Vital Signs: Investors Want More Cuts from the Fed

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NEW RESIDENTIAL SALES - Tuesday, Jan. 29, 10 a.m. EST

Home sales are expected to hold steady in January after a big drop in December. During the final month of 2007, sales came in at an annual rate of 647,000, from 711,000 in November, a 9% drop. It was the weakest monthly result since April of 1995. And on a yearly basis, sales are off a dramatic 34.4%, the biggest year-over-year decline since 1991.

The recent numbers could actually be worse. The Census Bureau report does not include buyers backing out of deals, which are still occurring frequently. The figures show that the housing market is not turning the corner yet and housing may keep contracting through 2008.

Even though sales fell in December, the number of unsold homes for sale did tick down to 505,000, the smallest level of inventories since November of 2005. That shows that builders are making some progress in pulling back on new construction to get supplies in line with demand.

However, with the number of unsold homes still large enough to cover more than nine months of sales at the December level, there is still a lot more work to be done on the part of builders. Construction needs to be ratcheted back even further and sales prices will need to be lowered.

ICSC-UBS STORE SALES - Tuesday, Jan. 29, 7:45 a.m. EST

This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will present sales results for the week ended Jan. 26. A weak holiday sales season is stretching into the new year. For the week ended Jan. 19, sales did bounce up 0.7%, after a 0.9% drop in the week of Dec. 12, and a 0.4% during the prior week.

On a yearly basis, store sales grew 1.6%, up from a very weak 1.1% rise in the week ended Jan. 12, but below the 1.9% rise in the week of Jan. 5 and 2.3% for the prior period.

JOHNSON REDBOOK INDEX - Tuesday, Jan. 29, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the third fiscal week of January, ending Jan. 26. In the first two fiscal weeks of January, sales were down 0.2% compared to the same period in December. For the full month, December spending retreated 0.7%. The latest numbers reveal some post-holiday weakening in consumer spending.

DURABLE GOODS ORDERS - Tuesday, Jan. 29, 8:30 a.m. EST

Economists are forecasting a rebound in durable goods orders for December. The consensus a month ago was that orders would bounce back strongly in November, but the report showed a 0.1% fall. In fact, orders have declined for four straight months.

There has been a lot of volatility among some key industries. Computer orders rebounded in November, with a 24.9% increase following a 23.2% plunge the month before. Construction machinery showed a similar pattern, while industrial machinery dropped in November after a big gain in October. Meanwhile, the volatile civilian aircraft category zoomed up 20.8% in November following a tepid 0.3% rise in October. And orders for housing related goods such as furniture and appliances remain weak.

The volatile dives and gains are netting out to an overall weakening in the industrial sector. Durable goods orders are off 0.5% from a year ago. And the key measure of capital goods orders excluding defense equipment and the highly volatile civilian aircraft category is off 2% from last November. This reading is often called core capital goods orders and is viewed by economists as a reliable gauge of business investment.

Other manufacturing related data since the last durable goods report have also been softer. A national survey of factory activity indicated falling output in December, while the Federal Reserve’s December industrial production report was flat.

S&P/CASE SHILLER HOME PRICE INDICES - Tuesday, Jan. 29, 9 a.m. EST

The S&P/Case Shiller Home Price Indices measures changes in home prices on a monthly basis in 20 major metropolitan areas. Price changes are tracked by using repeat sales data. When a house is resold, the latest sales price is paired up to the amount from the prior purchase.

The October home price index for a group of 20 cities plunged a record 1.4%, after a 0.8% fall the month before. In addition, all 20 cities posted monthly drops for a second consecutive period.

The longer running composite index of 10 cities also posted a 1.4% monthly decline, also a record for an index that stretches back to 1987.

On a monthly basis, the cities posting the biggest drops occurred in San Diego, Detroit, Las Vegas and Phoenix. Except for Detroit, these cities also saw the huge price gains during the housing boom.

On a yearly basis, the 20 city composite index was off 6.1% and the 10-city index was off 6.7%, both record declines. Even in cities where prices are still rising, such as Seattle, Charlotte, and Portland, the gains are rapidly slowing. In September, the yearly price change for Dallas turned negative. The widening scope of the housing recession will put more pressure on consumer spending and economic growth during 2008.