News Analysis for the Investor on July 3, 2012

Global slowdown impacts American factories

The US factory sector shrank for the first time since June 2009, the first month of the economic recovery.  According to the Wall Street Journal, the Institute for Supply Management released its Purchasing Managers Index, or PMI, on Monday which indicated that exports fell and new orders dropped at their fastest pace since the 9-11 plunge in October 2001.  The US reading was down 3.8 points in June, falling below a 50.  Any reading above 50 shows an economy is growing while a reading below a 50 indicates an economy is contracting.  The Dow fell 8 points on Monday ending at 12,871.  Both Asian and European markets are up on Tuesday.

Heatwave threatens US grain harvest

The heatwave being experienced across the United States, especially in Illinois, Iowa and India, is causing deep concerns for US providers.  According to the Financial Times, the United States Department of Agriculture indicates that less than half of US corn is in good or excellent condition.  Twenty two percent is in poor condition.  Soybean futures are trading at their highest price since July 2008.  Corn is at almost $7 per bushel, the highest since September.  The National Drought Migration Centre indicates it has not yet seen widespread failure but the situation is developing rapidly. Even a modest reduction in crops will send ripples through the commodities market since the US is the world’s top exporter of grain in the world.  A drought hit the soybean crops of Brazil, Argentina, Uruguay and Paraguay earlier this year.

Housing recovery dampened by negative equity

Many homeowners are willing to sell their homes but are unable to because their equity has fallen so much that they would need to write a check to get out of the situation, according to USAToday.  Almost 3 out of 10 homeowners with mortgages have no equity or less than 5 percent, according to market researcher CoreLogic. This causes many of the homes that would be part of the supply chain to remain off of the market.  There is a broad based shortage of lower priced home in much of the US market. Nationwide, 45 percent of homeowners have less than 20 percent equity in their homes.  In order to purchase a new home at today’s affordable prices, they need to have a 20 percent deposit.

World Bank President promises aid to Greece

Newly appointed World Bank President, Jim Yong Kim, announced on Monday that he would be willing to give aid to eurozone countries due to the threat posed to neighboring countries. In particular, he mentioned providing aid to Greece.   According to the Washington Post, this is the first time that “rich” countries and not developing countries have been offered assistance.  Kim, a former doctor and President of Dartmouth University, has no prior financial or economic experience.  He does, however, have experience with world health issues.

Americans better at repaying debt

CNBC is reporting that consumers are getting better at repaying their debt.  The American Bankers Association, ABA, has issued a report that indicated that delinquencies fell in 10 of 11 categories, including personal loans, bank loans and auto loans.  The only category in which delinquencies rose was home equity lines of credit.  Bank card delinquencies fell to 3.8 percent in the first quarter from 3.17 percent.  Personal loan delinquencies fell to 2.01 percent from 2.87 percent and direct auto loan delinquencies fell to 0.86 percent from 1.06 percent.  Current rates are within historical norms.

Despite poor timing, millions to travel for Fourth of July

Despite the fact that the Fourth of July falls in the middle of the week, about 42.3 million Americans will venture 50 miles or more away from their home, according to the AAA auto club.  USA Today reports that lower gas prices are helping travelers to spend 7 percent less this year.  The average cost for the Fourth of July travel is $749 per family for those traveling by car.  Unfortunately the heat wave impacting large portions of the country is dampening the hopes of many travelers.  Happy Fourth of July!