US economic analysis for the week of May 23, 2005

US economic analysis for the week of May 23, 2005

The week begins with a bang as a stellar homes report hits the headlines. Debate continues to rage over whether the strong US housing market is experiencing a long-term boom or a temporary bubble. Federal Reserve Chairman Alan Greenspan said that there enough local market bubbles to constitute a “froth” in the overall housing market. Regardless, national home sales continued their torrid pace. In April, sales of previously owned homes rose to a record annual rate of 7.18 million, an increase over the 6.87 million reported in March and annihilating the previous record of 7.02 million set in June 2004. Moreover, the strong sales spurred further rises in sales prices. It is reported that the median price of existing homes climbed to $206’000, a 7% increase from March and a 15% jump from the previous year. The average home price also rose, up 3% to $255’000 from March and 10%, year on year. The markets will keep a keen on eye on Wednesday as the report on new homes sales is released. Meanwhile, the home sales report gave the dollar a boost against the yen and euro. At last count, the euro was trading up 0.3% at $1.2598 but clearly down from its intraday high of $1.2629. The dollar showed a small decline of 0.3% or 107.46 yen. Earlier it had traded as low as 107.21 yen. In another economic development, minutes obtained from the Fed May 3 meeting show a continued concern over inflation “upcreep”. This is clearest sign that the Fed will continue to raise interest rates to counter rising prices at least twice more this year to 3.5%. Response from Wall Street about the Fed’s concerns was lethargic with all three major indexes dropping slightly on the news. For the week, the Dow and S&P 500, have rallied 5 out of 6 days while the NASDAQ has trended upward 6 days in a row. Fuel prices continue their yo-yo paces. Oil prices inched upward to near $50 a barrel on improved hedge betting on long-term prices and improved gasoline futures. There are also supply concerns over the Memorial Day weekend. Last week’s low price of $46.20 may be the last price respite US consumers see for some time as the coming weekend unofficially marks the beginning of the summer holiday driving season.