PP 7767/09/2010(025354)

Economic Highlights
Global
ïMARKET DATELINE

25 August 2010

1 US Economic Recovery Threatened By A Plunge In Home

Sales In July

2 US Stimulus Spending To Cost More And Most Of The

Effects Have Been Felt

3 Euroland’s Industrial Orders Slowed Down M-o-M In June

Tracking The World Economy...

Today’s Highlight

US Economic Recovery Threatened By A Plunge In Home Sales In July

US existing home sales fell by a whopping 27.2% mom to an annual rate of 3.83 million units in July, after a decline
of 7.1% in June. This was the third consecutive month of decline and the sharpest since the data began in 1968, following
the end of the government’s tax incentive in April. The tax incentive offered certain buyers as much as US$8,000 in
tax credit to sign a contract by 30 April and complete the contract by 30 June. US lawmakers, however, have since
pushed the completion of the deadline to 30 September. Yoy, the existing home sales contracted by 25.5% in July, after
slowing down to +7.6% in June and from a recent high of +23.2% in April, pointing to a renewed weakness in home
sales.

Apart from the expiry of the tax incentive, home buyers are also dragging their feet due to concerns over high
unemployment rate, rising foreclosures and inventory overhang. US unemployment rate, though off the peak of 10.1%
recorded in October, stayed high at 9.5% in June and July and the improvement remains gradual. Elsewhere, one in
seven mortgages was delinquent or in foreclosure during the 1Q, the highest in records dating to 1979, according to the
Mortgage Bankers Association. Although the US government has provided help, out of the 1.31 million loan modifications
started under the Home Affordable Modification Programme, 48% were canceled by the end of July, and more than half
of all modifications defaulted again within 12 months. As a result, the number of existing homes on sale rose to 3.98
million units in July. At the current sales pace, it would take 12.5 months to sell those houses, the highest since at least
1999 and compared with 8.9 months in June.

If foreclosures continue to mount and depress home prices and its recovery, it could hurt consumer spending further.
Indeed, consumer spending is already losing momentum. Sensing the renewed weakness in the economy, the US Federal
Reserve has acted fast and shifted its policy slightly towards a loosening bias on 10 August whereby it pledged to keep
its holdings of securities and prevent money from draining out of the banking system. While the direct effect of the Fed’s
move is not significant, it shows its willingness and ability to go further if economic conditions worsen.

Meanwhile, the median existing home prices fell by 0.2% mom in July, compared with +4.8% in June. Yoy, the median
prices of existing homes held stable at 0.7% in July, the same rate of increase as in June and compared with -0.1% in
May. This suggests that home prices, though have stabilised, remain weak.

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 25 August 2010

The US Economy

Stimulus Spending To Cost More And Most Of The Effects Have Already Been Felt

◆ The US Congressional Budget Office (CBO) estimated that the stimulus spending would cost US$814bn, slightly
more than the projected amount of US$787bn when it was implemented in 1Q 2009. In addition, the CBO’s analysis
suggests that the stimulus spending had created 1.4 million and 3.3 million jobs between April and June and boosted
the GDP by as much as 4.5%. The measures have lowered unemployment rate by as much as 1.8% in the 2Q
of the year, according to the analysis. The CBO’s analysis also suggests that most of the bang the still-lagging
economy is going to get for its stimulus buck has already occurred. About 70% of the measures’ cost
will have been incurred by the end of September and its effects on jobs and economic growth are expected to
dwindle in 2H 2010 and gradually disappear starting from 2011.

The Euroland Economy

Industrial Orders Slowed Down M-o-M In June

◆ Euroland’s industrial orders slowed down to 2.5% mom in June, from +4.1% in May. Despite the slowdown,
this was the fourth month of increase in five months, indicating that industrial activities are likely to remain resilient
in the months ahead. The slowdown was due to a slower increase in orders for intermediate goods, suggesting
that the region’s exports will likely slow down in the months head. This was made worse by a drop in orders for
durable & non-durable consumer goods, suggesting that consumer spending is likely to weaken going forward.
These were, however, mitigated by a pick-up in orders for capital goods during the month. In terms of country,
the slower growth was reflected in a slowdown in industrial orders in Spain and Estonia as well as declines in orders
in Ireland and Czech Republic. These were, however, mitigated by a pick-up in orders in Germany, the largest
economy in the Euroland, and in France. Yoy, industrial orders moderated to 22.6% in June, from a high of +23.0%
in May. This was the first easing after four consecutive months of picking up, suggesting that industrial orders might
have peaked in May and will likely moderate in the months ahead.

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