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News : US Economy Last Updated: Dec 30, 2010 - 4:33 PM

US businesses expanded in December at fastest pace in two decades; New weekly jobless benefit claims dipped by 34,000
By Finfacts Team
Dec 30, 2010 - 4:13 PM

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US businesses expanded in December for the fifteenth consecutive month and at the fastest pace in two decades, confirming that the economic recovery is accelerating ahead of the New Year. New weekly jobless benefit claims dipped by 34,000.

The Institute for Supply Management-Chicago reported today that its business barometer rose to 68.6 this month to the highest level since July 1988. Figures greater than 50 signal expansion.

Business Activity:

  • PRODUCTION reached its highest levels since October 2004;

  • NEW ORDERS improved to 2005 levels;

  • EMPLOYMENT reached its highest level in more than 5 years;

  • PRICES PAID accelerated to its highest point since July 2008.

Pending home sales rose again in November, with the broad trend over the past five months indicating a gradual recovery into 2011, according to the National Association of Realtors.

The Pending Home Sales Index, a forward-looking indicator, rose 3.5% to 92.2 based on contracts signed in November from a downwardly revised 89.1 in October. The index is 5.0% below a reading of 97.0 in November 2009. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, said historically high housing affordability is boosting sales activity. “In addition to exceptional affordability conditions, steady improvements in the economy are helping bring buyers into the market,” he said. “But further gains are needed to reach normal levels of sales activity.”

The PHSI in the Northeast increased 1.8% to 72.6 in November but is 6.2% below November 2009. In the Midwest the index declined 4.2% in November to 78.3 and is 7.7% below a year ago. Pending home sales in the South slipped 1.8% to an index of 91.4 and are 7.2% below November 2009. In the West the index jumped 18.2% to 123.3 and is 0.4% above a year ago.

“If we add 2m jobs as expected in 2011, and mortgage rates rise only moderately, we should see existing-home sales rise to a higher, sustainable volume,” Yun said. “Credit remains tight, but if lenders return to more normal, safe underwriting standards for creditworthy buyers, there would be a bigger boost to the housing market and spillover benefits for the broader economy.”

The 30-year fixed-rate mortgage is forecast to rise gradually to 5.3% around the end of 2011; at the same time, unemployment should drop to 9.2%.

What to expect from the housing market in 2011, with Prof. Karl Case, S&P/Case-Shiller Index:

On Wednesday, the quarterly report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision showed that 87.4% of the 33.3m loans in the portfolio were current and performing at the end of the third quarter of 2010, a level unchanged from the previous quarter.

Although the percentage of seriously delinquent mortgages (60 or more days delinquent or delinquent loans to bankrupt borrowers) decreased by 6.4% from the previous quarter, the percentage of mortgages that were 30 to 59 days delinquent increased by 4.3%.

Foreclosures increased during the third quarter, reflecting the large number of seriously delinquent borrowers moving through the foreclosure process after lenders exhausted home retention options.

The number of new foreclosures increased to more than 382,000 - -  31.2% more than in the previous quarter and 3.7% more than a year earlier. The number of foreclosures in process increased to 1.2m - -  4.5% more than in the previous quarter and 10.1% more than a year earlier. The number of completed foreclosures also increased to nearly 187,000 - -14.7% more than in the previous quarter and 57.5% more than a year earlier.

Although foreclosure activity increased during the quarter, lenders reported almost twice as many home retention actions as completed home forfeiture actions. Lenders implemented 470,321 home retention actions - - loan modifications, trial period plans, and shorter term payment plans—compared with 244,840 home forfeiture actions.

Meanwhile, sales of new single-family houses in November 2010 were at a seasonally adjusted annual rate of 290,000, according to estimates released jointly by the US Census Bureau and the Department of Housing and Urban Development.

This is 5.5% above the revised October rate of 275,000, but is 21.2% below the November 2009 estimate of 368,000.

The median sales price of new houses sold in November 2010 was $213,000; the average sales price was $268,700. The seasonally adjusted estimate of new houses for sale at the end of November was 197,000. This represents a supply of 8.2 months at the current sales rate.

The Department of Labor reported today that in the week ending Dec. 25th, seasonally adjusted initial weekly jobless claims was 388,000, a decrease of 34,000 from the previous week's revised figure of 422,000. The 4-week moving average was 414,000, a decrease of 12,500 from the previous week's revised average of 426,500.

The advance number for seasonally adjusted insured unemployment during the week ending Dec.18 was 4,128,000, an increase of 57,000 from the preceding week's revised level of 4,071,000. The 4-week moving average was 4,120,000, a decrease of 37,250 from the preceding week's revised average of 4,157,250.

New US claims for unemployment benefits dropped more than expected last week to touch their lowest level in more than two years, with Jim Iuorio, TJM Institutional Services, John Ryding, RDQ Economics, and CNBC's Rick Santelli:

CNBC's Hampton Pearson and Rick Santelli break down the rise in November pending home sales:

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