Sunday, November 04, 2007

The Daily "Economic" Headliners

This is a list of economic stories that I'm finding over this weekend. Call it The Daily Economic Headliners.

America's big, fat housing inventory: This is off MSNBC News;

Houston, you have a problem — with housing inventory. And as the number of homes for sale in the country continues to creep upward thanks to waning demand, many other major U.S. cities are dealing with the same issue.

At the current existing-home sales rate of 5.04 million units a year, it would take a full 10.5 months to sell the 4.4 million existing homes now on the market, according to data released by the National Association of Realtors (NAR) on Oct. 24. The supply of existing single-family homes was at 10.2 months in September—the highest since February, 1988. Compare that with the height of the housing boom in January, 2005, when it reached a record low 3.6 months.

Tighter lending standards, which are dampening sales, aren't helping housing inventories, though the NAR thinks mortgage availability is starting to improve. "Once the pent-up demand begins to move, we'll see housing supplies begin to ease and then prices will edge up," said NAR Senior Economist Lawrence Yun in a statement issued Oct. 24.

Others aren't so optimistic. Home prices are still falling — the national medium home price is down 4.2% from a year ago, to $211,700, according to the NAR — a sure sign that demand is weak. "With prices remaining stubborn, inventories will remain relatively high," says Jonathan Smoke, president of housing market consulting firm Rating Insights.

We've got a 10 month supply of houses on the market, and we'll probably have even more houses coming on the market as the interest rates on ARMs start to increase, and even more Americans will be forced to foreclose on their homes.

It’s beginning to look a lot like Black Friday: Also from MSNBC News;

NEW YORK - It’s not even Thanksgiving, but the nation’s retailers, including Wal-Mart and Toys “R” Us, are jump-starting holiday sales with big discounts and door buster specials starting Friday in what’s expected to be a lukewarm Christmas season.

The sales blitz — which comes three weeks earlier than the usual debut the day after Thanksgiving — is great news for consumers. But the new strategy shows the nervousness of merchants. Amid a deepening housing slump and higher food and energy costs, stores see the need to pull in shoppers as early as possible.

“This is clearly a win-win situation for consumers,” said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. But he added, “This isn’t good news for stores’ profits...It’s just more evidence that this is going to be a highly competitive season. Why would you start to drive traffic this early unless the retailing environment is not expected to be particularly strong?”

The retailers are getting scared here. They are looking at the subprime mortgage mess, the foreclosures, and even the possible increase in energy prices, and they are worried that consumers may just stay home, rather than go Christmas shopping. The last thing that retailers want is to be stuck with unsold goods sitting on their shelves for Christmas. So Black Friday is taking place a month early. And it is not just the big box retailers like Target or Wall Mart that will be affected. CBS Marketwatch has a story reporting that luxury high-end retailers may be facing the same problem of slowing sales;

NEW YORK (MarketWatch) -- America's three-year bull run for sales of high-end leather goods, designer bed linens and pricey apparel could be winding down this holiday season.

Amid declining home values and record-high energy prices and credit-market woes, confidence among luxury consumers has fallen for a second straight quarter to its lowest level since 2004, according to a new survey.

After three consecutive years of double-digit percentage growth, retailers that cater to those shoppers are suddenly dealing with leaner forecasts. Now their sales are on track to rise only 4% to 7% this coming holiday season, according to the Luxury Institute, a New York-based research group.

Much of the slowdown is being blamed on so-called trade-up shoppers, or those in the lower rung of the luxury income bracket, analysts said.

"It's going to be a dicey time for the holidays," said Pam Danziger, president of Unity Marketing, whose latest luxury-consumer survey paints a grim picture of the well-heeled consumer's confidence.

"Nobody is immune. Super-affluent consumers can't sustain the luxury market if the trading-up consumer drops out."

[....]

Earlier this week, Liz Dunn, analyst at Thomas Weisel Partners, downgraded her outlook on soft-line apparel retailers, saying that consumers may be "cracking under pressure" as home values decline.

"We are beginning to witness an unwinding of the wealth effect," Dunn wrote in a report for clients. "Consumer spending has been boosted by consumers' impression about their 'paper wealth' tied to the value of their homes. Now that home values are falling, spending is slowing."

We may have a double-whammy, where both the big box retailers, and the luxury retailers are going to have a "Grinchy" Christmas.

Foreclosures jump 30 percent in 3rd quarter: This is from MSNBC News;

[Home] foreclosure filings took a big jump in the third quarter, according to the latest data from real estate Web site RealtyTrac.

Foreclosure actions were reported on more than 446,000 properties the three months ended Sept. 30, up 30 percent from the second quarter and double last year’s third quarter. That brings the overall foreclosure rate to one in every 196 U.S. households.

The rise in foreclosures was widespread, with 45 out of the 50 states reporting higher levels than last year. But the highest concentrations were a handful of housing markets; California Arizona, Florida, Nevada, Ohio, Texas and Michigan made up more than half of the total.

