The Market Calms Down - Bernanke Helps

The correction in yesterday's stock market is a reminder that markets don't move up forever in lockstep with low volatility and complacenty, and that some retrenchment is always necessary and healthy. After the settling out today it was a good wake up call that risk does exist, but also that long term fundamentals are in tact for sound U.S. economic growth.

Fed Chairman Says Markets Working Well - Associated Press - February 28,2007

Bernanke Says Markets Appear to Be Working Well With No Big Change in Economic Outlook

"WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that the administration and federal regulators are closely monitoring financial markets in the wake of the biggest sell-off in stock prices in more than five years but so far the markets appear to be "working well.".....

....In what might have been a reference to Greenspan, Bernanke testified at one point that there did not appear to be a "single trigger" to Tuesday's sharp sell-off, which saw the Dow Jones industrial average fall by 416.02 points.

Some analysts believe that Greenspan's comments over the weekend that there was a possibility of a recession by the end of the year along with a sharp drop in China's Shanghai stock market contributed to Tuesday's big drop on Wall Street, which saw the Dow Jones industrial average fall by 416.02 points.

But Bernanke let members of the House Budget Committee know that he didn't intend to assign blame.
"There didn't seem to be any single trigger of the market correction we saw yesterday," he said in response to a question. "I don't think it would be useful for me to try to parse the movement into the components associated with different pieces of news or pieces of information."

On Wall Street, investors seemed to take comfort from Bernanke's comments that there was no single trigger to the big selloff. At midday, the Dow Jones average was up 42 points after having been up by more than 100 points earlier in the session......

....He said there had been "no material change in our expectations for the U.S. economy since I last reported to Congress" when he delivered the Fed's latest economic outlook two weeks ago.

"We are looking for moderate growth in the U.S. economy going forward," Bernanke said. He said that if current corrections under way in housing and the amount of inventories being held by business stabilize in coming months, the economy should begin to rebound from its current slowdown by the end of the year....

Some key points in Bernake's testimony today. He stated that he didn't see the isolated subrime mortgage market issues spreading into a bigger problem , also there was a chance that if housing stabilizes the first half of the year (fedspeak for it's stabilizing - similar to what Alan Greenspan has said a number of times that housing has stabilized) that the U.S. economy could strenthen at mid year. He also reiterated that liquidity is not a problem in the credit markets, so that should put a lot of fears to rest about a credit run or anything resembling an S&L type situation.

Housing Turnaround and Consumer Confidence at 5 Year High

From the Associated Press
Sales of Existing Homes Jump in January

"WASHINGTON (AP) -- Sales of existing homes rose in January by the largest amount in two years, raising hopes that the worst of the severe slump in housing may be coming to an end. Median home prices, however, fell for a sixth straight month.

The National Association of Realtors reported Tuesday that sales of previously owned homes rose by 3 percent last month, the biggest one-month increase since a 3.3 percent advance in January 2005, a time when housing was roaring toward the peak of its five-year boom....."

And consumer confidence is up.....

In other economic news, the Conference Board, a private research group, said consumer confidence rose in February to its highest level in more than five years.........The New York-based Conference Board said its confidence index increased to 112.5 this month, a bigger than expected rise from a February reading of 110.2. The gain reflected increased optimism about jobs and business prospects. Link Here

Hit the Links on Saturday

Sick of all the bad news about our national and California economy portrayed by the mainstream television media? Here are some links that will cheer you up. Things are pretty good out there. Also note, fundamentals in the longer term always trump short term fear.


Januuary 2007 New Homes Sales in Sacramento Best since June 2005 Link Here

Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco, sees stabilization for housing and growth for economy Link Here

Small firms' job creation plans at near-record high
Link Here

Silicon Valley Rebounds, Led by Green Technology
Link Here

Bay Area job market surging
Link Here

Housing Market Heats Up Again in New York City
Link Here

Bay Area Luxury Housing Hot

In the $1 million-plus market: `plenty of buyers,' not enough houses

Bay Area luxury-home prices were up 1.5 percent in the fourth quarter of 2006 compared with a year earlier. However, they dropped 1.5 percent from the previous three months, according to a report released today by First Republic Bank.

