Housing Data Await Investors, While the U.S. GDP Takes the Spotlight

The U.S. economy will continue to release more fundamentals throughout this upcoming week, where investors will be watching closely data from the housing market, while the GDP report which will be released on Friday will surely dominate investors amid expectations of a staggering growth rate in the final quarter of 2009, meanwhile, investors will be preparing themselves for a new set of financial results from U.S. companies, as a new earnings season is about to begin.

The start dear reader will be with the housing market, where activity has been showing signs of a slowdown recently, since elevated unemployment, tightened credit conditions, and rising foreclosures continue to suppress activity in the housing market, despite that the U.S. government extended its tax credit program for first time house buyers, which was aimed at boosting activity in the housing market.

The existing home sales index is expected to show a slight decline in February, where sales of previously owned homes are expected to ease by 1.0% to an annual rate of 5.00 million units from the prior reported estimate of 5.05 million, however, new home sales are expected to rise by 1.9% to an annual rate of 315,000 units from the prior reported estimate of 309K.

Activity in the housing market is still clearly stabilizing, as even though the housing market had bottomed out over the course of 2009, yet activity is yet to rebound over a strong pace, as the ongoing challenges continue to suppress activity in the housing market, and accordingly, we should expect the upcoming period to be full of fluctuations for the housing market before a strong rebound in activity kicks in probably in 2011.

Meanwhile, the durable goods orders are expected to show that demand levels are gradually improving, where durable goods orders are expected to have risen in February by 0.9% following the prior reported rise of 3.0%, while durables that exclude transportation are expected to have risen in February by 0.5% after declining by 0.6% in January.

Though we can clearly see signs of emerging improvement in economic activity, however, the economy seems to be losing some steam recently, as activity started to ease in several economic sectors over the past two months, and accordingly we should expect growth levels to ease during the first quarter of 2010 at least when compared with the last quarter of 2009.

The U.S. economy expanded by a staggering rate of 5.9% during the fourth quarter according to the second GDP estimate, while the third and final estimate which is due to be release this upcoming Friday will probably signal that the economy sustained the 5.9% reported in the second estimate, as rising investments and inventories supported economic growth during the final quarter of last year.

However, personal consumption slightly eased in the fourth quarter compared with the third quarter of 2009, as elevated unemployment, lower income growth, diminishing household’s wealth, and tightened credit conditions continue to weigh down on consumer spending, nevertheless, consumer spending continues to rise moderately and will probably continue to recover gradually as time passes by.

The U.S. economy won’t be able to sustain such growth levels over the first half of this year, since conditions though improving, yet they remain somewhat fragile, and accordingly we believe that the second half of 2010 will witness a strong rebound in economic activity, as by then companies will probably feel more confident about hiring new workers, and that will help in boosting economic activity as well.

Moreover, the University Michigan will release the final estimate for consumer confidence for the month of March, where consumer confidence is expected to rise slightly to 73.0 from the prior reported estimate of 72.5. Consumer confidence continues to improve as conditions have been developing well recently, yet it will still take more time before consumers are fully confident about the economy.

The Feds described conditions in the labor market as “stabilizing”, however, the Feds also noted that employers are still reluctant to adding new workers to their workforce, as that would take more time, however, we believe that the second half of 2010 will mark the true beginning of the recovery, since the recovery so far has been weak, yet as economic conditions and activity stabilize further, we should see a strong base that will help the economy build a strong momentum in order to flourish in 2011.