Do You Know What Happens this Thursday?

Thursday is...the last day of June, the last day of the second quarter, and that is traditionally a good news event.   This year in particular, it is especially good news.  The second quarter of 2011 has been a tough time.  Yet, in the midst of these current headlines, it's hard to believe, but our friend and outstanding economist Ed Yardeni described on his blog this morning how Friday's durable goods report presented some good news.

Essentially, Ed described how the orders for non-defense captial goods excluding civilian spending jumped 14.4%.  He is not surprised that corporations are increasing their capital spending, since they have record corporate profits and cash flow, record cash on corporate balance sheets, record low borrowing rates, and 100% depreciation allowance for 2011.  Be sure to read his full post here.

Yet, except for that tidbit of good news, the news is practically universal that we have been experiencing a very weak second quarter.  Specifically, the housing industry news has been horrendous as foreclosures have impacted housing prices in the second quarter.  However, in May, for the first time since that first time home-buyer credit ended, we saw more home sales this year than last.  Just take a look at the chart below from Calculated Risk.

Source: Calculated Risk.  Click to view larger image.

It has been a tough quarter; however, if employment improves in the upcoming third quarter, we expect to see housing sales move up, which will help employment move higher as well.  While this "circle" has been quite vicious as of late, it could turn into a sweet spot that this recovery has been missing so far.  We believe the third quarter will get this better scenario back in sync.

To read today's complete Market Comment, click here.

Don Hays

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