US economic analysis for the week of June 20, 2005
Oil is the never-ending story as soaring price continue to hobble the US economy.
Thursday was an ominous day for many on Wall Street as oil peaked above $60 per barrel. As a result, the markets had their worst showings in two months.
The Dow Jones Industrial Average shed over 166 points, or 1.57%, yesterday for its largest single day drop since April. The S&P 500 and Nasdaq also had poor outings, each losing 13.15 points, or 1.08%, and 21.37 points, or 1.02%, respectively.
Investors are growing increasingly more and more concerned about the upward creeping price of crude oil and its long term effect on corporate profits and consumer spending. There is a nagging fear that unfettered demand will increasingly strain supplies as the summer months give way to cooler temperatures and high heating costs.
Throughout, various market sectors have seen a sell-off as jittery investors try to unload potential problem shares. Even shares of discount retail chains like WalMart took a hit because these stores particularly cater to low-income customers who spend significant portions of their incomes on fuel.
Meanwhile, in the steel sector, shares of Steel Technologies fell more than $3 after it reported its third quarter earnings will be less than it had forecast. Earlier this week
Nucor Corporation took a hit after it reported that its second quarter earnings will be on the low end of its previous forecast.
In other news:
The US Department of Commerce (DOC) reported that May sales of new single-family homes rose at a seasonally-adjusted rate of 1.298 million from Aprils newly revised rate of 1.271 million.
The report also indicated that prices dipped slightly. For May the median price of a new home fell from $232000 to $217000. This was the lowest reading in 8-months. At the same time, the average price for new homes dipped very slightly from $282500 to $281400.
The new homes data comes quickly on the heels of a previously owned homes report. In that, the DOC reported that sales dipped just slightly 0.7% but year-on-year prices were up 12.5%.
Economists warned not to read anything negative into the homes data and that it is not indicative any deflation to the so-called housing bubble and revisions to existing homes data is simply signs of more rational trends starting to prevail.
The DOC also released mixed data on durable goods sales today.
The report showed that durable goods rose 5.5% which was far better-than-expected but a lions share of the gain was from the transportation sector and without factoring that in, durable goods orders actually dropped 0.2%. Analysts had been expecting a rise of 1% and excluding transportation, 0.5%.
Overall, if the stock markets find the durable goods data favorable, they are not showing it. In early Friday morning
trading all major indices were down almost half a percent and the selling spree continues unabated.
Things now build for the almost-certain Federal Reserve (Fed) rate hike that will come before the July 4 holiday. If the Fed does not raise the rate at least a quarter of a percent next week, it will probably do so at its meeting in August.
But analysts worry that the Fed just does not seem to be getting it through its head that the economy, as a whole, is not firing on all six cylinders. Despite a surging housing market, other factors like weak
manufacturing data and, of course, the bi-polar stock markets are causing a lot of distress.
Regardless, it is still a given that the Fed will continue raising rates to its desired 3.5% to counter inflation and though some are speculating that the Fed may actually pause or even reverse course slightly, that is highly unlikely unless the economy were to actually enter a pronounced nosedive.