According to the banks' Prestige Home Index, the average price of a luxury home was $2.92 million -- or, to put it simply, a lot more than most of us can afford. The banks' survey considers home prices in the Bay Area's ritzier communities, specifically: Alamo, Atherton, Belvedere, Danville, Healdsburg, Hillsborough, Lafayette, Los Altos, Los Gatos, Mill Valley, Moraga, Orinda, Palo Alto, Piedmont, Portola Valley, Ross, St. Helena, San Francisco, Saratoga, Sonoma, Tiburon and Woodside.

Luxury homes are defined as those with at least 3,000 square feet, three to six bedrooms, and three to six bathrooms. And if it's worth less than $1 million, it doesn't make the cut.

Just how is the market doing in that rarefied space? ``For anything under $5 million, buyers are chomping at the bit because there is so little inventory,'' Lea Ann Fleming of McGuire Real Estate in San Francisco said in a statement provided by the bank. ``There are plenty of buyers, but there just aren't enough houses.''
The bank's survey found similar trends in the Los Angeles and San Diego areas, with prices down in the fourth quarter from the previous three months, but up from a year ago.

For more real estate news, check out our Square Feet blog.

By Frank Michael Russell
Mercury News

So How is the Economy Doing?

Last Week we were treated to a bounty of economic numbers about the U.S. economy not too mention Bernanke's testimony in front of Congress. So what did we learn and which numbers were important?

Retail Sales - Came in lighter than the expected .4% at .3% for January, but December was revised up to 1.3% from 1%. Perhaps some sales were accelerated to December, but I wouldn't read too much into this number until we see a trend.

Core PPI - The Core number came in at the expected .2%. This is significant as it continues a decelerating trend that shows inflation is in check and gives the Fed room to relax.

Housing Starts - Housing starts came in really lite at just over 1.4 million in stark contrast to what the market expected at 1.6 million. Well this is great news to me. It demonstrates builders adjusting supply to current market conditions. As the current housing market is going through a "speculative supply correction", the quicker inventory goes down, the sooner the market will come into balance. So low starts are a good thing.

Industrial Production - Was negative at -.5% giving way to some slowing. This helps inflation, but continued decleration would not be welcome, especially since 4 out of the last 5 months have disappointed.

Capacity Utilization - For January was 81.2% less than the expected 81.7% and less than the previous month's 81.8%. Again, in my opinion this gives the Fed room to duck and cover with waning inflation pressures.

So what's the overall prognosis? Steady as she goes, with no alarm bells, a bit more slowing than expected, and enough to let the Fed get out of the way and watch for awhile, perhaps the reason the Dow Jones hit another all time high and the major indexes all moving up 1% for the week. And is inflation in check? Well the 10 year treasury rate backed down below 4.7% to finish the week at 4.69%.

Shrinking Deficit

Good news about the budget deficit courtesy of Larry Kudlow's blog......

REVENUE GUSHER

Compliments of our friend, Michael Darda, chief economist at MKM Partners

Treasury data for January released yesterday afternoon showed that tax receipts continue to roll in at a rapid rate, which has reduced the fiscal deficit to $191.9 billion or 1.4% of GDP, well below the 2.3% average since 1970. At the current pace, the budget could move back into balance as early as May 2008. ........

Read more at this Link here

Big Week of Economic Numbers Ahead

There is a lot of data about the U.S. economy coming to us this week. So far the data this young year has given us a stronger economy, more jobs, lower energy prices, and lower inflation than expected. Important figures to watch this week include:

Retail Sales
Core PPI
Housing Starts
Industrial Production
Capacity Utilization


It will be interesting to see this week as the numbers roll in if we continue the greatest story never told (to quote Larry Kudlow), the american economy.

Not to mention, Big Ben Bernanke will be on the hill this week testifying to Congress. Stay tuned for details and analysis....................................