The rise in foreclosures comes as millions of homeowners face sharp increases in their mortgage payments from low “teaser” rates as the housing market remains mired in a slump.

Home prices in 10 markets tracked by the S&P/Case-Shiller housing index slid 5 percent in August, the eighth straight monthly drop, according to figures released Tuesday. Some economists expect home prices to fall by 10 percent before the market finds a bottom sometime late next year, barring a further economic downturn. The pullback follows one of the strongest housing booms on record that sent median prices up more than 50 percent earlier in the decade.

Because the low initial rates on many mortgages typically last for two or three years, the housing market faces further pressure next year from loans that were written when the housing market was still rising and lenders were offering easy terms to borrowers with less-than-stellar credit.

“Given the number of loans due to reset through the middle of 2008, and the continuing weakness in home sales, we would expect foreclosure activity to remain high and even increase over the next year in many markets,” said James J. Saccacio, chief executive officer of RealtyTrac.

There is not much more I can say on this story, except that if Americans are facing higher mortgage payments due to the increases in these adjustable-rate mortgages, then they are going to cut back on spending--especially Christmas shopping--in order to keep their houses.

Sugar Industry Expands Influence: If you really want to understand what is wrong with our country, and our government, you need to read this Washington Post story in its entirity;

When U.S. sugar farmers needed help this summer defending a $1 billion, 10-year subsidy plan in a new House farm bill, they found it in some surprising places.

Among the 282 lawmakers siding with Midwest and Gulf Coast growers on a key vote was Rep. Carolyn B. Maloney (D-N.Y.), who represents Queens and Manhattan's East Side. The only sugar refinery in the New York area is well outside her district.

Four days after she voted against a measure that would have derailed the new subsidy plan, Maloney hosted a fundraising event at Bullfeathers restaurant on Capitol Hill that netted $9,500 in contributions from sugar growers and refiners, according to Federal Election Commission records and Maloney's election attorney, Andrew Tulloch. Tulloch called the timing of the July 31 fundraiser -- dubbed a "sugar breakfast" on the campaign finance report of one group -- a "pure coincidence."

The House sugar vote illustrates the hold that agricultural interests maintain on farm policy even as the number of full-time commercial farmers has shrunk to a few hundred thousand. Sugar groups have used campaign cash and far-reaching alliances with labor unions and politicians to expand their influence far beyond the 15 states and few dozen congressional districts where sugar is grown by fewer than 6,000 farmers.

Along with Maloney, a raft of other Eastern lawmakers voted against eliminating the sugar provisions. All eight House members from Maryland, home to a Domino Sugar plant in Baltimore owned by the huge sugar concern Florida Crystals, voted sugar's cause. Four of them, and both Maryland senators, have received political contributions from Domino PAC. Other recent Democratic recipients in the House include West Virginia's Alan B. Mollohan, Pennsylvania's Chris Carney and Maine's Michael H. Michaud.

So far this year, nine sugar farm or refinery groups have made more than 900 separate contributions totaling nearly $1.5 million to candidates, parties and political funds, according to federal election records and CQ MoneyLine. American Crystal Sugar Co., a Minnesota-based sugar-beet cooperative with 3,000 members, has made 317 contributions totaling $819,000. In July alone, its political fund contributed more than $70,000 to 26 House members, 24 of whom sided with it on the July 27 sugar vote.

"When you take on Big Sugar, you take on a huge political money operation," said Rep. Mark Steven Kirk (R-Ill.), a co-sponsor of the amendment that drew the sugar industry's ire.

The amendment, which was blocked 282 to 144, would have struck farm bill provisions that would raise support prices by half a cent per pound and guarantee U.S. sugar producers at least an 85 percent share of the domestic market for the next five years.

The expected effect of the House pro-sugar provisions and similar legislation in the Senate would be to keep the domestic price of sugar well above world levels. The Government Accountability Office has estimated that the sugar program costs consumers and food processors between $1 billion and $2 billion annually in higher prices for sugar and a vast array of products that contain it. Meanwhile, the new sugar subsidy would cost taxpayers tens of millions of dollars a year, according to economists and U.S. officials.

The provisions are aimed at protecting U.S. sugar growers from a likely surge of Mexican sugar imports next year, when restrictions end under the terms of the North American Free Trade Agreement. To keep such imports from depressing domestic prices, the Agriculture Department would be required to buy equivalent amounts of U.S. sugar and resell it to ethanol refiners at a deep discount. The Congressional Budget Office has estimated the cost at $1 billion through 2017.

This WaPost story really shows the influence that Big Sugar has in manipulating Congressmen, through political campaign contributions, to vote for Big Sugar's economic self-interest--even as it costs American consumers billions of dollars. And it is not just Big Sugar that is doing this. Multiply this among all the big corporate and Big Business interests, and you can see just how corrupt our political system has gotten. All because of excessive, corporate greed.

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