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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: damainman who wrote (41849)	11/28/2005 10:51:14 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Pricing power gap is cause for worry wvec.com There's no subject that generates more ire from readers than inflation. Either I offend households buckling under the strain of price increases for life's necessities, such as utilities, or, I peeve the business folks who've tried and failed to raise prices. They've been defeated by resistance from customers who can't pay up for their goods and services. These equally disgruntled groups illustrate a different sort of class divide — the pricing power haves and have-nots. A J.P. Morgan senior economist recently explored this paradox in a short piece titled, "When the CPI Isn't About Inflation." Energy prices, he noted, are up by 52 percent in the last two years. Compare that to the annual growth in the consumer price index, which had crept up to 2 percent from 1 percent in 2003, but has since started falling again. "Imagine what inflation trends would be if energy prices had been stable," Mr. Glassman suggested. To satisfy his imagination, Mr. Glassman calculated that CPI growth would be close to zero by now if not for energy. Deflation fears Take it out of the picture, along with areas directly affected by higher energy prices, such as taxi and air fares, paper products and certain processed foods, and you're flirting with deflation, or falling prices. "If rising energy prices were the result of strong demand rather than underinvestment by the oil industry ... why is demand not providing the same support for other prices?" he asked. "Instead, more costly energy is squeezing household budgets, leaving little for other purchases. Many businesses are forced to hold the line because their customers cannot support higher prices." What's needed to make companies and consumers happy is a surge in demand resulting from a fundamentally stronger economy. That would, in turn, lead to rising inflation-adjusted incomes, not the consumer-spending surge we've seen powered by people sucking every last dime out of their homes. Far sicker Like it or not, that's where the Federal Reserve's true dilemma lies. Stagnating prices are indicative of an economy that is far sicker than what meets the eye. "Inflation low enough that the central bank has no desire to push it lower is one of the most significant economic developments since the end of World War II," Mr. Glassman added. And that gets us back to the housing market — the economy's main engine of both growth and jobs in the last five years. Recent data that show a slowing housing sector hold deep implications for the future of inflation. Not only will wages suffer. Like the dot-com industry that created tons of jobs just to take them away, housing will claim a great many casualties in the years to come. But other business supported by housing will also lose what little pricing power they've had in recent years. To envision what's to come, imagine anything you buy to fill a home. Now picture it on sale.

To: damainman who wrote (41849)	11/28/2005 11:01:53 AM
From: mishedlo	Respond to of 116555

U.S. Oct. existing home sales fall 2.7% - Monday, November 28, 2005 3:36:48 PM afxpress.com WASHINGTON (AFX) - Sales of existing U.S. homes dropped 2.7% in October, signalling that the sizzling housing market has peaked, the National Association of Realtors said Monday Existing home sales fell to a seasonally adjusted annualized rate of 7.09 million from a revised 7.29 million in September. Economists were expecting a smaller decline in October to about 7.20 million, according to a survey conducted by MarketWatch. The number of unsold homes on the market rose 3.5% to 2.87 million, the most in nearly 20 years. The inventory represents a 4.9-month supply at the current sales rate, the most in more than two years The median sales price has risen 16.6% in the past year to $218,000. It's the fastest price appreciation since July 1979, when inflation was raging at double-digit rates The drop in sales and rise in inventories in October "signals that the housing sector has likely passed its peak," said David Lereah, chief economist for the real estate group. "Make no mistake, slowing has occurred," he said "We expect further cooling in coming months," he said. Hot housing markets are transitioning to a buyers' market. Nevertheless, activity remains healthy Sales peaked at a annual pace of 7.35 million in June Lereah now expects record sales of 7.11 million in 2005, with a slowing to 6.86 million in 2006 Sales fell in all four regions in October, led by a 7.4% decline in the Northeast Sales of condos fell 4.4% to an annual rate of 862,000, while single-family home sales dropped 2.5% to 6.23 million Hurricane Katrina has had a net positive impact on existing home sales, Lereah said, citing huge sales gains in Baton Rouge, La., Mobile, Ala., and Houston. Excluding Katrina, sales would have fallen 3.2%, Lereah said Mish