Economic Calendar Link

DB

USA Today - 96% of Economists say Housing Bottoming This Year

Here is why you can't just read the attention grabbing headline. This from the USA Today "Most agree: Housing crunch isn't over yet". Well that sounds really awful, right? Not if you read the article. Excerpt below......................

"WASHINGTON — Housing is proving to be one of the biggest wild cards in the economy in 2007 as analysts are deeply divided about whether the worst in the downturn is over or there is much more pain to go.
Only 9% of economists say the housing decline ended in 2006, according to a USA TODAY survey of 55 economists taken Jan. 18-24. Another 42% said the downturn will end in the first half of the year, and 45% said housing will bottom out in the second half."

Well excuse me but let's look at what the economists are saying. More said that housing already bottomed in 2006 or will bottom in the first half of 2007 than won't. And the "down side" nearly all of the rest of the economists say it will bottom in the second half of 2007. So add it up 96% say bottom is near so as a would be home buyer better to buy at the bottom than the top. More excerpts below.

"Seeing things stabilize and hearing reports that housing is stabilizing is good for consumer confidence," he says.

The NAR's index of pending home sales, which is adjusted for seasonal variations, rose in December at the fastest pace since March 2004. The level of unsold homes on the market appeared to have peaked in July, the group says. "

Contributing: Barbara Hansen, Noelle Knox - USA Today - Feb 5, 2007

Unexpectedly Great GDP Number and Falling Inflation

So we have great news on the economy this morning. The fourth quarter GDP number came in much better than expected and the inflation number dropped more than it had in 50 years. So strong growth, low inflation, As Larry Kudlow put it "Goldilocks Lives".

Excerpts from the Wall Street Journal

U.S. Economy Grows 3.5%; Inflation Gauge Falls Sharply

"The U.S. economy resurged at the end of 2006, overcoming a slump in housing as consumers, sustained by lower energy prices, ramped up spending.

Gross domestic product climbed at a seasonally adjusted 3.5% annual rate October through December, the Commerce Department said Wednesday in its first of three readings on fourth-quarter GDP. That was up from 2% in the third quarter. A price inflation gauge within the report posted its biggest drop in 52 years.

For the whole year, GDP, which acts as a scoreboard for the economy by measuring all goods and services produced, advanced 3.4%, compared to a 3.2% increase in 2005 and 3.9% growth in 2004.....

.....Inflation gauges within the GDP report indicated prices softened significantly during the fourth quarter. The government's price index for personal-consumption expenditures actually fell, slipping by 0.8% after rising 2.4% in the third quarter and 4.0% in the second quarter. The decrease was the biggest since 1.2% in third-quarter 1954."

And below gives the Fed room to duck and cover........

"The PCE price gauge excluding food and energy rose 2.1%, after increasing 2.2% in the third quarter. The price index for gross domestic purchases, which measures prices paid by U.S. residents, inched 0.1% higher, after going up 2.2% in the third quarter. The chain-weighted GDP price index increased 1.5%, after rising 1.9% in the third quarter."

By Jeff Bater - WSJ

Housing Market Stabilzation

Dr. James Hamilton has some very insightful analysis on what he called a few months ago the bottom and stabilization of housing. Though it has almost become nauseating attempting to debunk the housing bubble devils, it is such a big part of the American psyche and perceived mantra that I feel it is my duty to shed some light on their one sided ponent views.

Decide for yourself by reading the link below.

(The housing market and the Federal Reserve)

Silicon Valley Has Most Job Growth since 2001

As I have noted in two of my previous posts (Bay Area "Percolating" With High Paying Jobs) and (Venture-capital funding best in five years) the job juggernaut in the bay area that is Silicon Valley is on a comeback. From information technology and Web 2.0, to going green and energy innovation, the bay area is in the first inning of a long nine inning ball game of growth.


Excerpts from the Sunday San Jose Mercury News Story.

