Optimism about Rebound Tapers Off Amid Foreclosures Homes- By: John Cutts
For the past weeks, many analysts were declaring the beginning of the country's economic rebound as several markets showed declines in the number of foreclosures homes, improvement in home prices, increase in home sales, uptick in new home sales and rallies in the stock market.
But now analysts admit they may have spoken too soon. Wall Street indicated its doubts when stock prices fell by 2 percent and stalled the rally that was pushing the market up by 15 percent since July.
Economic data in the past weeks showed signs that have made people hopeful about the start of an economic rebound. In July, the pace of job losses slowed and the decline of home prices slowed. Economists predicted that gross domestic product would finally turn positive in the third quarter after sharp declines.
Analysts in the past weeks also began to believe that the massive infusion of funds into the economy by the federal government was getting their intended results. The infusions consisted of the $787 billion stimulus funding, the $700 billion banking bailout funding and the $1 trillion issuance from the Federal Reserve to hold up the financial markets.
Barbara Marcin, manager of the Gabelli Blue Chip Value Fund, said the federal government succeeded in stopping the hemorrhage, but it has not succeeded in jump-starting the second stage of the recovery. She said that in the past, stimulus programs like car and housing programs have pushed up consumer confidence, bank lending and consumer borrowing.
Analysts also were encouraged by strong improvements in the quarterly performance results of companies, but when examined closely, much of the corporate earnings arose from cost cutting efforts and from special sales of inventories.
The decline in consumer confidence in July is another sign that the pace of rebound expected may not occur easily. The biggest block to an improvement in consumer spending is the high rate of unemployment. Nearly 7 million have lost their jobs since the start of the recession.
The rise in the savings rate indicates that families are saving to replace money lost as the housing sector collapsed. Despite sales of foreclosures, there will be unsold homes that will continue to push down home prices.
Additionally, the high level of outstanding consumer debt will make it difficult for consumers to borrow again to improve consumer spending levels.
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