I’ve mentioned many times that basically there’re two simple indicators to gauge how well U.S. economy is recovering. First is unemployment and the second is the home sales. If the indicator of either one is negative then you can forget about putting money betting on the bull. Forget about what the analysts told you about V-shape recovery because that isn’t going to happen. Do I need to tell again why unemployment and home sales have direct impact on America’s economic recovery?

The National Association of Realtors has just issued the report the U.S. homes took a record drop in July to their lowest pace in 15 years – home sales dropped a record 27.2% from June to an annual rate of 3.83 million units, the lowest since May 1995. This is against Reuters analysts expectation of sales drop of 12% to 4.70 million units.

 

What this simply means is that the world’s largest economy powerhouse is now going to recover anytime soon. The indicator could tip the economy back to recession (didn’t they declare the recession was over?) because the housing problem is worsening upon the end of the government home-buyer tax credits (which expired at the end of April). Suddenly everybody realizes the economy recovery which started in the second half of 2009 was driven primarily by government stimulus packages.

Dow Jones lost more than 150 points in morning trading Tuesday after the bad news was released but is now (as of time of writing) recovering slightly to above 10,000-level. With such a weak home sales plus unemployment rate of 9.5% you can’t expect the stock market to perform any better. In fact we’re lucky if the Dow could survive above 10,000-level if more bad news hit the streets for the remaining of the week.

However the good news is everybody has expected a worse than expected home sales hence the 100-plus points drop otherwise the Dow could easily drop more than 200-points. But wait a minute. Why the whole global stock markets are crying because of U.S. plunging home sales as if the globe is spinning around it? Companies such as Apple Inc. (Nasdaq: AAPL, stock), Google Inc. (Nasdaq: GOOG, stock) and Exxon Mobil Corp. (NYSE: XOM, stock) do not have anything to do with housing so why they’re beaten down?

The answer is pretty simple – they’re all related. Housing costs money and money requires jobs. Jobs require production but with the current technology age many Americans are finding it hard to find jobs which have been out-sourced to other countries specifically to Asia. Without jobs there’re no money and therefore no spending and hence houses inventory is building.

So Obama’s administration has better solve the problem of unemployment although he’s on 10-day vacation in Martha’s Vineyard because his approval rating has just dropped to 43%.

Other Articles That May Interest You …

• A Second Round of Recession or Major Correction?
• Why Stocks didn’t take cue from Jobless Rate?
• Are you convinced the Bull was a suckers Rally?
• Stress Test a Hoax? Another Wave of Banking Tsunami?

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August 25th, 2010 by financetwitter

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