and sales of new homes have fallen by 30 percent. A leveling-off of sales late last year hinted at a possible stabilization of housing demand; however, once one smoothes through the monthly volatility of the data, more-recent readings indicate that demand weakened further, on net, over the first four months of this year. House prices decelerated sharply last year, following annual gains averaging 9 percent from 2000 to 2005. Prices have continued to be quite soft so far in 2007, although for the most part outright price declines have been concentrated in markets that showed especially large increases in earlier years."

"Homebuilders have responded to weak sales by curtailing construction. Single-family housing starts have declined by a third since early 2006, sufficient to subtract about 1 percentage point from real GDP growth over the past four quarters. Despite the drop in homebuilding, the inventory of unsold new homes has risen to more than seven months of sales, a level well above the average observed over the past decade. Accordingly, and as reflected in the continued downward trend in permits to build single-family homes, residential construction will likely remain subdued for a time, until further progress can be made in working down the backlog of unsold new homes."

In connection with the U.S. general economic condition, Chairman Bernanke also remarked:

"Over the past four quarters, the U.S. real gross domestic product (GDP) has increased at an average rate of about 2 percent. Growth during the first quarter of this year was held down by some factors--notably, significant declines in inventory accumulation, net exports, and federal defense spending--that seem likely to be at least partially reversed in the near term. Of course, the adjustment in the housing sector is still ongoing, and the slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected. Thus far, however, we have not seen major spillovers from housing onto other sectors of the economy. On average, over coming quarters, we expect the economy to advance at a moderate pace, close to or slightly below the economy's trend rate of expansion."

"As expected, we have also seen a gradual ebbing of core inflation, although its level remains somewhat elevated. Despite recent increases in the prices of crude oil and gasoline, energy prices overall are below last year's peak; the rate of increase in shelter costs seems likely to slow, although the timing remains uncertain; and long-run inflation expectations, as derived from both surveys and market-based measures of inflation compensation, have remained contained. However, although core inflation seems likely to moderate gradually over time, the risks to this forecast remain to the upside. In particular, the continuing high rate of resource utilization suggests that the level of final demand may still be high relative to the underlying productive capacity of the economy."

CLICK HERE TO READ COMPLETE TEXT OF CHAIRMAN BERNANKE'S SPEECH

Factory Orders Up. . . but not! (Inflationary Pressure?)

Clay & Kathie Kime — Mon, 04 Jun 2007 19:25:00 GMT

The Commerce Department reported today (June 4, 2007) that Factory Orders for manufactured goods were up 0.3% for April '07. This report surprised industry analysts who were forecasting .7-.8% increases for non-durable goods, more than double the actual report. This report also reflects a decrease from March '07 by 3.8% when factory orders showed a 4.1% increase.

It indicates that manufacturers are curtailing production output in order to bolster the "un-filled order" pipeline which now stands at a record $719-Billion. This reflects an "un-filled order" increase of 1.8% for April (on an increase of new orders of only 0.8%), building on the 1.8% increase reported for March '07. It appears that this is a reflection of manufacturers' economic forecast as they position for an expected decline in new factory orders resulting from further economic slowdown.

This could also be a self-fulfilling prophesy. As manufacturers tighten inventories, demand for products could well cause price increases as orders compete for the reduced quantity of products available. Should the Fed view this as inflationary or potentially inflationary, they could feel justified in an increase to interest rates in order to reduce demand. . . . A vicious economic death spiral.

CLICK HERE TO READ THE COMMERCE DEPARTMENT"S FULL REPORT

Average Home Price Headed for $14-Milllion by 2057

Clay & Kathie Kime — Thu, 31 May 2007 21:48:00 GMT

No . . . it's not a misprint or a typo. The average home is predicted to be worth $14-Million by 2057. This is not some "nutty" crystal-balling, but actual analysis of future trends by the regions most learned experts and leaders. From today's average home value of $477,000, they are predicting a nearly 3,000% increase in value over the next 50 years.

