Consumer Confidence Falls In May

The May reading for the Conference Board's Consumer Confidence Index dropped to 60.8 from April's revised 66.0. That drop confounded expectations for a rise to 67.5. Hardest hit was the future-expectations index, which dropped eight points; the present-situation index hardly budged. This reading conflicts with the Consumer Sentimant Index, which showed a rise for May.


Gold didn't react much to this number, although it did get a short-lived boost from the pessimistic Case-Shiller index released at 9:15. The metal stayed in the high 1530s, despite a poke at $1,540, until the early afternoon when it slumped down to $1,532.

Case-Shiller Index Has Housing In Double Dip

The March reading of home prices by the Case-Shiller index has the average sinking below its April 2009 low, implying that housing is in a double-digit recession.

“Home prices continue on their downward spiral with no relief in sight,” said David Blitzer, chairman of the index committee at Standard & Poor’s. Read the full S&P release.

Housing has been plagued by issues that have created a Gordian knot for the sector.

On the supply side, an oversupply of distressed properties is pushing prices down. There are also worries of a so-called shadow inventory of homes that sellers and banks want to list but have not, waiting for a more favorable environment.

On the demand side, many consumers are still having difficulty qualifying for mortgages, even though rates are low.

There may be hope for the housing market from an unexpected source. If you've spent some time poking around the real-estate market, you've undoubtely read, heard about or even seen the new white elephants. Unlike during the 1930s, these are not mansions with huge carrying costs. They're regular homes that have been in foreclosure for years, and/or are in gutted neighbourhoods. Some are offered at a near-home price, but some are offered at nominal amounts. There were lots of houses in Detriot that could be bought outright on a credit card. The trouble is, they're money pits.

That's not just because they take a whole lot of dough to fix up due to being gutted, vandalized and-or rotted. In some shifty neighbourhoods, which are housing-destitute, they're occupied by rough characters who are squatting. I've read one person relating a tale about fixing up a house for resale only to find that the new furniture and fixings were stolen, just like the old ones were.

Even if thieves don't take advantage of improvements, a lot of those houses are little more than tear-downs now. They're formally counted as inventory, but as time goes by and damage increases they become more unsalable. A tear-down might as well be raw land.

That, believe it or not, is a salvation for residential real etate: time, wreckage and rot turning shadow inventory into unsaleable imaginary inventory - now kept on the books because the banks are afraid to write them off. There's already a substantial differential between new and used homes, and the former are moving. Word had gotten out that a used house is becoming like the used car of old legend. Once the wrecks are written off, inventory will necessarily shrink.

Consumer Sentiment Up For May, But Pending Home Sales Slump

The May reading for the Thomson Reuters/University of Michigan Consumer Sentiment Index showed a nice gain, jumping from April's 69.8 to 74.3. This month's reading was well above expectations. Credited for the rise was an easing of gas prices. The one-year inflation outlook fell from 4.6% to 4.1%, while the expectations barometer leapt from 61.6 to 69.5. The index of current conditions, on the other hand, fell from April's 82.5 to 81.9.

April's index of pending home sales, in contrast, tumbled to 81.9 from 92.6 in March; the latter number was revised downwards. This index measures signed contracts to sell existing homes. Although the weather was blamed, the drop suggests housing prices will fall further.


When these items were released, at 9:55 and 10:00 AM ET respectively, gold had already started pulling back from a new three-week high of $1,535. The metal reached that new high because of a leap, induced by the greenback turning downwards, that kicked in shortly after the equity markets opened. Gold seemed little affected by the news, slumping to $1,533 in that timeframe as it lost energy. It made a slightly higher peak a little later, prior to pulling back more.

U.S. House Prices Drop 2.5% In First Quarter Of This Year

According to the Federal Housing Finance Agency, which based their conclusion on mortgages acquired through Fannie Mae and Freddie Mac, house prices dropped 2.5% in the first quarter of this year.

"In many local real estate markets, particularly those hit hard by this cycle, foreclosures and other distressed properties are still a key factor in recorded and anticipated future sales and may be delaying price stability or recovery. Fortunately, serious delinquency rates also are declining," said FHFA Acting Director Edward DeMarco.