Silicon Valley on the rebound, report says

Silicon Valley is back to creating new jobs and delivering fatter paychecks, a new report shows.
The technology hub has ``rebooted,'' putting the post-crash doldrums in the past, according to the latest Silicon Valley Index, an annual economic assessment by Joint Venture: Silicon Valley Network, an alliance of business and community institutions.

With big tech firms recovering and start-ups flowering, the valley added 33,000 jobs in 2006 -- the first increase since 2001. The region's median household income also registered its first increase since the downturn, climbing 6.5 percent in 2006 to $76,300 -- a reversal of a 13 percent decline from 2001 to 2004.

...The theme of the latest assessment is strongly positive. In the January 2006 report, ``we saw the first evidence the downturn was behind us,'' with the economy stabilizing and hiring flat, said Russell Hancock, Joint Venture's president and chief executive.....

``This year we see quite clearly that Silicon Valley has done it again -- we've reinvented ourselves.'' He cited the growth in renewable energy ventures and so-called Web 2.0 start-ups, such as YouTube, that harness the Internet....

...Recent job growth, the economist said, reflects a new confidence. Before, ``productivity gains weren't showing up in job gains. That's not the case anymore.''...

..Another plus, he said, is a dramatic surge of venture funding into ``clean technologies'' that address pollution and the affect of greenhouse gases. The ``cleantech'' funding to valley firms soared from $141 million in 2005 to $516 million in 2006....

...``There's a lot of excitement about the green economy. I think it's real,'' Henton said. Venture funding, he said, is a leading indicator of economic performance that should stimulate later job growth....

By Scott Duke Harris
Mercury News

Businessweek Business Outlook - All is Well and No Inflation

If you don't subscribe to Businessweek you should. It's revamped organizational format makes for an easy read. Though I don't pay a great deal of attention to the cover stories which to me are just shock value for media reach, I do regulary enjoy their columnists. The first section I turn to each Friday is the Business Outlook by James C. Cooper. He provides a concise analysis of current economic issues as well as relevant data and enlightening graphs. You can link to his post in the blog link section above if you are a Businessweek subsriber.

This week Mr. Cooper brings to our attention that it is possible to have strong economic growth with stoking the fires of inflation. This is largerly due to corporate cost control and productvity. Read below.

U.S. : A Stronger Economy? Yes. Higher Inflation? No
The rules have changed. Business is focused on cost control, not prices

Ask investors, especially those in the bond market, where they think inflation is headed in 2007, and they will most likely say down. They are probably right, but maybe not for the reasons they think. Many expect the economy to be weak enough to allow core inflation, which excludes prices for energy and food, to fall. The twist is that the economy is already proving stronger than anticipated, but despite that vigor, inflation may well decline anyway.

There is still a sense in the markets that a strong economy means higher inflation, and a weak economy means lower inflation. But over the past decade, the growth/inflation relationship has become a lot fuzzier, because the processes that influence inflation have changed drastically. A lot of market folks still haven't caught on, which can lead to misguided expectations about Federal Reserve policy and interest rates....

...In the past, labor costs have been a central factor pushing companies to lift prices, but this time the pressures may not be as intense. For example, although job markets were tightening last year at the same time energy costs were soaring, pricing power made only limited gains. Still, profit margins widened to record levels...



....The latest industry survey by the National Association for Business Economics shows margins continued to make steady improvement heading into 2007....

....One of the biggest problems in assessing the inflation outlook is knowing which measure of labor cost tells the true story. Right now, the most worrisome-looking gauges are the least credible..... Take the gains in average hourly pay for production workers.... that measure is not adjusted for the changing mix of jobs surveyed, which in recent years has favored higher-paying industries, such as business services and health care, thus lifting the average.

The Labor Dept.'s employment cost index, a more comprehensive measure of hourly wages, is not affected by changes in composition. It shows annual growth of only 2.5% in 2005 and 3.1% through the third quarter of 2006.

Another case is unit labor costs, or compensation adjusted for productivity. The Labor Dept. offers two versions: one for the nonfarm business sector and one for the nonfinancial corporate sector. The former shows unit costs through the third quarter up 2.9% from the year before, while the latter has risen only 0.5%. Many economists, even some at the Fed, believe the tamer-looking cost measures are closer to the truth.....