The recent Metropolitan Washington Council of Governments (COG) meeting addressed these prospects in plannig for the region's metoric growth. COG's subsequent press release reports:

"By the year 2057, the average home in metropolitan Washington is likely to cost more than $14 million, the area will be part of a mega-region stretching from Baltimore to Richmond, and energy use will help determine the region’s prosperity, panelists at a forum on the future of the National Capital Region said today.

The region’s top elected officials and business leaders participated in the panel discussion with experts on regional growth and development sponsored by the Metropolitan Washington Council of Governments (COG). COG was founded fifty years ago by regional leaders who believed that Washington, D.C. and its suburbs should work together to their mutual benefit.

If current trends continue for the next five decades, a shortage of affordable housing in the region will worsen the impact of traffic congestion, said Stephen Fuller, director of the Center for Regional Analysis at George Mason University’s School of Public Policy. The average price of a home, at $14 million, would be almost 12 times the projected average household income in 2057, he predicted. Currently, homes cost 3.5 times the average regional household income. The area also could see a shortage of workers, especially those needed for its advanced, technology-based economy.

Robert Lang, director of the Metropolitan Institute at Virginia Tech, said the growth of the region into one that links Baltimore, Washington, D.C. and Richmond will drive decisions on the need to invest in transportation and economic development.

With the expected growth of mega-regions here and across the country, panelist, Harriet Tregoning, director of the Office of Planning for the District of Columbia, said energy-related issues will create big winners and losers for those regions. She said metropolitan Washington will need to protect its natural resource systems and capture growth in walkable urban centers.

“To continue prospering, the region must hold onto its core principle of intergovernmental cooperation,” said panelist, Michael Rogers, executive vice president, Corporate Services for MedStar Health Corporation.

Following the forum, Leonard Downie, Jr., executive editor of The Washington Post, delivered the luncheon keynote address.

The forum, “Charting the Future of the National Capital Region,” which examined the region’s past and asked leaders to consider how the area is likely to develop in the future, was part of the celebration of COG’s 50th anniversary.

COG is the association of 21 jurisdictions working for a better metropolitan region"

U.S. HOUSE PRICE APPRECIATION RATE REMAINS SLOW, BUT POSITIVE

Clay & Kathie Kime — Thu, 31 May 2007 14:40:00 GMT

Virginia is ranked in the "Top 25" for 1-Year Appreciation at 5.42%.

The Office of Federal Housing Enterprise Oversight (OFHEO) reported today (May 31, 2007) that the rate of home price appreciation in the U.S. remained slow but positive in the first quarter of 2007. The OFHEO House Price Index (HPI), which is based on data from sales and refinance transactions, was 0.5 percent higher in the first quarter than in the fourth quarter of 2006. This is moderately below the revised growth estimate of 1.3 percent from the third to the fourth quarter of 2006. Prices in the first quarter of 2007 were 4.3 percent higher than they were in the same quarter in 2006.

OFHEO’s purchase-only index, which is based solely on purchase price data, indicates less price appreciation for U.S. houses than the HPI does over the past year. The purchase-only index increased 3.0 percent between the first quarter of 2006 and the first quarter of 2007, compared with 4.3 percent for the HPI.

The figures were released today by OFHEO Director James B. Lockhart, as part of the quarterly report analyzing housing price appreciation trends.

“Although some forecasters expected to see a drop in the HPI, nationwide house prices continued to rise in the first quarter of 2007, albeit at the lowest rate in 10 years,” said Lockhart. “As always, real estate prices are local with seven states showing double-digit annual appreciation rates and seven with rates less than 2 percent. Seven states, including Florida and California, also showed home price depreciation in the first quarter.”

Nationally, house prices grew faster over the past year than did prices of non-housing goods and services reflected in the Consumer Price Index. House prices rose 4.3 percent, while prices of other goods and services, excluding shelter, rose 1.6 percent.

“Low interest rates and unemployment rates continue to prop up house prices in most markets,” said OFHEO Chief Economist Patrick Lawler. “Prices are rising slowly in most areas, however there are some exceptions. For the first time in 7 years, two states — Massachusetts and Michigan — experienced four-quarter price declines,” Lawler said.

CLICK HERE FOR FULL REPORT