Lowest U.S. Job Cuts in 6 Years

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1. Lowest U.S. Job Cuts in 6 Years
2. Storm, Mideast Tension Send Oil Higher
3. Toyota Takes on Detroit
4. MBA: Home Loan Demand Sinks to 4-Year Low

1. Lowest U.S. Job Cuts in 6 Years

U.S. employers announced the lowest number of job cuts since 2001, as the rate dropped 64% for the year ended this July, according to various news services.

Bloomberg News explains that economists focus on year-over-year numbers as opposed to monthly figures since job-cut data is not adjusted for seasonal effects.

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"Revealed job cuts fell to 37,178 last month from 102,971 a year ago, Challenger, Gray & Christmas Inc., a Chicago-based placement firm, said yesterday," according to Bloomberg.

John A. Challenger, CEO of the placement company, told the news organization that as unemployment is still relatively low, it is more and more difficult to find skilled workers. That being the case, he says, employers could choose to keep existing employees and merely add some part-time workers.

"The Labor Department is forecast to report Aug. 4 that the jobless rate held at 4.6% in July as the economy added 145,000 jobs, according to the median estimate in a Bloomberg News survey of economists," said Bloomberg.

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2. Storm, Mideast Tension Send Oil Higher

Oil prices rose to over $75 a barrel today as traders eyed Tropical Storm Chris and escalating fighting in the Middle East.

The latest forecast from the National Hurricane Center calls for Tropical Storm Chris to strengthen into a hurricane and move into the Florida Straits on Sunday. If the forecast holds, that could bring the hurricane into the Gulf of Mexico, threatening oil platforms and refineries.

Meanwhile, conflict between Israel and Hezbollah is entering its third week and showing no signs of slowing. On Tuesday, Israel launched a major attack deep into Lebanon, reports the AP. Traders fear that Iran, OPEC's No. 2 supplier, will intervene on behalf of Hezbollah, sending the region into chaos.

"There are many issues that are supportive of strong prices," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore, to the AP. "However, barring any change in the geopolitical situation or a hurricane, I expect prices to stay around the mid-70s for the near term."

If either of those things should happen, though, oil prices could move higher in the near term.

In other energy news, natural gas futures soared for the third straight day as a heat wave gripped the U.S.

Natural gas rose 77 cents to $8.34 per thousand cubic feet in pre-opening trading on the New York Mercantile Exchange. That contract had surged 14 percent on Monday to settle at $8.211, the highest close since early February.

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3. Toyota Takes on Detroit

Toyota surpassed Ford in sales last month, climbing to the No. 2 position behind GM for the first time ever. Toyota's achievement calls into question the strength of Detroit's Big Three auto makers.

Toyota sales rose 11.7 percent to 241,826 vehicles in July compared to a year ago. Ford sales, meanwhile, dropped by more than a third to 239,989 units, reports Autodata Corp.

"Nobody was more surprised than we were to see the final sales results," Toyota spokesman Irv Miller tells The Wall Street Journal. "With current energy costs, that is playing into our hands since we have fuel efficient vehicles and products that customers want."

Rising gasoline prices drew more customers to Toyota's fuel-efficient vehicles than Detroit's traditional bread-and-butter trucks and SUVs.

Back in May, foreign vehicles sales in the U.S. surpassed domestic sales. According to R.L. Polk, which monitors new car registrations, imports accounted for 53 percent of market share in the first five months of 2006. Last year, they totaled just 49 percent of the market.

In all, U.S. vehicles sales totaled 1,493,078, a 17.4 percent dive from last year, says Autodata. The decline is attributed to the Big Three's incentive campaigns last year, which drove sales up and profits down. As a result, Detroit's automakers are trying a new tact of reducing production and lowering vehicle prices.

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4. MBA: Home Loan Demand Sinks to 4-Year Low

U.S. mortgage applications last week sank to their lowest level in over four years, an industry trade group said Wednesday, further evidence that the once robust U.S. housing market is weakening.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and purchasing loans, for the week ended July 28 decreased 1.2 percent to 527.6 - its lowest since May 2002 - from the previous week's 533.8.

Drew Matus, senior financial economist at Lehman Brothers in New York, said that while the indexes are volatile on a weekly basis, they point to a sector that is softening.

"The data suggest that the housing market is cooling and it's cooling pretty substantially," he said. "The question is how much of an impact is it going to have on the economy and that's what we really don't understand at this point."

Matus expects U.S. economic growth in the second half of this year to be slowed by about three-quarters of a percentage point due to the direct effects of softer housing investment.

Nearly all recent measures of housing activity have pointed not just to a slowdown, but to a struggling sector. Sales are sliding, supply is swelling and price appreciation is abating.

Many analysts view the housing market as a key factor in Federal Reserve policy. With a slower housing market, growth in the United States should level off as well, which may set the stage for a halt to the Fed's two-year program of monetary tightening.

The next Fed policy-making meeting will be on Aug. 8.

Interest Rates Slide

It was the third straight week that overall mortgage activity slumped, despite a decline in interest rates during that period.

Last week, borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.62 percent, down 0.07 percentage point from the previous week, and 0.19 percentage point below the 6.81 percent rate in the first week of July.

The MBA's seasonally adjusted purchase index tumbled for the third straight week, falling 3.3 percent to 376.2, its lowest since November 2003.

The purchase index, widely considered a timely gauge of U.S. home sales, is standing well below its year-ago level of 494.5, a drop of nearly 24 percent.

The group's seasonally adjusted index of refinancing applications increased 2.3 percent to 1,417.2, down 37 percent from a year ago when the index stood at 2,250.3.

The refinance share of applications increased to 37.0 percent from 35.6 percent the previous week. Fixed 15-year mortgage rates averaged 6.28 percent, down from 6.31 percent the previous week.

Adjustable Share at 2-Year Low

Adjustable-rate mortgages, known as ARMs, have been a refuge for cash-strapped consumers seeking to buy a home with low initial mortgage payments.

But with the U.S. Federal Reserve raising interest rates for two years straight, many of these homeowners will face a sharp increase in their monthly payments when their ARMs eventually reset.

As this transpires, an increase in loan delinquencies and home foreclosures is expected, which analysts say may weigh heavily on the housing market.

Rates on one-year ARMs decreased to 6.18 percent from 6.25 percent. The ARM share of activity fell to 27.8 percent of total applications - its lowest since March 2004 - from 28.6 percent in the prior week.

After historically low mortgage rates fueled a five-year housing boom, most analysts agree that the market is cooling off from its record run.

"The cooling in housing could last for a year or two," said Matus. "But remember, even when mortgage rates were at 18 percent, people were still buying new homes, so there is a natural trend of demand for housing and it takes a lot more than what we have seen so far to push around that natural trend."

Signs of a cooling market have been more evident in the past few weeks as a deluge of data showed an excessive supply of homes, declining sales and falling prices.

The MBA's survey covers about 50 percent of all U.S. retail residential mortgage loans. Respondents include mortgage bankers, commercial banks and thrifts.

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Editor's Notes:

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Find out why FIR thinks oil prices will drop over the next 12 months. Go here now.
Sir John Templeton has found the company that will surpass it as the world's leading automaker. Go here now.
Housing prices nationwide could fall by as much as 40% over the next few years. Find out how the five ways to protect yourself and profit from the coming real estate crisis. Go here now.
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