Following a strong starting to the week, financially, jobless claims and housing market data put Wall Street and consumers in sour moods Thursday (July 24). Weekly jobless claims were over 400,000, the highest weekly impact since 2005.

Housing data was weak, souring some recent hope that a market bottom was upon us. Sales of previously own homes dropped in June. This was disheartening because many analysts have suggested the market is turning positive, but it will take time to dig out of the excess inventory built up from poor sales and record foreclosures. Negative existing home sales causes concerns that the present interest in home buying is not improving as might have been previously suggested. Sales of previously owned homes dropped by 2.6 per cent.

The median price for a home sold in June was $215,100. This was over a six per cent drop in value from June 2007, the fifth largest annual loss in home values on record, according to the National Association of Realtor.

Perhaps most frightening is the broad economic cycle impact today’s data might present. Poor job opportunities and home buying are linked, with several other important economic items in the picture. When businesses are concerned with the economy and profit performance, they tend to make budget cuts, which often includes to downsizing. Just this week, several large banks indicated an expectation of cutting tens of thousands of jobs.

People who do not have jobs or are concerned at the potential for a job loss are not likely to be in the home buying market. This lack of buying demands leads to excess homes inventory, which is especially bad news given the multitude of homes already on the market. Excess homes on the market drives prices down based on natural supply and demand economics. Throw in record foreclosures over the last year and quarters, and it is easy to see why the current housing market is saturated with more homes than buyers and why prices are dropping.

The cycle continues, as consumers that do not have jobs also have a hard time buying products. Consumers are strapped with high gas and retail prices. Less consumer purchasing deteriorates the economy, which scares businesses. What do scared businesses do? They freeze business expansion, do not hire for new positions, and often downsize. And, the cycle goes on.

It is obvious looking at the big picture and the elements of the economic cycle in light of all the recent market, why the government has felt a need to intervene. The tax stimulus package was a move intended to facilitate the consumer spending that the economy was struggling to produce on its own. Unfortunately, high consumer prices and uncertain economic conditions, have stretched tax rebate dollars thin, and prompted many Americans to save, rather than spend their extra cash.

Realizing the economy is not nearly out of the woods, the government has again intervened by assisting nearly 400,000 homeowners facing foreclosure. It has also offered greater emergency loan program flexibility to help struggling creditors. Each government move is designed to reverse the negative economic cycle by turning one key market factor in a positive direction.

One market driven effect that has provided some hope is a recent slide in oil prices. Oil has settled back to the mid-$120s price range after topping out above $147 only a couple weeks ago. Inversely, the dollar has pushed up a bit. These two market moves could help give consumers more buying power, and be key catalysts in a return to stability.

Market Recap

Stocks were firm Wednesday. The Dow added 29 points, while the NASDAQ jumped 21 points. Big news on the day included a Fed decision to help 400,000 struggling homeowners. The dollar gains continued. The Dow got crushed Thursday after existing home sales slumped, prompting more concern about the delays of a housing recovery. The Dow dropped 283 points, while the NASDAQ and S&P were down 45 and 29. Ford posted its worst ever quarterly earnings. Light sweet crude oil pushed up a bit Thursday after falling on Wednesday. Jobless claims and housing market data were both negative market factors Thursday.

Neil Kokemuller
Thursday, July 24, 2008
11:45 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.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.