The Agency also made changes to its methodology that had the effect of lessening the decline: had the old methods been in place, the drop would have been 3%.


Gold, after dropping to $1,523 at 9 AM ET, had climbed up to $1,529 just before this item was released. Climbs and falls of the U.S. Dollar Index influenced the metal's own ups and downs. The release time saw gold on its way down to $1,526, and the greenback rising from slightly below 76.0 to just above 76.1. Evidently, the U.S. dollar market saw it as good for the greenback - perhaps because it induces more safe-haven demand - and gold reacted accordingly.

U.S. Home Sales Rise 7.3% In April, But Number Of Problem Banks Grow

For the second month in a row, after a steep drop in February, new-home sales rose. The annualized rate for April was 323,000 seasonally adjusted, for a 7.3% increase over March's.

The increase surprised economists, who had forecast a slight decline to 295,000, according to a MarketWatch survey....

Those gains followed February’s steep drop to a 278,000-unit pace. Analysts had attributed that weakness in part to winter storms that depressed figures in the East and the Midwest as well as a California tax credit that has expired

Increases in the past two months have come as the new-home market is near the bottom. Compared with April 2010, last month’s sales were down 23.1%.

Inventories of new homes also shrunk to about 6.5 months' worth, for the best showing since April of last year. However, the government warned that the underlying survey data isn't that accurate and is subject to large revisions.


Less sunnily, the FDIC reported that the number of problem banks increased slightly during the first quarter of this year. Although bank profits as a whole are healthy, the number of problem banks increased to 888 from 4Q '10's 884.


Gold rose solidly before these items were released, to $1,528, as the greenback resumed a slight decline. When the reports were released, the metal's advance halted and it got stuck around $1,527-8. It skidded a half an hour later, and then settled in around $1,525. The U.S. Dollar Index got a bit of a boost from the news, but it only lasted several minutes.

Leading Economic Indicators Fall For First Time Since June Of Last Year

The Conference Board's Index of Leading Economic Indicators (LEI) has shown good numbers for the last several months, rising in every month since July of last year. That changed when last April's number was released at 10 AM ET. The LEI fell 0.3% for that month, with six of the ten components negative. The worst component was average weekly initial claims for unemployment insurance. The LEI disappointed, as expectations were for it to stay flat.


The gold market didn't react all that much to the LEI announcement. After falling and troughing at $1,488 a little after 9 AM ET, the metal reversed course as the U.S. Dollar Index fell back. Peaking at $1,494 shortly after the report was released, the metal fell to a lower low of $1,487 before bouncing a little. The greenback slumped on the news, but later turned around and rose.

Momentum Growing For U.S. Treasury To Sell Gold

It's far from the impementation stage, and it's floated as a suggestion to show that the U.S. Treasury won't be as helpless as it portrays itself should the debt ceiling not be raised, but more and more politicians are suggesting that the gold be sold should the debt ceiling stay the same. Some seem to be suggesting the Treasury sell the gold it holds regardless.

Republican lawmakers, like Sen. Pat Toomey of Pennsylvania, have become emboldened in their skepticism after studying the issue with conservative organizations like the Heritage Foundation, Politico reports.

Ron Utt, a senior fellow at the Heritage Foundation, recently suggested to the Washington Post that U.S. could sell off its gold reserves from Fort Knox in order to pay down debt.

"It's just sort of sitting there," he said. "Given the high price [gold] is now, and the tremendous debt problem we now have, by all means, sell at the peak."

When asked about that idea, Republican Rep. Ron Paul of Texas -- known for his support of the gold standard and his interest in auditing the nation's gold reserves -- endorsed it....

A related suggestion is to sell the land held by the federal government.

U.S. Industrial Output Flat In April

Although the Federal Reserve cushioned the news by ascribing it to shortages caused by the Japanese earthquakes/tsunami, the central bank reported that U.S. industrial output was flat for the month of April. Growth rates for March and February were also revised downwards. Expectations for April were for a 0.3% gain. Capacity utilization was down marginally.


