Builder Confidence Down While Home Construction Rises

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There still arent any signals of a jump in the housing market. In June, home construction rose 2.3 percent while building permit activity sank to the lowest rate in 10 years. The new building permits are an indicator of future construction plans.

The building permits decreased by 7.5 percent in June to 1.406 million units. This was barely above the 1.402 million unit rate of June 1997 and slightly lower than the 1.48 million unit rate that economists had predicted.

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China Food Health Scare Forces Bush to Take Action

In positive news regarding the recent international health scare related to Chinese food and medicine, President Bush established the Import Safety Working Group. The purpose of the high-level government panel is to provide recommendations on what needs to be done to guarantee the safety of imported food and other products and improve U.S. policing of those imports.

The working group will be chaired by Health and Human Services Secretary Michael Leavitt. However, the White House maintained that the set up of the panel was not a direct response to China’ export of tainted products.

The Food and Drug Administration (FDA) has been slow to recognize the dangers of certain products from China. Its capacity to supervise the country’ food supply has come under scrutiny after a series of high-profile cases of salmonella-contaminated peanut butter, E. coli-tainted spinach, pet food tainted with the chemical melamine, poison-laced tainted Chinese toothpaste, and seafood imported from China.

Until now, many consumers outside of China were not aware of the extent of the health safety crisis within China. Three years ago, in an eastern province of China 13 babies died and several hundred fell ill after being fed fake milk powder. The level of product-safety regulation and quality control are reprehensibly poor, in fact even Chinese consumers are suspicious of goods on store shelves. Consumers cannot discern with good faith, good products from bad.

Chinese authorities have repeatedly acknowledged problems exist in product-safety and quality control but have done little beyond cosmetic changes. Hopefully, international pressure and loss of business will impel China to address the issues in a serious and circumspect manner.

Inflation Fears on Fed’s Radar

The Chairman of the Federal Reserve Ben Bernanke fears that inflation might flare up in the near future. He is expected to convey his concerns to the House of Representatives’ Financial Services Committee on Wednesday. He will also address the Senate Banking Committee regarding his assessment. Bernanke will present two days of the central bank’s monetary policy report which is part of a twice-yearly ritual of testimony before Congress.

The report is a critical forecast of the nation’s inflation, unemployment, and growth figures. It is surprising that even the precipitous increase in consumer and oil prices in the last few years has not prompted either a recession or high inflation. According to the Labor Department consumer prices rose 2.7 percent during the 12 months ending in May.

The 1970s steep hikes in oil pooled with presumption of high inflation fueled double-digit consumer price increases and sluggish economic growth. Also, the 1979 Iranian revolution sent oil prices soaring with inflation of 13.5 percent in 1980. These expectations of impending inflation can cause havoc with an economy.

For the Fed the next couple of years will be important with regards to keeping high inflation at bay. They are ready to meet any challenges especially after having core inflation slide for the third straight month in May to 1.9 percent. The Chairman would be content if inflation lowered further and stayed low for a while.

Preferably, the Fed would like to see consumer and business inflation anticipation to be deflated because these expectations may become self-fulfilling. If inflation anticipation is steady then it wont be affected by causes such as pendulating oil prices, employment news, economic highs and lows or other facets of a vibrant economy. Herein, if consumers anticipate prices are on the rise, they are more apt to pay higher prices; if businesses anticipate inflation to go up, they may be faster to increase prices to cover costs.

The Fed believes that inflation expectations have a direct impact on actual inflation, thus the Feds ability to attain price stability. It is a constant struggle for the Fed to determine what leads to inflation expectations and how that influences businesses’ price-setting decisions.

Bernanke believes the Feds ability to foretell inflation and envisage how inflation will react to policy is contingent upon the Feds ability to measure and comprehend what determines the public’ outlook of inflation.

However, the growth outlook for the economy is of critical importance. It is most likely we will have marginal growth next year. Fortunately, the housing arena has not had much impact on the collective economy which may change in the future.

Bush Looking For More Time on Iraq

The Iraq war seems to be continuing its controversial swing for the current administration. The Secretary of State Condoleezza Rice countered criticism from sections of congress regarding the continued occupation of Iraq by extolling virtues of not pulling out of Iraq. The administration is seeking support for the war in hopes that the American people and Congress will give Bush’s Iraq strategy time to work. She conveyed “I understand people’s concern. I understand people’s impatience.”

Recently, the House of Representatives voted 223-201 to withdraw American troops by next spring. However, Rice did submit to the criticism that the Iraqi government is still not at a state of readiness for governance. Prime Minister Nuri al-Maliki’s government is still unable to manage the sectarian violence plaguing the nation on a daily basis.

The top U.S. commander in Iraq, Maj. Gen. Benjamin R. Mixon confirmed that the current government does not have the requite logistics controls in place to make a transition from U.S. occupation to self-governance and security independence.

