Thursday's News Recap: Existing U.S. Home Sales & Jobless Claims Dampen Markets

News Recap | Written by CEP News | Jul 24 08 20:43 GMT |

(CEP News) - Markets received some downbeat U.S. releases Thursday morning in the form of soaring weekly jobless claims and a continued fall in existing home sales for June. The U.S. Department of Labor reported that initial claims for unemployment benefits in the United States soared to 406k in the week ending July 19, the highest level since March. Economists said July data has been volatile, but that the latest data is a reliable indicator of weakness in the jobs market. The 34k rise in initial claims follows two weeks of lower-than-expected figures and is well above the 380k expected by economists. Prior to that, claims had been above 380k for four consecutive weeks. Continuing claims fell back 9k to 3.107 million for the week ending July 12. "The spike in [initial] claims appears due less to seasonal volatility and more to economic slowdown," said RBC strategist T.J. Marta. He suggested the trend will continue as the bonus spending from the tax rebates continues to wear off. Meanwhile, the National Association of Realtors (NAR) reported today that U.S. existing home sales fell 2.6% to 4.86 million units in June following May's unrevised sales figure of 4.99 million. Economists were expecting the June data to fall to 4.94 million. Since June 2007, existing home sales have declined by 15.5%. Single-family unit sales fell 3.2% to 4.27 million, down from a rate of 4.41 million in the previous month. Total housing inventories came in at an 11.1-month supply in June, up from the 10.8-month supply in May. The NAR said foreclosures represent one-third to 40% of all sales and cause a downward distortion to the price data. "This was the biggest decline since Sep last year but is an echo of the early Easter, which meant more people were active in the market in April, boosting May closings and hence setting a tough hurdle for June," noted Ian Shepherdson, chief U.S. economist from HFE. "We still think home sales have some way yet to fall but they are not going to keep dropping at the June pace." The U.S national homeowner housing vacancy rate slipped to 2.8% in the second quarter, a 0.1% decline from the previous quarter's 2.9% rate, according to the U.S. Census Bureau report released Thursday. National vacancy rates for rental housing rates dipped slightly to 10.0% from 10.1% in the first quarter of 2008. The homeownership rate of 68.1% for the current quarter was lower than the Q1 2007 rate of 68.2% and lower than the previous quarter 67.8% result. After the U.S. House of Representatives passed a housing bill including provisions for the creation of a new GSE regulator and a liquidity backstop to help the beleaguered Fannie Mae and Freddie Mac, U.S. Treasury Secretary Henry Paulson expressed his gratitude for the bill having passed quickly. "As I have said before, the GSE portions of this bill are orders of magnitude more important to turning the corner on the housing correction and supporting our markets and our economy," Paulson said. However, he also said he was not completely satisfied with some parts of the bill which include "extraneous provisions that we have opposed as detrimental to our efforts to get through the housing correction quickly." Testifying before the House Finance Committee, New York Federal Reserve President Tim Geithner said final judgments on regulatory reform should be reserved until the housing crisis ends. "The U.S. and global financial systems are going through a very challenging period of adjustment. The critical imperative today is to help facilitate that adjustment and to cushion its impact on the broader economy." Geithner commented that the financial system will take time to recover and that the current regulatory system is no longer appropriate. Also testifying, SEC Chairman Christopher Cox said he needs more authority to have mandatory supervision of investment banks. "Legislative improvements are necessary," Cox said in his opening remarks. "The Commission should be given a statutory mandate to perform this function at the holding company level, along with the authority to require compliance." He added that investment firms and banks should have common methods for reporting results. Underground natural gas storage in the United States increased 84 billion cubic feet in the week ending July 18, the Energy Information Administration (EIA) said Thursday. The weekly increase was above the +80 Bcf Bloomberg estimate. In the previous week, the EIA reported a supply increase of 104 Bcf. Moments after the report, natural gas was down 0.40 to 9.388 mmbtu. An auction of $21 billion five-year treasury notes drew a high yield of 3.44% allotted to 36.65% of bidders. The high yield was above the 'when issued' yield of 3.438% prior to the announcement. The median discount rate was 2.46% and the low yield was 2.35%. The bid-to-cover ratio was 2.64. There were no scheduled economic releases in Canada, although Export Development Canada released a quarterly report in which it said the country's exports are expected to rise 4.2% as a result of elevated energy prices. The gain of 4% in exports in 2008 is actually an energy price story, but when all price effects are removed, Canadian exports are actually on track to tumble by 4 per cent this year," said Peter Hall, vice-president and chief economist for EDC. EDC is also forecasting a large price correction for crude as global supply and demand is expected to tighten, which should see the price of crude oil return to less than $100 a barrel. In overnight news, Germany's Ifo Institute for Economic Research reported that its business climate indicator fell to 97.5 in July, down from both the 100.1 level expected and the 101.2 figure recorded in the previous month. June's reading was revised down from an initial figure of 101.3. Looking at the sub-components of the indicator, the current assessment slid down to 105.7 from 108.3. Economists had expected a more moderate fall to 106.5 for the month. According to advanced estimates from Markit Economics, the German purchasing managers' index for manufacturing fell more than expected to 50.9 in July. Economists had expected a fall only to 52.0 from June's 52.6 level. The manufacturing PMI level is the lowest since August 2005. Conversely, the German services PMI surprised to the upside, rising to 53.3 after slipping to 52.1 in June. The consensus had called for a further decline in the services indicator to 51.5 for the month. The European Central Bank reported that the euro zone current account deficit rose to €21.4 billion in May, up from both the €6.0 billion deficit expected and the €7.4 billion deficit figure recorded in the previous month. April's reading was revised down from an initial deficit level of €9.2 billion. By Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Patrick McGee, pmcgee@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Steve Stecyk, sstecyk@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Todd Wailoo, twailoo@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, cmarkham@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News. 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