Excerpts from James C. Cooper Businessweek, Feb 5 , 2007

New Home Sales Better than Expected, Durable Goods Orders Strong

So two bits of good economic news today. Durable Goods (those lasting more than three years) orders were up last month as well as new home sales. New home sales were also adjusted up for November and inventory in December fell below 6 months, a number that many consider a balanced market. Could we have had a bottom in November? Time will tell..........

From the WSJ

New Homes

"New-home sales finished 2006 on a positive note, rising a second straight month in December....In the home-sales report, sales of single-family homes increased by 4.8% to a seasonally adjusted annual rate of 1.120 million, the Commerce Department said Friday. November sales rose 7.4% to 1.069 million, revised from a previously estimated 3.4% advance to 1.047 million. Economists had expected a 1.2% increase to an annual rate of 1.060 million last month......

.....New-home inventories fell in December, a sign builders are getting supply under control. There were an estimated 537,000 homes for sale at the end of the month -- the lowest level since 522,000 in January 2006, the government data showed. That represented a 5.9 months' supply at the current sales rate. An estimated 542,000 homes were for sale at the end of November, a 6.1 months' inventory....

....The median price rose to $235,000 last month from $232,200 in November but was lower than the year-earlier level of $238,600.

Spending on Durable Goods Climbs

Orders for durable goods, big-ticket items such as cars and appliances meant to last three years or more, advanced 3.1% last month to a seasonally adjusted $221.87 billion, the Commerce Department said Friday. Durables rose 2.2% in November, revised from a previously estimated 1.6% increase. For all of 2006, durables rose at a not seasonally adjusted 7.0%, after rising 8.6% during 2005.

Orders for commercial planes increased 26.5% last month, while military aircraft orders rose 20.5%. Overall, transportation orders were up 4.8%, after rising 10.2% in November. However, a key barometer of business-equipment spending -- orders for nondefense capital goods excluding aircraft -- increased by 2.4%, after falling 1.0% in November."

By Jeff Bater - WSJ

Don't Ever Count Out the U.S. Consumer

With the barrage of positive economic news this week, I've become even more optimistic about the U.S. economy in 2007......

"NEW YORK (Reuters) - U.S. consumer sentiment improved to a 3-year high in early January, propelled by falling gasoline prices and a favorable view of personal finances and economic growth, a survey showed on Friday.

The Reuters/University of Michigan Surveys of Consumers said its preliminary January reading on consumer sentiment index rose to 98.0 from 91.7 at the end of December.

This was the highest since 103.80 in January 2004 and well above the 92.5 median forecast of analysts polled by Reuters.

The surveys' gauge of current consumer conditions was 112.5 against a final December reading of 108.1, while its measure of consumer expectations was 88.7 versus 81.2.

Consumers, while generally upbeat, remain worried about inflation. The surveys' one-year inflation index edged up to 3.0 percent from 2.9 in late December, and its five-year index stood at 3.0 percent for a third straight month. "

Low Inflation, Low Unemployment, and Strong Housing Starts - Good News Comes in 3's Today

There is a lot of data this morning regarding the health of the U.S. economy. Three of the major indicators were quite positive.

Excerpts from the Associated Press

Inflation is Tame

"WASHINGTON -- The Labor Department reported Thursday that consumer prices rose by 2.5 percent in 2006, the best showing since prices had increased by just 1.9 percent in 2003. The improvement came in spite of the fact that consumer prices jumped 0.5 percent in December, as gasoline prices staged a momentary rebound."

Jobs are Strong

In other economic news, the number of newly laid off workers filing claims for unemployment benefits fell to a seasonally adjusted 290,000 last week, the lowest level in 11 months and an indication that the labor market began the new year in good shape in spite of weakness in housing and auto manufacturing.

Housing Continues to Rebound

Meanwhile, the Commerce Department reported that construction of new homes rose by 4.5 percent in December to a seasonally adjusted annual rate of 1.642 million units, raising hopes that the worst of the housing slowdown may be coming to an end.

