PALM CITYS HORSE TALK: Week's Economic Review Newsletter

OVERVIEW ~ May 10 through May 14 ~ The Dow Jones Industrial Average (DJIA) began the week at 10380.43. However, by the close of trading on Wednesday (May 12), the DJIA had regained all that it had lost in the prior week’s declines. By Friday’s close, though, the DJIA had lost more than 200 points as uncertainties unsettled the stock indices, and concerns about the European Union’s bailout package weighed down the financial markets. The good news, as far as our nation’s real estate markets were concerned, was lower interest rates, with the Freddie Mac average 30-year fixed rate edging down to 4.93%, the lowest reading so far in 2010, and the ten-year Treasury note falling all the way to 3.444%.


FOCUS ~ Behind the economic headlines that seem to change direction on a daily, if not an hourly, basis, several economic trends are asserting themselves. First, the manufacturing sector is gaining in health, and is very likely providing the greatest strength and promise now fueling the economic recovery. Second, the new home sector is surprising many in the market with its growing strength.

In April, the ISM (Institute of Supply Management) Manufacturing Index rose to 60.4 from the prior month’s 59.6. This took the index above 60 for the first time since 2004. The index results from an extensive survey of purchasing managers, measuring their optimism regarding present and short-term future levels of orders they expect to have to fill. Thus, any reading below 50 shows that less than half of the purchasing managers report an optimistic attitude. Above 50, on the other hand, suggests that the sector is strengthening. The current reading of 60, especially after years in the doldrums, is especially strong and very likely signals recovery.

The ISM reading was bolstered by a report that new orders for manufactured goods grew by 1.3% in March, and that manufacturing output rose by 1% according to the April Industrial Production report.

Construction spending, meantime, rose 0.2% above March’s level in April. Significantly, spending on building new single-family residences climbed 1.6% month-to-month, and 17.2% from April 2009 to April 2010. At the same time, April retail sales data showed sales soaring at building supply stores. And the latest NAHB (National Association of Home Builders) Market Index climbed 15.8% in May from 19 to 22. That’s 37.5% above the May 2009 figure. This index, based on a survey of construction firms, suggests that builder confidence is rising significantly.

Today’s low interest rates and improvement to both the manufacturing and new home sectors are important elements leading to the current opinion by many that our economy has edged into recovery.









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