Gold didn't react to the news; nor did the U.S. dollar. The metal was afflicted by a two-stage tumble before the release time of 9:15, dropping to $1,478 before stabilizing around $1,480. That drop was not caused by a greenback run-up. After a recovery rally at 10:15, which peaked at $1,484 at 10:30, the metal tumbled yet again to $1,472.20 before bouncing up to $1,475. A small rise in the greenback may have triggered the latest sell-off.

Home Builders' Index Shows No Change In Confidence Level

The National Association of Home Builders' Housing Market Index for May was unchanged at a low level of 16: roughly, it means that 16% of home builders see conditions as good. The index was expected to rise to 17 for this month. Evidently, new housing is still in the doldrums: the employment situation and lack of access to credit were blamed.


The gold market got a bit of a boost when this index number was disseminated, although the 10 AM release time was in the middle of an upward run already in place. Contrary to my own expectation, gold double-bottomed below $1,494 around 9:00 and ran up to around $1,500 by the time this item was released. Afterwards, gold climbed further to $1,504 before getting stuck again. That rally was contemporaneous with a plunge in the greenback, which didn't seem much affected by the news.

U.S. Job Openings Rise To 3.1 Million

Some good news about the U.S. economy came with job openings for March, which were at the highest level since September of 2008. Openings for that month were 3.1 million, up from February's 3 million. Although job openings are up 16% from a year ago, with private-sector jobs up 23%, there's still more than four unemployed people per job opening.


Gold basically ignored this number, having been beaten down to the high 1500s with intermittent pokes above $1,510. It was kept down by a run in the U.S. Dollar Index, which crested at 75.0 before pulling back a little.

March Wholesale Inventories Up 1.1%

A report released at 10 AM ET showed that wholesalers' inventory levels for March were up 1.1%, which was a slightly greater rise than February's 1.0%. March sales were up 2.9%, and the inventory-to-sales ratio was 1.13.


Gold's fall, which started just before the start of regular trading, continued until the metal reached $1,506 just after 9:00. Initially crawling back to around $1,510, it picked up steam after this report was released; soon afterwards, it had climbed to $1,516. Although the report may have had some influence, the prior softening of the greenback had more to do with the recovery than wholesale inventory levels. Still, the report didn't hurt.

ISM Service Index Plunges, But Gold Doesn't React

The Institute for Supply Management has released its Services Index number for April. It still shows expansion in the sector, as April's number was above 50, but the reading plunged to 52.8% from March 57.3%. Expectations were for a mild uptick, not a tumble.


This number disappointed equity investors, but gold did not benefit from it except for a blip. The metal was at $1,538 when the number was released, and it jumped up to $1,541 right afterwards. But, it didn't continue rising despite the U.S. Dollar Index slumping down to a new thirty-one-month low of 72.685 shortly after the news. Instead, the metal skidded and then tumbled as the greenback recovered a little. As of just after 11:00, gold was at $1,526.

U.S. Factory Orders Rise 3.0% In March

Perhaps the recovery isn't as threatened as recent data had indicated. The Commerce Department reported that U.S. factory orders, after sinking slightly in February, jumped 3% in March. Expectations were for a 2.2% rise.


Gold didn't take very well to the news when it was released at 10 AM ET. After sliding back down to $1,537, the metal jumped up to $1,541 just before the news was released. After pausing, it sunk to $1,535 as the greenback took some heart from the news. Later, the metal stayed stuck in the 1530s as its stumbled up and down.

Chicago Purchaing Manager's Index Falls, Consumer Sentiment Rises

Two additional data on the U.S. econony were released within ten minutes of each other. At 9:45, the April Chicago Purchasing Managers' Index (PMI) showed a drop from March's 70.6% to 67.6%. That drop was slightly lower than expected; the subindex covering new orders plummeted. Despite the drop, the PMI still shows expansion: any reading above 50 says more firms are expanding than contracting.

9:55 saw the release of the Thomson Reuters/University of Michigan Consumer Sentiment Index. The April figure rose from March's 67.5 to 69.8. This reading was also slightly below expectations.