General Mixon wants an open debate on our end objectives in Iraq, especially how those end objectives affect the United States in the Middle East. However, Rice wants the critics to wait till September 2007 when commanding General David Petraeus and U.S. Ambassador Ryan Crocker deliver their assessment of ground realities in Iraq. She wants the Bush policy of troop build up to be given a chance to work before the troop withdrawal option is placed on the table.

Nevertheless, the U.S. is nowhere close to ending sectarian violence ignited by the U.S. led invasion and war on terrorism in Iraq. It is difficult to make progress on something that was misconceptualized in the first place, such as the connection between Saddam Hussein and terrorist factory Al Qaeda. The foundation for the War on Iraq was weak which showed cracks from the beginning and that same foundation is now crumbling. How do you sustain a war that was unsustainable to begin with? The administration doesnt want to use the word defeat, but that is what we are facing at the hands of the insurgents.

The war didnt end with the capture of Saddam Hussein but it was simply the beginning of a tenuous struggle for peace on the ground. We have defeated Saddam but not garnered the goodwill of the Iraqis. Anyone looking through the prism of reality would be hard pressed to defend the Bush policy of the war on terrorism in Iraq.

Fortunately, the true believers in and out of the administration are growing smaller each day. One would hope by now that logic would prevail from the depths of a shielded insular administration, a shield that deflects any realism, fact, logic, or sagacious counsel and criticism. How can we expect the navigators of the war in Iraq, President Bush and Vice President Cheney to navigate us out of the war? The Democrats only need 18 Republican to join them to overcome a Bush veto. Currently, less than a dozen Republicans are ready to abandon President Bush. Under the current circumstances I dont see the Democrats overcoming the veto. It is improbable to sustain a $2 billion per week war and our nation’s prosperity at the same time. Unfortunately, President Bush through his deeds has chosen the former.

OPEC Continues Meteoric Rise in Oil Prices

The demand for oil continues to rise. The Organization of the Petroleum Exporting Countries (OPEC) said oil demand in 2008 would increase by 1.6 percent or1.34 million barrels per day to 86.94 million bpd. OPEC stated on Monday that oil producing rivals, use of alternative fuel sources, and conservation by consumers would be monitored as this would have dire future consequences in the demand for crude from the exporter group.

OPEC’s July Monthly Oil Market Report stated that, “The outlook for the oil market in 2008 is shaping up to be quite similar to the current year, with continued tightness in the downstream supporting high product prices and frequent refinery outages exerting further upward pressure, despite the healthy crude oil market,” According to OPEC’ assessment of high gas prices reflected strain on refineries, oil speculation, and the tense political atmosphere.

The price of gas keeps rising even though there isnt a shortage of oil. The International Energy Agency which serves as adviser to 26 industrialized countries stated in its July report that they foresee demand for oil rising by 2.2 million bpd in 2008; an estimate that dwarfs the OPEC’ outlook by 860,000 bpd.

The thirst for oil is growing unabated. Last week, the London Brent settled up $1.17 to $77.57 bpd just a dollar short of last August’ all time record high of $78.65. OPEC expects the refinery capacity to grow by 1 million bpd next year, far short of demand increase. Global oil consumption for next year is expected to rise to 1.45 million bpd. Since last year the group has decreased oil output by 1.7 million bpd and is planning to re-examine the continuation of the cap on supply when they meet this September.

Ultimately, OPEC and the global oil conglomerate for short-term monetary gain are exploiting consumers and indirectly propping up fledgling future competitors in alternative fuels due to incessant high prices.

Borrowers Sacrifice Home Equity Loan Payments for Credit Card Bills

The American Bankers Association (ABA) stated that between January and March 2007 payments on home equity loans rose to 2.15 percent, an increase of 0.23 percent since the fourth quarter of 2006. The ABA quarterly survey of consumer loans reflected delinquency rates based on a composite of several types of consumer loans such as boats, autos, home improvements, some home equity line of credit loans increased to 2.42 percent in the first three months of this year. This was the highest delinquency rate since second quarter of 2001, up 0.19 percent from the fourth quarter of last year.

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Mortgage Rates Slide Lower, Somewhat

The never ending saga of increasing mortgage rates seems to have hit a wall; well, more like a small speed bump. After an 11 month high of 6.74 percent for 30-year mortgages, the rate lowered last week to an average of 6.69 percent, as reported by Freddie Mac. It seems that investors have awakened to the fact that the direct effects on the economy from the unending housing slum could last longer.

The pressure in the housing arena keeps building. The construction of new homes and apartments was down by 2.1 percent. The National Association of Home Builders said that the index that measures builder sentiment fell in June to its lowest point in 16 years.

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