The Commerce Department announced disappointing new home sales for the month of July, worrying officials that an important source of jobs is still showing signs of weakness.
The decline in sales of new homes was 2.4 percent during the month from June to July, down to a seasonally adjusted annual rate of 412,000. In a survey conducted by the Wall Street Journal, prominent economists had predicted a yearly figure of 425,000.
New home sales have consistently refused to get out of the starting gate, staying stuck in the 2013 figures which totaled 429,000 new homes sold. In contrast the numbers for already existing homes have continued to climb, with four months in a row of better sales through July.
The reason economists focus on the strength of new home sales, despite this sector only representing 10 percent of US home buying, is because building homes usually provides high-paying, middle-class jobs.
The Japanese Finance Ministry released their figures for 2013 showing that Japan had a record trade deficit, exceeding even the previous year’s numbers.
For the first time in three years Japan posted an year-on-year rise in the value of exports, mostly caused by the continued loss in value of the yen compared to the dollar, with a simultaneous uptick in the value of imports.
Last year was the third year in a row that Japan had a trade deficit, the first time since data on this information became available in 1979. Last year’s trade deficit totaled 11.47 trillion yen ($112 billion). That number represents a giant increase of 65.3 percent over the previous year’s record of 6.94 trillion yen.
Japan’s trade with the United States is the highest for all countries and regions. The total exports from Japan to the US were up 15.6 percent, to 12.93 trillion yen. Part of that increase came from the sale of Japanese cars to US markets.
In the largest increase in over a year, the month of January saw US companies purchasing machinery and factory goods at a rate of increase of 7.2 percent over December’s figures. This number, despite fears of tax hikes and sequestration (budget cuts), registers among economists as a sign of increasing confidence in the US economy.
Increased capital purchases, especially long after the holidays have passed, bodes well for the economy, as it’s a sign that production is pushing ahead, with a hoped-for increase in jobs and decrease in unemployment.
Aircraft and defense orders are not included in these figures. If sequestration causes the Defense Department to slash its budget, then this sector could adversely affect the economy as a whole. Because orders for aircraft fell in January the total factory orders in January was really down by 2 percent.
The NRF is Predicting Slower Spending this Holiday Shopping Season
The largest retail trade organization in the world, the National Retail Federation, announced on Tuesday that the economy will most likely see a rise in holiday sales this coming winter of only 4.1 percent, a number reflecting slower growth than what was seen in the past two years.
The prediction states that retail sales in November and December, normally the strongest months for retail shopping, will be approximately $586.1 billion, a rise of 4.1 percent over last year’s sales. Contrast this number with the 5.6 percent increase in sales in 2011, and 5.5 percent in 2010, and you can see why retailers are worried about the future.
To understand the importance of this number, which is one of the most-watched benchmarks for the health of the economy, just consider that holiday sales which take place almost exclusively in November and December make up as much as one-third of annual sales. Combine that with the fact that 70 percent of the US economy is made up of retail sales, and it is easy to see how the NRF forecast and inspire or frighten retailers, economists and investors.
What is holding back consumers this year is lack of confidence. Will legislators agree to turn away from the “fiscal cliff” of across-the-board spending cuts scheduled for January 2, 2013, not to mention tax hikes for everyone, or will the country head straight over the side?
“It’s the uncertainty about where the economy is going, the uncertainty at the federal level about the fiscal cliff, the absence of a path forward from the president and the Congress,” NRF President Matthew Shay commented.
Two influential officials from the Federal Reserve announced on Friday that the central bank should wait before buying more bonds. In addition to cutting overnight interest rates down to nothing in December of 2008, the Federal Reserve also purchased $2.3 trillion worth of government and mortgage-related bonds to stimulate growth in response to the worst recession in dozens of years.
a speech he gave in this Midwestern city that as long as the economy seems to be improving, the purchasing of more bonds should be postponed.
“The data has been stronger in recent weeks and months, and so I think there’s probably a good case to stand pat for now,” Bullard said.
“If the economy did deteriorate substantially in 2012, then I think (quantitative easing) would come back on the table, but that’s not where we are right now,” added Bullard, considered a centrist when it comes to policy debated by the Federal Reserve.
Upcoming Policy Meeting
The large variety of positions when it comes to Fed policy was apparent as the officials practiced their differing arguments in preparation for their upcoming policy meeting on January 24-25.
The aftermath of the meeting is expected to result in the announcement of more information about the direction interest rates will take in the near future, as well as an explicit number for an inflation target. It is not expected, however that the Feds will announce any new round of bond purchases.
Bond Buying on Hold, For Now
Some other Federal Reserve officials, including the influential president of the New York Fed, have hinted recently that additional bond buys might need to be considered sometime in the future, but for now Bullard’s position is probably the one which will be followed for now.
