Businessweek.com compiles comments from Wall Street economists and strategists on the key economic and market topics of May 25.
Michael Englund, Action Economics
The Conference Board's U.S. Consumer Confidence index rose to a new cycle high of 63.3 in May, from 57.7 (was 57.9) in April, 46.4 in February, and 56.5 in January. Yet despite the climb from the dismal February reading, we are still in recession territory, though we are at least now well above the 47.3 all-time low from before this cycle, seen in February 1992, and the pre-1992 record low of 50.1 in May 1980. Current readings are still way below the 84.9 low from the last recession, seen in November 2001, though the measure fell to a later midcycle low of 61.4 in March of 2003—when the U.S. invaded Iraq—that left the index close to the current reading.
Today's consumer confidence gain was led by the expectations component, which rose to a new cycle high of 85.3, from 77.4 (was 77.6) in April. The current conditions index, which is more closely correlated with the economy, posted a more modest rise to particularly low 30.2—which finally brings this index back above the 29.7 recent high, seen in May of last year.
David H. Resler, Nomura Securities
The S&P/Case-Shiller 20-city house prices index for March (unadjusted for seasonal effects) was up 2.3 percent from a year ago, the best 12-month price gain since October 2006. As a reflection of the seasonality of the housing market, unadjusted prices have fallen for six straight months—the typically weak winter months in the home buying market. When these seasonal effects are taken into account, the 20-city March index was slightly lower than in the previous month for the second month in a row.
Although the national averages show improvement, the regional detail underscores the wide range of price experience across major markets. Fully half of the 20 cities hit new record lows but others show clearer trends of improvement, especially in the most "bubbly" California cities. Overall, this report reinforces a cautiously optimistic view of the housing market and generally supports the supposition that house prices are near their bottom but that any price appreciation ahead will be limited.
Nicholas Smallwood, Daiwa Securities
Following the failure of CajaSur over the weekend and its takeover by the Bank of Spain, four Spanish cajas have announced a plan to combine to form the nation's fifth-largest financial group, with more than €135 billion of assets. Caja de Ahorros del Mediterraneo, Grupo Cajastur, Caja de Ahorros de Santander y Cantabria, and Caja de Ahorros y Monte de Piedad de Extremadura have submitted their proposal to the Bank of Spain and are awaiting permission to go ahead. The merged group would have a Tier 1 ratio of 9.4 percent, which is considerably more than most cajas can muster individually.
There are also stories that both the Spanish government and the main opposition party support changing the law to allow the cajas—which currently have no shareholders and have been criticized for lacking accountability—to sell shares with voting rights to improve their capital and governance.
Andrew Tilton, Goldman Sachs
Apr. 30 was the deadline for home purchase contracts eligible for the homebuyer tax credit—one of several elements of government support for the economy that will end this year. Thus far, the decline in new mortgage applications for purchase (34 percent) has been similar to the decline last autumn, leading into the originally scheduled expiration of the credit in November 2009. Based on the behavior of home construction, sales, and other measures around the previously scheduled expiration, we expect that housing starts will ease slightly over the next month or two, and both new and existing home sales should decline 10 percent to 20 percent over the next two to three months.
We suspect mortgage purchase applications are near a trough, but a further decline in coming weeks would point to potentially bigger effects on sales and construction than we estimate here. Although the expiration of the credit (as opposed to its extension in November) suggests a larger impact this time around, better employment growth and the recent drop in mortgage rates provide a material offset.