Wednesday, July 27, 2011

Jobs & Home Prices

Anyone who might have been expecting a rebound from the soft patch during August and September is likely to be disappointed. That’s because the clowns in Washington are making people cry rather than laugh. The daily barrage of doomsday predictions expressed by top White House and Congressional officials must be depressing both spending by lots of consumers and hiring by lots of companies.

Nevertheless, we expect that initial unemployment claims will soon drop back below 400,000. They did so earlier this year, but have been above that level since the week of April 2. We believe that the ongoing strength in corporate profits should reduce the pace of firing by employers. However, we are concerned that the pace of hiring might remain weak given the uncertainties created by ongoing gridlock in Washington.

One way to gauge the pace of hiring is to monitor the “jobs hard to get” response compiled monthly in the Conference Board’s survey of consumer confidence. It edged up to 44.1% from 43.2% in June. It has been hovering between 42.0% and 50.0% since early 2009. It tends to be a lagging indicator of the labor market during recoveries, especially when compared to initial jobless claims. That makes sense since the pace of firing has to drop before the pace of hiring is likely to increase during recoveries.

Given the lackluster pace of hiring as reflected in the “jobs hard to get” response, it’s not surprising that the Conference Board’s Consumer Confidence Index (CCI) remains relatively depressed this far into an economic recovery. The index did edge up to 59.5 in July, well below its previous cyclical high of 111.9 during July 2007. At 35.7, the CCI Present Situation component is considerably below its March 2007 peak of 138.5.

Also depressing consumer confidence must be the continued weakness in home prices. There was a small m/m uptick in the S&P/Case-Shiller 20 Metros Home Price Index during May. However, the 12-month average of the median existing home price compiled by the National Association of Realtors remained around a cyclical low of $170,000 during the three months through June. Prices haven’t been this low since the spring of 2003, and are down a whopping 24.3% from the record high of $224,283 during July 2006.

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