US economy improving but revival of US consumer needed for full recovery

General: The US economy contracted less than expected in Q2 and hopes are that Q3 will show a slight growth, technically ending the recession. Consumer spending went up 0.2% in July driven by the “cash for clunkers” incentive program for the automobile industry. But the uncertainty in the labor market has reduced net worth as falling house prices and high debts still weigh down the US consumer. Consumer spending accounts for almost 70 percent of the US GDP. Still, the Purchasing Managers' Index is creeping up and is in striking distance of the magic number “50” which would signal an economic expansion again. But warning bells for commercial property mortgages are ringing louder every month. $700 billion of commercial-mortgage-backed securities were issued during the boom times and are now being tested by a distinct downturn of the market. Delinquency rates are sharply up and office occupancy rates are down. Banks hold a combined $1.7 trillion in commercial mortgages and construction loans, and Federal Reserve officials are working overtime to prevent another cataclysmic crisis.

GDP: -1.0% in Q2 2009 from Q1. Compared to Q2 2008 the fall was -3.9%.

Consumer Prices: -2.1% in July (+5.6% a year ago)

Consumer Confidence: 54.1 in July, up from 49.3 in June

Industrial Production: -13.1% in July from a year ago; -0.5% compared to June. In Q2 the decline was -11.6% and a somewhat more moderate contraction than -19.1% in Q1

Producer Prices: -6.8% in July from a year ago; -0.9% compared to June

Unemployment: 9.4% in July

Trade Deficit: -$27.01 billion in June, -$674.4 billion for the past twelve months

Currency: 0.70 Euro to US$1 as of August 26 (0.68 a year ago) 

Housing: Housing starts in July fell slightly to a seasonally adjusted annual rate of 581,000 units. This is -1.0% below June’s revised number and -37.7% below last year. Housing permits dropped -1.8% to a seasonally adjusted annual rate of 560,000 units. This is -39.4% from July 2008. Existing home sales in July rose 7.2% from June to a seasonally adjusted annual rate of 5.24 million units. This is 5.0% above July 2008. The national median existing-home price for all types was $178,400, which is -15.1% from a year ago. Total housing inventory at the end of July rose to 4.09 million units, representing a 9.4-month supply at the current sales rate.

Automotive Industry: 372,493 units were produced in July or -34.9% less than last year In the first seven months of the year 2,699,165 units were produced or -50.6% less than last year. In July 995,402 units of light vehicles were sold. This is -12.1% under last year. In the first seven months of 2009 the decline of total sales was -32.0% compared to last year.

Steel Production: 4.97 million metric tons in July or -41.6% less than last year. In the first seven months of the year 29.24 million metric tons were produced or -50.8% less than last year.

Purchasing Managers’ Index: According to the Institute for Supply Management the PMI rose to 48.9 in July from June’s 44.8. It remains for the 18th month in a row in a contracting mode but it is getting ever so slowly closer to the 50 mark that would signal a turnaround.

Other data in that report were as follows:
New Orders: 55.3 (49.2 in June) – trend is “growing”
Production:  57.9 (52.5) – “growing” for the second consecutive month
Inventories: 33.5 (30.8) – “contracting”
Customers’ Inventories: 42.5 (43.5) – “too low”
Manufacturing Sector: “contracting” for 18 consecutive months but at a slower rate
Overall Economy: “growing” for the third month in a row