U.S. Pending Home Sales Seeking a Bottom?

The National Association of Realtors reported that the level of pending home sales in December fell 1.5% from November following that month's decline of 3.0%. These notable declines, however, followed increases during the prior two months. The December decline therefore left sales at the cycle's low set in August. The pattern of sales since then has been essentially sideways.

Despite the sideways movement, the latest monthly figure is about one third below the peak level during the Summer of 2005. The data date back only to 2001.

These figures are analogous to the new home sales data from the Commerce Dept. They measure existing home sales when the sales contract is signed, not at the time the sale is closed.

The Realtors also indicated in an earlier report that the number of homes on the market and available for sale fell 7.4% to 390,500 units in December. That was the lowest level since March. For all of 2007, however, the inventory of unsold homes rose 13.2% after huge increases of 21.2% and 26.8% during the prior two years.

In the Northeast, pending home sales fell 1.7% after a 13.0% m/m decline in November. For the year sales fell 12.6% following 2006's decline of 9.2%. Sales out West also fell a sharp 3.1% after a 2.1% November drop and for the year were down 15.8% after a 14.8% shortfall in 2006.

Sales in the Midwest sales ended the year with a 3.4% gain and since August have shown a very slight upward tilt. For the year sales fell 12.0% after the 12.4% 2006 decline. In the South sales fell another 3.0% in December to a new cycle low. For the year sales in the South fell 15.7% after a relatively moderate 5.5% decline in 2006.

The pending home sales data are available in Haver's PREALTOR database and the number of homes on the market are in the REALTOR database.

Initial claims for jobless insurance slipped 22,000 last week to 356,000. The decline pulled back only a piece of the prior week's upwardly revised 72,000 surge. The latest remained near the highest level since October of 2005.

The four-week moving average of initial claims, a measure which smoothes out most of the series' w/w volatility, rose again to 335,000 (+7.5% y/y).

A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last ten years there has been a (negative) 76% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.

Continuing claims for unemployment insurance jumped 75,000 following a 41,000 increase during the week prior. That was revised down just slightly. The figure provides some indication of workers' ability to find employment but here again difficulties of seasonal adjustment this time of year are great.

The continuing claims numbers lag the initial claims figures by one week.

The insured rate of unemployment rose w/w back to 2.1%.

Business Volatility, Job Destruction and Unemployment from the Federal Reserve Bank of San Francisco can be found here.

A Minimum Wager from the Federal Reserve Bank of Minneapolis is available here.

German orders for December were stronger than expected, a mild positive surprise to markets. With the economy showing weakening signals and the euro strong, sentiment is shifting to look for some weaker results. As a result the spin on the numbers reported today was to sort of set them aside as though they were something that would not last. And, indeed, they may not last.

The German foreign orders series showed that foreign orders from non-German Euro Area countries fell by 6.8% after a 6.7% rise in November. This also raises questions about what is going on within the Euro Area (EA). Foreign orders at German firms from outside the EA rose by 0.8% in the month after falling in November.

One thing to understand is that Germany is the STRONGEST of the EA economies. Other EA countries will be feeling pain before Germany does. We can see this by looking at one measure of competitiveness, prices. HICP prices in Germany have fallen by 11.5% relative to the EA average since January of 1996. Compare this to Italy where its HICP has risen by 3.7% or Spain where its prices have risen relative to the average by 12.2%. That sort of result implies a huge difference in competitiveness for trade both within the EA and outside it. It should come as no surprise that confidence in Italy and Spain has been lagging.

German data are reliable and timely. For other countries we are not always so lucky. But if we piece together the things we know about Germany and the geographic data in reports like today’s orders, there is a real reason to be wary of EA growth going forward. There is the additional unsavory point that Germany itself may be living a bit on borrowed time. Its firms may have employed FX hedges to lock in past more favorable exchange rates on which to do business. But these devices eventually fail in their ability to afford a safe haven or even partial escape. A lot of hedging is done on a six-month horizon and six months ago the euro value Vs the dollar was at $1.34 Compared to the current $1.45 to $1.50 rate. A year ago, a fairly long period over which to hedge the euro rate Vs the dollar was at $1.30. Obviously if hedges set at those times are running off German firms would have to begin to confront business prospects at current exchange rates. Interestingly it is the intra-EA orders that are the weakest for Germany. But it still has a good chunk of business in capital goods that might be a bit less price elastic in Eastern Europe and in Russia. It is no surprise in view of these emerging risks, that ECB president Trichet softened the rhetoric in his remarks today.

The French trade trends show a declining profile in both the export and import rates of growth. French export growth shows faltering growth trends across its main categories except motor vehicles that rose over three months as well as year/year. French imports were off sharply in the recent month. But trends over the past year are still showing growth. Over three months, however, the main trade categories are showing declines and posting negative rates of growth.

The message from these statistics is that France and its main trade partners is slowing. Remember that Euro Area (EA) countries’ foreign trade numbers are tricky to interpret since any trade with another country is ‘foreign’ but trade that remains within the EA is without direct foreign exchange consequences. So for EA countries not all foreign trade is created equal. For France the picture is nonetheless one of faltering flows.

UK industrial production slowed sharply in December and major trends are all pointing lower. IP in December was weaker than had been assumed in the UK GDP report, raising the possibility that GDP could be revised lower. The quarterly growth rate for manufacturing is -0.4% in Q4. The sequential growth rates from 12 months to 6 months to 3 months show a slowing across manufacturing components with the exception of capital goods. Detailed sectors show food and drink, textile and leather and motor vehicle sectors in a progressive state of decline and deceleration. The quarter’s growth rate for these components is deeply negative and so would the overall result if it were not for strength in the utilities output and some growth in mining and quarrying.