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Economic News: A Long Hot Summer For Investors And Traders?

As we head into the summer months, it was another week of some positive but mostly mixed or downbeat economic news culminating on Thursday with a slew of economic data releases that sent the market into a tailspin. Here is a quick wrap-up of what was reported:

  • Homebuilder Confidence Rises. On Monday, it was reported that the National Association of Home Builders/Wells Fargo confidence index rose to 29 from a revised 28 in May to reach its highest level since May 2007. Apparently, less expensive properties and record-low mortgage rates are fueling demand and encouraging homebuilders to take on new projects but any sustained momentum will depend on access to credit while more foreclosures keep adding to the supply of homes.
  • May Housing Starts Fall While Permits Rise Sharply. On Tuesday, the Commerce Department reported that new housing starts for May fell 4.8% to a seasonally adjusted annual rate of 708,000 units while new housing permits rose 7.9% to the 780,000 level - a near four-year high. Its worth noting that new housing starts data is subject to significant revisions and April's data were revised upward to the 744,000-unit level from a previously reported 717,000 unit rate for the highest reading since October 2008.
  • Existing Home Sales Fall. On Thursday, The National Association of Realtors reported that existing home sales fell 1.5% to an annual rate of 4.55 million units in May - in line with analysts' expectations. However, the median price for home resales rose 7.9% year over year to $182,600 in May to reach its highest level since June 2010 due to a shortage of lower priced homes.
  • Jobless Claims Fall Slightly. The Labor Department reported that jobless claims fell slightly by 2,000 to fall to 387,000 claims but the four-week average rose by 3,500 to 386,250 claims. In other words, the labor market remains weak and there was nothing in the latest claims figures to suggest its going to get better any time soon.
  • Manufacturing in the Philadelphia Region Sinks. The Federal Reserve Bank of Philadelphia's reported that their general economic index fell from minus 5.8 the previous month to minus 16.6 in June for the lowest level since August as manufacturing slows. Ironically, the region's manufacturers grew more optimistic about the future as the index of the outlook for six months improved from 15 to 19.5 in May.
  • Manufacturing Slumps in Europe and Appears to Be Contracting in China. Finally, London-based Markit Economics has given an initial estimate that shows Euro-area manufacturing output shrinking at the fastest pace in three years in June as Europe's debt crisis continues. Moreover, HSBC Holdings Plc and Markit Economics has given a preliminary reading of 48.1 for the Chinese purchasing managers' index. Given that any reading below 50 indicates contraction, it appears that manufacturing in China is also slowing.

It appears that the poor manufacturing data more than anything else is what sank the markets on Thursday and why Goldman Sachs is now recommending that clients build short positions in the broad S&P 500 index based on expectations of continued economic weakness. In other words, traders and investors alike may be in for a long hot summer. Hence, be sure to check every day for our latest stock market predictions as volatility can also mean profits for savvy investors and traders alike.