Economic Outlook: Looking deeper into data

By ANTHONY HALL, United Press International  |  Aug. 27, 2009 at 8:30 AM
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Investors met new signs of an economic recovery with a tentative response, despite sustained turnarounds in the U.S. housing market and durable goods.

U.S. new home sales in July surprised nearly everybody, jumping 9.6 percent, the Commerce Department said. On Wednesday, Commerce reported a 4.9 percent gain in durable goods orders, the sharpest gain in two years.

Markets responded with a resounding "blah," gaining on average 0.01 percent in the United States, and going south around 1 percent in Asia and about a third of that in Europe.

One could ask, why such a muted response to what looks like good news?

Looking deeper at the housing market, analysts said the numbers simply don't reflect the reality of the situation on the ground. Despite June's home prices improving in 18 of 20 cities tracked by the Standard & Poor's Case-Shiller home price index, sales are down 13.4 percent from a year ago. There is also, currently, a 7 1/2-month supply of homes on the market, a fairly off-putting figure for those in the business of building houses.

"It's really hard to sell a new home if you're a builder. It's just a brutal market," Global Insight economist Patrick Newport told The New York Times.

The cold shower called perspective is what tempers market upswings. Investors read the good news, but know the recovery still has a long way to go before normalcy returns.

Commerce, for example, said the climb in durable good orders was the third gain in the past four months, but orders are still below the worst month of 2008 and more than $40 billion below the peak of last year.

In Washington, the Federal Deposit Insurance Corp. trimmed rules to encourage private equity firms to join up with banks when buying failed banks.

More than 70 U.S. banks have failed this year, putting a strain on the FDIC's resources, which include a depletion of the agency's insurance fund from about $52.8 billion a year ago to $13 billion, the Times reported.

Trying to entice new buyers to their bank auctions, the FDIC reduced a proposed capital cushion requirement for private equities from15 percent to 10 percent and dropped a requirement the equities hold additional reserves to protect them from a sharp downturn in the economy.

Among the proposals that passed a board vote Wednesday was a requirement for equities to refrain from selling their banks for three years. But, if equities joined up with traditional banks, some of the rules would fall back on more lenient rules that apply to the banking industry.

In Asian markets Thursday, the Nikkei 225 in Japan fell 1.56 percent, while the Hang Seng index in Hong Kong dropped 1.04 percent. The Singapore Straits Times rose 0.53 percent, while the S&P/ASX in Australia fell 0.08 percent.

In midday trading in Europe, the FTSE 100 in Britain dropped 0.09 percent. The DAX 30 in Germany fell 0.48 percent. The CAC 40 in France slid 0.03 percent, while the pan-European DJStoxx 600 fell 0.18 percent.

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