Retail Sales Up

The International Council of Shopping Centers reported that chain-store sales rose 2.8% in December 2009, compared to December 2008 sales.  The rise was only slightly better than expected, but still helped to push the markets up as the S&P 500 posted a modest gain of .5%.

Bank of England -  Key Lending Rate Unchanged

The Bank of England’s Monetary Policy Committee on Thursday left its key lending rate unchanged at a record-low 0.5%.  The BoE is continuing it quantitative easing policies not only by keeping interest rates, but also announced it would begin purchasing corporate bonds.  Ideally the extra money infused into the system should encourage lending from the institutions.  Naturally the British Pound decreased to $1.5942.

People’s Bank of China - Raised Key Interbank Market Interest Rate

The People’s Bank of China sold 60 billion yuan ($8.8 billion) worth of three-month bills at 1.3684%, four basis points higher than last week.  This increase is seen as a tightening effect and a sign that China may be starting to unwind its policies put in place during the financial crisis.  The U.S. Fed has enforced that its easy-money stance will stick for at least several months to come, but the increase in China could be an indication for what’s to come in the U.S.

The Institute for Supply Management released their second report for December 2009 this week - this time focusing on Non-Manufacturing businesses, which range from financial jobs to pet care.  Non-Manufacturing businesses are approximately 88% of the U.S economy.  The Non-Manufacturing Index increased last month to 50.1 from 48.7 in November.

From this snapshot of time, the numbers don’t look all that good, even though technically the index shows the sector as in expansion.  The numbers are, however, much better than the indexes 37.4 low in November 2008, up about 13 points.  The manufacturing index is on a much higher pace, up from its December 2008 low by 23 points.

Employment in the sector is still contracting, as the trend has been for 20 months, but the contraction is slowing.  A welcome sign and possibly an indication of what Friday’s job report has in store.  We will see.

Above tables and full report can be found at the ISM website

Real Estate

The key indicator for the housing market was released today, The National Association of Realtors Pending Home Sales Index.  The index sunk 16% down to 96 in November from the upwardly revised 114.3 in October - the first decrease since last January.

The drastic increase in sales previously was caused by the buyers race to close their deals before the initial expiration of the first-time home buyer tax credit.  The decrease, however, still put the index above the level a year ago.  Lawrence Yun, the National Association of Realtor’s chief economist, said the drop was expected.  (Home sales usually go down in the Winter, however, the numbers stated and the above graph are all seasonally adjusted.)  Interestingly enough analysts surveyed by Dow Jones Newswires were not as expectant as the decline more than tripled their expectations.  Yun also added, “The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own. We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires.”

Auto Sales

Auto sales for December, unlike pending home sales, increased.  This is welcome news considering this increase is without the government’s famed “Cash-4-Clunkers” incentive.

The numbers still aren’t great.  Before the recession auto sales were up to 16 million.  Those sales were often fueled by unusually low interest rates - people had to practically have money given to them to buy a car.  Car companies may have to realize this was not a realistic number to project budgets off of as their fixed costs are now not being recovered by the slumped sales.  It seems as if they have made the realization (mainly because they didn’t have a choice) as we have witnessed the closing of many auto factories.  This new level of auto sales may be the new standard, and that’s not necessarily awful.

Factory Orders

When the recession hit, the consumer locked up and started saving for the unknown.  Businesses had forecasted their inventories for that unknown and at the time one of the worst recessions in decades wasn’t in the cards.  Businesses were forced to slash their inventories and curtail production to fall to the lower demand.  However, the consumer has slowly wound the combination of the padlock on his wallet and the chains are coming off - the consumer is spending again.  The businesses can now spend again as well to meet the demand.  Factory orders in the U.S. rose 1.1% in November according to the Commerce Department, more than twice as anticipated, a sign companies are increasing production.  This further solidified the foundation of the idea of an intact manufacturing sector that was set by the ISM’s report released yesterday.

Manufacturing Data up in U.S., China and Europe

The Institute for Supply Management released its purchasing managers index for the U.S. manufacturing sector today, revealing a rise from 53.6 in November to 55.9 in December.  The rise was the fifth consecutive month rise for the index and the highest level for the index since 2006.  When the index is above 50 it illustrates an expansion and the greater the difference from the 50, the faster the growth.  December’s increase in the index was higher than expected as the markets anticipated an increase to only 54.3.  As would be anticipated this positive surprise had a positive reaction on the markets, the S&P 500 closed at 1,132.99 up 1.47% and the Dow Jones Industrial Average also rose 1.47% to close at 10,583.96.  World markets also rose as the HSBC China Manufacturing PMI rose to 56.1 in December from 55.7 in November and Markit Economics purchasing manager survey, focusing on a 16-nation euro area rose to 51.6 from 51.2.  Looking below we can see the details of the ISM’s release:

Above table and full report can be found at the ISM website

Although employment levels in manufacturing increased for the third straight month, the real employment level the market cares about won’t be released until Friday.

Oil

Oil prices made a quick jump today as crude oil futures went from below $80 to above $81, possibly uplifted by the positively surprising manufacturing data as investors reconsidered a higher demand for crude oil.  The cold weather in the northern U.S. was also charged as a factor in the increase as well as the tension between Russia and Belarus.  It is unlikely the jump is a prediction of a continued substantial increase in oil prices.  Oil prices closed above $81 on November 4th of last year and later fell to as low as $70 a month ago.  The majority of analysts are saying the best prediction is continued volatility.

The Almighty Dollar

The dollar fell 0.51%  to 92.89 yen while the euro rose 0.5% percent to $1.4389.

Real Estate

New construction fell in November by 6% to the lowest level since July 2003 at $900 billion for the month.  This decline was primarily due to less homebuilding and fewer commercial projects.

The same tune wasn’t being played in the United Arab Emirates today (or at least it was muffled by fireworks) as the Burj Khalifa, the world’s new tallest tower, was unveiled.  The tower reaches a height of 828 meters (the taller World Trade Center was 417 meters) and cost approximately $1.5 billion to create.  German architect Meinhard von Gerkan, who designed Berlin’s central train station, wasn’t impressed calling the Burj Khalifa “an economically pointless symbol of prestige, representing the power of money.”  Maybe Meinhard was unaware Burj Khalifa has the world’s highest pool 76 stories up.

Finally…

Some obvious insight from Bob Bach, the chief economist at brokerage Grubb & Ellis, “If banks aren’t lending because they’re coping with losses in their real estate portfolios, this could impede the economic recovery.”