Gold didn't react to the first figure, staying stuck around $1,537.50. It did start to rise when the second figure was released, but didn't make a jump until 10:00. Then, in quick order, it got up to $1,545 and hung between that level and $1,543.50. Perhaps those figures did have an influence, as gold jumped before the greenback slipped.

March Pending Home Sales Index Climb 5.1%

The National Association of Realtors' index of pending home sales climbed to 94.1 in March from a downwardly-revised 89.5 in February. Despite conflicting data, it suggests the housing market is getting a break right now. As for the index, 100 has been roughly calibrated to be mid-range healthy.

"Based on the current uptrend with very favorable affordability conditions, rising apartment rents and ongoing job creation, existing-home sales should rise around 5% to 10% this year with sales growth of lower priced homes likely to outperform high-end homes," said Lawrence Yun, NAR's chief economist.

Also reported was the 30-year fixed mortgage rate, which ticked down to 4.78% last week from 4.8%.


Gold had already risen to $1,536 before the news was released, and got stuck at the release time. Moving through the blockage, the metal managed to break above $1,536 at 11:15 and hoof up to a new record high of $1,539.50. It then slipped back to $1,535.

Consumer Confidence Rises In April

Last month's consumer-confidence reading tumbled, but some relief came with this month's. March's has been revised upwards to 63.8, and April's came in at 65.4. That number was slightly above expectations for 65.0. As with last month's, this month's reading was dragged down by high gas prices. Interestingly, the index of current conditions was up for the seventh month in a row.

“Consumers’ short-term outlook improved slightly, suggesting that the uncertainty expressed last month is easing,” said Lynn Franco, director of the Conference Board’s consumer research center. “Although confidence remains weak, consumers’ assessment of current conditions gained ground for the seventh straight month, a sign that the economic recovery continues.”...

“The Fed will be pleased to see that the further rise in gasoline prices towards $3.90 a gallon does not appear to have put another dent in US consumer confidence or added to households’ inflation expectations,” wrote Paul Dales, senior U.S. economist with Capital Economics, in a research note.

The picture given is consistent with recovery, albeit a subpar one. Earnings season still shows a nice crop of earnings beats like Ford's and Apple's. Stagflation is approaching, but a double-dip recession isn't.


Gold didn't like this news, just as it wasn't too fond of the Case-Shiller number despite the latter showing housing in the dumps as of February. The metal started slipping at 8:45, and fell below $1,500 at 9:15. The consumer-confidence number provided the final drag-down to a new day's low of $1,491.80. After bottoming at 10:15, the metal did recover but only to $1,500- $1,502. Gold may have shaken off the consumer-confidence surprise, but it's still lower after all was said and done.

Case-Shiller Housing Index Down Again In February

March's new-home sales were up nicely, but February's figures were dismal. Confirmation of February's bad state was given by the latest number from the S&P Case-Shiller Housing Index. Home prices fell 1.1% as of February, making for a 3.3% decline from a year ago. Believe it or not, prices rose in Detroit: that was the only city out of 20 to see gains in February.

“There is very little, if any, good news about housing. Prices continue to weaken; trends in sales and construction are disappointing,” said David Blitzer, chairman of the index committee at Standard & Poor’s.

Housing has been plagued by issues that have created a Gordian knot for the sector.

On the supply side, an oversupply of distressed properties is pushing prices down. There are also worries of a so-called “shadow inventory” of homes that sellers and banks want to list, but are waiting for the right moment to do so.

On the demand side, many consumers are still having difficulty qualifying for mortgages even though rates are low.

There may be hope for March and in the future, particularly if the labour market improves, but the Case-Shiller uses a three-month average. Any improvement would be muffled.

U.S. New Homes Sales Jump 11.1% In March

Several economic measures have indicated that March was not a good month for the U.S. economy. But, sales of new homes is not one of them. According to the U.S. Commerce Department, new-home sales rose 11.1% last month. Although a nice improvement, it plays off against a dismal February - but it was well above expectations.

“With March sales gaining in every region except the South, the data are another reminder that activity readings in January/February were restrained by severe weather. Builder sentiment data and mortgage purchase applications have shown no collapse or subsequent surge,” said Steven Wieting, an economist at Citi.

