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Tuesday, January 06, 2009 2:25 PM

Factory Orders Tumble, Retail Sales Fall, Foreclosure Sales Triple

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The string of bad news continues as factory orders plunge, retail sales fall, home prices sink and foreclosure sales soar. Bloomberg is reporting Factory Orders in the U.S. Tumble More Than Forecast.

Orders placed with U.S. factories in November fell twice as much as forecast, signaling businesses are cutting back on investments as the recession deepens.

Demand fell 4.6 percent after a revised 6 percent decrease in October that was larger than previously estimated, the Commerce Department said today in Washington. The back-to-back decline was the biggest since records began in 1992.

“Consumer-durable spending is way down as credit is more difficult to get,” said Douglas Smith, chief economist for the Americas at Standard Chartered Bank in New York, said in an interview with Bloomberg Television. “With weakness overseas, you’re also seeing fewer orders for U.S. manufactured goods.”

Factory orders were forecast to fall 2.3 percent, after a previously reported 5.1 percent drop the prior month, according to the median estimate of 60 economists surveyed by Bloomberg News. Projections ranged from declines of 0.4 percent to 6.5 percent.

Factory sales plunged 5.3 percent in November, the biggest drop on record.

The U.S. economy contracted at a 0.5 percent annual rate in the third quarter, the Commerce Department said Dec. 23. The economy probably shrank at a 4.3 percent annual rate in the last three months of 2008, the biggest contraction since 1982, according to the median estimate of 51 economists surveyed last month by Bloomberg.

Factory inventories decreased 0.3 percent, and manufacturers had enough goods on hand to last 1.41 months at the current sales pace, up from 1.33 months in October.

The jump in the inventory-to-sales ratio “indicates excess inventories that will need to be worked off,” Steven Wood, president of Insight Economics LLC in Danville, California, wrote in a note to clients. “The manufacturing sector is mired in a deep recession that is unlikely to be quickly resolved.”
U.S. Retail Sales Fell 0.8% in Week After Christmas

The string of bad news on the retail front continues with a report U.S. Retail Sales Fell 0.8% in Week After Christmas.
Purchases at U.S. retailers declined last week as post-Christmas markdowns failed to overcome what may have been the worst holiday shopping season in four decades.

Sales at stores open at least a year dropped 0.8 percent in the seven days through Jan. 3, the International Council of Shopping Centers and Goldman Sachs Group Inc. said today in a statement. ICSC Chief Economist Michael Niemira said November- December sales declined as much as 2 percent.

Macy’s Inc., Talbots Inc., Aeropostale Inc. and other retailers offered discounts of 65 percent or more on some sweaters, jewelry and pants to clear out merchandise after Christmas. Higher markdowns may put more pressure on earnings.

“December was relatively chaotic in price, with more discounts than retailers planned, especially in department stores,” Richard Hastings, a consumer strategist at Global Hunter Securities LLC of Newport Beach, California, said in a telephone interview. “Consumers have discovered that the industry is responding with lower and lower and lower prices.”
The stores think this is grim news but actually it is a very good thing. Consumers need to spend less and save more. It is spending that got us in trouble, spending will not get us out of trouble. Look for the savings rate to soar in 2009.

Foreclosure Sales Triple

Motivated sellers are driving the market. With banks dumping properties Metro-Area Foreclosure Sales Tripled in First 10 Months of 2008.
Foreclosure sales in the 25 largest U.S. metropolitan areas almost tripled in the first 10 months of last year as rising unemployment and falling home values made it tougher for homeowners to sell or refinance their mortgages.

Motivated sales, which include foreclosure auctions and banks selling homes taken over for non-payment, increased 193 percent from January to October 2008 from a year earlier, New York-based real estate data company Radar Logic Inc. said today in a report. Conventional sales rose 6 percent in that period.

“Lenders are motivated to sell foreclosed houses as quickly as possible to get as much of the loan recovered as possible,” Radar Logic Chief Executive Officer Michael Feder said in an interview. “They have a tendency to accept deeper discounts relative to other sales, to the point where motivated sales are driving the market.”

Home prices fell in 24 of 25 U.S. metropolitan areas in October, Radar Logic said, as unemployment hit a 15-year high in November. Almost half the homeowners who bought in 2006 now owe more on their mortgages than their houses are worth, making it difficult for them to refinance without bringing cash to the closing, according to Seattle-based real estate data company Zillow.com.

Forty-one percent of October home sales in Los Angeles and Phoenix were foreclosure auctions or financial firms trying to recoup lost loan value, Radar Logic said.

U.S. foreclosure filings increased 71 percent in the third quarter from a year earlier to the highest on record, according to RealtyTrac Inc., a Irvine, California-based provider of default data.
There is no reason to proclaim an end to the trend of rising foreclosures and falling home prices. Rising unemployment will seal the fate in 2009. The bottom is not in.

Mike "Mish" Shedlock
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