Venture-capital funding best in five years

California receives about 47% of all U.S. venture capital. So this is strong indicator for future job growth in the state and confidence in the economy........

From the Sacramento Business Journal

Venture-capital fund raising in the United States reached its highest level in five years in 2006, despite a fourth-quarter slowdown.

In 2006, 200 venture-capital funds raised a total of almost $28.6 billion, compared with the 214 funds that raised $28 billion in 2005, according to data released Tuesday by Thomson Financial and the National Venture Capital Association.

The fourth quarter saw a considerable slowdown, though, with 37 venture-capital funds raising $2.83 billion, down from the $5.43 billion raised in 66 funds in the third quarter and the $13.8 billion raised by 66 funds in the second quarter.

The report didn't include breakdowns by regions or states.

NVCA President Mark Heesen said the decline in private-equity fund raising in the fourth quarter was expected. "On the venture side, we are coming to the end of the current fund-raising cycle as most firms are now turning their attention to investing the funds raised in the last three years," Heesen said.

Businessweek - Housing May Have Bottomed

Housing: The Best Indicators Of A Rebound

"Has the home market hit bottom? That is the key question for the U.S. economy in 2007. According to some housing indicators, there is some light at the end of the tunnel for homebuilders, but that cautious optimism comes with caveats.

To get the most reliable signal that the housing recession is over, keep an eye on the average monthly supply of new homes for sale and the average mortgage rate each quarter. Analysis by Goldman Sachs U.S. economist Edward McKelvey of eight pieces of housing data widely used as leading indicators of the housing cycle showed those two series are better than quarterly averages of new and existing home sales, housing starts, mortgage applications, housing affordability, and homebuilder confidence. In housing market upturns, all eight indicators do a good job of forecasting market peaks by two to five quarters. However, "a contraction is swifter and more cathartic," says McKelvey. That places a premium on indicators that give a more consistent signal.

The monthly supply of homes--a ratio of new home inventories and home sales--has peaked one quarter before residential investment bottomed every time since 1961. Mortgage rates are nearly as consistent over that same period and have a similar lead time.The supply of new homes for sale in the fourth quarter should decline after a November reading of 6.3 months, from 6.7 in October and the recent peak of 7.2 months last July. Mortgage rates also fell in both the third and fourth quarters of 2006......"

By James Mehring - Businessweek

Cool Phone: Good for Nor Cal Economy

Phone looks great, as was anticipated. This will also benefit the bay area and Sacramento economies where Apple has a large presence.......

For Story Link click here(Apple iphone )

Interesting Links

Posted below are some interesting economic links worth perusing

Economic Links

(Greenspan says U.S. Economy Expanding)

(Healthcare for all Californians) ..................That will send jobs packing

(Oil Prices Going Down?)


Housing Market Bottomed?

(CBIA 2007 Housing Forecast)

(NAR 2007 Housing Forecast)

( UK Housing Forecast )

( Sacramento Housing Bottom )

More Jobs than expected, Goldilocks Lives

A surprise leap in job gains
Employers add many more jobs than expected, unemployment rate remains unchanged.

NEW YORK (CNNMoney.com) -- Employers added more workers in December, as a government report Friday showed a labor market that was much stronger than forecasts.

The report showed a net gain of 167,000 jobs on U.S. payrolls in December, up from the 154,000 increase in November, which was also revised higher. Economists surveyed by Briefing.com had forecast only a 100,000 rise in payrolls in December.

The unemployment rate stayed at 4.5 percent, in line with economists' forecasts.
Wages also came in higher than expected, as the average hourly wage was up 8 cents, or 0.5 percent, to $17.04. Economists had forecast only a 0.3 percent increase in wages. The November wage gain was also revised higher......

The wage gain left the average hourly wage up 4.2 percent from a year earlier. That's well above the pace of inflation, which rose only 2 percent in the 12 months ended in November, according to a separate government reading.....