Market Update — July 6, 2012

Here are some of the stats / ideas that I read today (or was sent by readers and friends)…

ECB lowers rate.  The ECB cut its main lending rate by .25% to .75%.  This is an all-time low.

China also lowered rates.  China cut its benchmark lending rate by 31 basis points to 6%.  This is the second cut in a month.  The deposit rate has been cut to 3%.

Weak retail sales.  Retail sales rose 2.5% in June.  This compares to a 7.7% increase in June 2011.  This was the lowest increase since November 2009, when sales increased .9%.

Not services!  The ISM’s service index fell from 53.7 in May to 52.1 in June.  A reading above 50 represents expansion, but economists predicted 53.0.

Slow service growth.  The rate of growth in the services sector slowed (in June) to its lowest level since January 2010.

Lower initial claims.  Approximately 374K Americans filed for jobless benefits last.  This was a 14K drop, but it’s still not a promising number.

More mortgage records.  The rate for the 30 year fixed mortgage dropped to 3.62%.  The rate has matched or hit a new low for 10 of the last 11 weeks.  The 15 year mortgage fell to 2.89%.

Barclays fined.  Barclays agreed to pay $453MM to settle allegations that they manipulated LIBOR by reporting lower numbers (than were true).   LIBOR is based on a survey of 16 banks.  Barclays was trying to give the impression that they could borrow money cheaper (during the crisis) than they actually could.

The numbers keep growing.  8.73MM workers are on disability as of June.  This is greater than NYC’s population.  There are approximately 16.3 people working to support each person on disability.

Pretty big state.  If we created a state for all of the people on disability, it would be the 12^th largest state in the country.

Another 2MM people.  There are 165K spouses of disabled workers and 1.9MM children of disabled workers who are also getting benefits.  This brings the total to 10.8MM people receiving some sort of disability payments.

Increasing rents.  Average rents increased in all 82 markets tracked by Reis.  They are at record levels in 74 of those markets and top $1,000 per month in 27 of them.

Tight rental market.  The vacancy rate is now 4.7%.  This is the lowest level since the end of 2001.  It was 8% in 2009.  This is only the third quarter in over 30 years that the vacancy rate has been below 5%.

Losing mid-level jobs.  A recent study showed that from 1989 – 2007, the number of personal service jobs increased 36% and very good jobs (like management and finance jobs) increased 40%.  But, there was only a 5% increase in routinized production, machine-operator and clerical jobs.

The trend continued.  From 2007 through 2010, the number of jobs in the U.S. fell 6%.  Middle-skill jobs fell by 12%.  High-education jobs only fell by 1%.  Personal service jobs increased 2%.

Anecdotal evidence.  During this period, the four largest publicly traded home-health agencies added 22K workers (up 84%).  The US workforce of Ford fell 19K (20%) and GE’s U.S. workforce dropped by 24K (15%).

Potential problems from home equity lines.  The Office of the Comptroller of the Currency warned that more than half the amount borrowed on equity lines at national banks ($221 billion out of $380 billion) will face higher payments from 2014 to 2017.  This can affect consumer spending as well as the banks.

The reason for the home equity problem.  Most home-equity lines extended during the first decade of this century only required interest payments during the first ten years.  Now, borrowers will have to start to pay back principal.

Lets see the jobs number.  No incumbent president has won re-election with an unemployment rate above 7.2% since the Great Depression.

Ugh…Walmart is rallying.  Look at the chart below.  Notice how WMT rallied in late 2007 and early 2008 as we entered recession.  Look at WMT rallying today.  (Weren’t they just being attacked for bribery in Mexico?)

Have a great weekend.

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