Around the Street
Experts Weigh Claims, Wholesale Sales, G8, Credit
by BusinessWeek staff After a recent run of disappointing economic data, U.S. markets got some relief on July 9 in the form of better-than-expected reports on weekly initial jobless claims and May wholesale sales. Meanwhile, the meeting of the Group of Eight industrialized nations was winding down in Italy, with representatives of member countries discussing the U.S. dollar's role as the world's reserve currency. What did market experts have to say about these and other topics on July 9? BusinessWeek compiled comments from Wall Street economists and strategists: David Wyss, Standard & Poor's The Census Bureau reported that wholesale inventories fell 0.8% in May, while sales rose 0.2%. The inventory drop was in line with the consensus estimate of a 1.0% drop in inventories. The inventory/sales ratio fell to 1.29 months in May from 1.31 months in April, but remains well above the 1.12 months of a year earlier. Over the last year, sales were down 19.9% while inventories have dropped 7.6%. The wholesale data usually are dominated by imported goods, and thus provide little information on gross domestic product. They do suggest a continued drop in imports in May. Michael Englund, Action Economics The 52,000 plunge in U.S. initial jobless claims, to 565,000 in the first week of July, following the 13,000 drop to 617,000 (was 614,000) in the final week of June, reflected the mismatch of this year's auto layoffs from the usual seasonal pattern. Early auto plant shutdowns in May and June front-ran the seasonal factors, leaving a boost in seasonally adjusted initial claims that is now being unwound in July. Continuing claims soared by 181,000, to 6,883,000, in the final week of June following the 31,000 drop, to 6,724,000 (was 6,702,000), in the prior week, leaving this measure above the prior all-time high of 6,835,000 in the final week of May. These figures should climb with the jobless rate through the summer months, Marc Chandler, Brown Brothers Harriman The G8 meeting is wrapping up, and there have been no surprises to speak of. After rejecting initiatives by the Chinese and Russians (according to news reports) to formally discuss reform of the international monetary order to reduce the role of the dollar, the G8 draft indicates support for a "stable" and "well-functioning" international monetary system. A spokesperson for the Foreign Ministry reaffirmed that China supports creating a diversified international reserve currency. In the future, while the talk is likely to persist, as the political benefits are positive for China, as we are not talking about how the yuan has essentially been re-pegged against the dollar, or how Chinese consumption as a percentage of GDP has fallen, or how incredible growth in loans (doubled in June from May have already surpassed the full year goal) may be fueling over-investment and an asset bubble of their own. Jan Hatzius, Goldman Sachs Household credit quality is caught in a tug of war. On the one hand, the pace of home price declines appears to be slowing. On the other hand, unemployment is still rising, and wage growth is slowing sharply. So which side is winning? On the mortgage side, data from
suggest that serious delinquencies have continued to rise sharply through May. The best one can say is that the pace of deterioration has shown signs of stabilization in recent months, but even this is very tentative. The picture is brighter on the installment credit side. The increase in delinquencies slowed in the first quarter, and bottom-up data from credit card and auto lenders point to further incremental improvement in the second quarter.
Overall, we view the evidence as consistent with our central expectation that aggregate charge-off rates will rise further in the next couple of quarters but will ultimately fall short of the assumptions in the U.S. regulators' recent "stress test," let alone the most dire predictions of private forecasters.