Economist's Commentary: October 1, 2008

Quick Take on the Economy: October 1, 2008

By Lawrence Yun, NAR Chief Economist

A report from a private human resource firm (ADP) provides its reading of the job market based on payroll check distribution. This report is released two days before the official employment tally by the government scheduled for this Friday.
According to ADP, private employment fell by 8,000 in September. This level of job cutting would be very manageable in light of the turmoil swirling in the financial market. However, ADP data have been shown to be more upbeat than official government data since the beginning of the year.
I expect the government to say that job cuts will reach at least 60,000 come this Friday.

A measure of manufacturing activity showed very weak activity in August. An index reading of 43.5 is a big dip from near 50 in the previous month. (An above 50 reading would imply expansionary conditions in manufacturing businesses).
New orders and employment were particularly weak. The export component was one bright spot with an above 50 reading.
No doubt the credit crisis has not only made manufacturers nervous, but some business activities are being halted because of the inability to get credit at decent rates.

People showing up to get mortgages fell precipitously in the latest week. Refinance applications tumbled 35 percent in one week, while purchase applications fell 10 percent.
Aside from a modest uptick in the rates, the financial crisis and the great uncertainty are doubtlessly contributing to the decline.

The SEC is considering a change in accounting rules so that mortgage-backed-securities do not have to be valued at mark-to-market - which is the price that securities will sell for in the market.
Unfortunately, there is no active market for buying and selling mortgage securities. As such mortgage securities are priced ridiculously low - even though 75 percent of subprime loans are still performing. But those who have to sell because of margin calls have no choice to sell at that price. And the reason for the margin call in the first place is because they have to value those securities at a low price.
By permitting valuation based on performance, recovery costs to holding to maturity, and other standards that are not mark-to-market, it will induce fewer margin calls and do away with fire-sale prices.

The already soft economy notched down even lower. The credit crisis is hampering recovery.
Consumers are hesitant to go to mortgage offices.
Until the credit crisis is resolved, the housing market and the economy will not recover. Congress will take up the vote again today and tomorrow.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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