Tuesday (January 6) brought a barrage of important economic news. It was a mixed bag as Americans and investors watched for signs of a potential 2009 economic rebound. The reading of the Fed minutes that led to the ¾ point rate cut in December was a big concern. It indicated that 2009 could see a deepening recession and some data suggests jobs performance could get worse into 2010.

Hope for aggressive action by the O’bama Administration and the Fed caused investors to remain in buy mode through the end of the trading day. The Fed minutes noted the Central Bank’s resolve to keep interest rates low as long as is necessary. Support appears to be growing for President-elect O’bama’s $300 billion economic stimulus proposal as well.

Pending home sales from November captured headlines too. According to a report from the National Association of Realtors (NAR), the number of homes under contract for purchase fell to the lowest level on record during November. The index fell four per cent from 85.7 in October to 82.3 in November. Analysts had anticipated a slight improvement to 88, according to Thomson Reuters.

Given the traditional lag in pending sales between a signed contract and the close of a deal, expectations are already set for a poor December showing. The new data combined with other recently poor housing data has prompted calls for O’bama to focus on the housing sector as a major piece of his new economic stimulus plans. Housing prices and sales of new and existing homes have been in a more than one year slump that has produced historically poor results in the housing market.

There are some encouraging comments coming from leading analysts of the housing market. Forecasts currently show that home prices should remain flat or even rise slightly for 2009. Analysts predict a $198,100 median price for the coming year compared to $197,000 last year. Also, some leading real restate professionals believe there will be a slight rise in the number of homes sold for 2009.

One sign of the times is an estimate from the NAR that roughly 45 per cent of the current pending home sales are associated with foreclosed and distressed properties. The bad news is that this shows just how many Americans have been affected by backlash from the failed sub-prime mortgage industry. The good news is that investors and savvy home buyers seem to be looking to find some good deals on rock bottom home prices. Historically low mortgage rates have helped contribute to renewed interest.

Americans remain hopeful that 2009 can be a more prosperous year than its devastating predecessor. Despite some data that continues to show pain and struggle, sentiments appear strong in both the investor and consumer front. Though some retailers believe consumers are still buying, discount prices and sales that have drawn customers to malls and stores may be hard to reverse. Inducing business with deep price cuts may drive traffic and revenue, but it is not necessarily a good long-term development for retailers who need capital for investment and growth.

Market Recap

The Dow dropped 75 points Monday to open the trading week. Oil jumped to $50. The Euro fell sharply against the dollar. Tuesday, mixed news led to a modest 62 point gain in the Dow. The NASDAQ and S&P were also higher by 24 and 7 points, respectively. The Fed minutes showed the US may be mired in recession through 2009 and the jobs outlook is bleak. Alcoa is set to cut 13 per cent of its global work force. Oil closed down at $48.58 on the sour economic picture.

Neil Kokemuller
Tuesday, January 6, 2009
9:10 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

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