But by region, sales are between 9.1% and 34% worse than the same period last year. The still-high unemployment rate, a glut of cheaper existing homes on the market and the large number of underwater mortgages have all combined to depress the market for new homes.

“Distressed sales continue to rob demand from new home sales and construction activity,” said Yelena Shulyatyeva, an economist at BNP Paribas.

Adding to the not-so-rosy cast to this figure is the fact that the average sale price fell 3.8% from a year ago, although it rose 2.9% from February's revised figure. Inventories, though, shrunk to their lowest level since 1967.


It makes for a mixed report, whose bright spots are treated skeptically by the associated article. Evident is a two-tier market, where new-home sales recover while used-home sales languish. That's a healthy development, because it signifies the house returning to its old-time status as a durable consumer good rather than a speculation vehicle. For durable consumer goods, new is better than used.


The gold market seemed to take a little heart from the news after tumbling to the low 1500s at 9:45. That tumble was prompted by a recovery in the greenback. Sadly, the bump-up at the time of the figures' release proved to be only a relief rally. Gold has another stumble to go before it bottomed at $1,502. Needless to say, earlier support at $1,510 has evaporated.

Make Way For Mainland China: IMF Expects Its Economy To Be Biggest By 2016

I'm sure you've heard claims that the mainland Chinese government undervalues its currency to gain a trade advantage. Well, the IMF has published an unthought-of implication: the mainland Chinese economy is much larger than official statistics indicate. As Brett Arends passes on, the institution has valued mainland China's economy using a purchasing-power parity measure for the renminbi's "true" value; based upon that revaluation, and current trends, the IMF has forecast that mainland China will have the world's largest economy by 2016. Just in time for it to become an issue in the Presidential election after next.

According to the IMF forecast, whomever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.

Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of various stripes, and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s.

But they’re miscounting. They’re only comparing the gross domestic products of the two countries using current exchange rates.

That’s a largely meaningless comparison in real terms. Exchange rates change quickly. And China’s exchange rates are phony. China artificially undervalues its currency, the renminbi, through massive intervention in the markets....

Arends also goes into the implications for geopolitics. The last transition of economic leadership was from the U.K. to America. Both countries have a common language, similar systems of government and cultures. China has none of those similarities or commonalities. That disjoint will result in a transition that will be bumpier than the last one.


Of course, mainland Chinese are different from Americans in another way. Not having an extensive social-security system, they save a lot more than their American counterparts. They also love gold, whereas many Americans don't.

America has a better-developed financial system; geopolitically, it's still the hegemonic power. I know this is a mercantilist age, but economic dominance does not necessarily translate into geopolitical dominance. What does translate is military dominance.

As long as the American hegemon is still one, America will still be the world's leading financial centre. The U.S. Treasury has benefitted a lot from America being the king of the financial hill. As the history of the U.K. demonstrated, financial and military supremacy can endure for a long time after economic supremacy fades.

That is, if the hegmon's finances are in order at the time of transition. The U.K. government's were; the American government's aren't. As a result, the economic shift will appear to bite America in a way that the shift to American economic supremacy didn't bite the U.K. Sadly, U.S. government fecklessness will add to nationalistic and protectionist sentiment that will be inflamed by mainland China becoming the #1 economy.

Speaking of gold, Arends ends by saying it's not much of a surprise to see gold go up in these turbulent times.

Leading Economic Indicators Rise More Than Expected, But Philly Fed Index Collapses

The March Index of Leading Economic Indicators rose 0.4%, which is less than February's rise but still higher than expectations for +0.2%. February's gain was revised upwards from 0.8% to 1.0%. Six of the ten components were positive in March; one of the four negatives was consumer expectations.

The leading indicators surprised on the upside, but they don't exactly gibe with a collapse of the Philadelphia Fed's manufacturing index: it plummeted from March's 43.4 to April's 18.5. Expectations were for a drop to 35.5. Although the fall was deep, March's reading was unusually high: its 43.4 was the highest since January of 1984.


Gold, bouncing around in the low 1500s, jumped up only a dollar and a half on the news. Thwarted at $1,505, it bounced around $1,504 before sinking and then recovering. So far, the pit session's been pretty quiet.