Middle-Market Firms More Cautious; Has Housing Hit Bottom?

Zillow's Home Value Index rose for the first time in five years; mid-sized firms expect revenue growth to slow from 5.2 percent to 4.8 percent over the next 12 months.

Zillow reported that its Home Value Index rose on an annual basis for the first time since 2007, increasing 0.2 percent year-over-year to $149,300. The company’s second quarter report also noted that home values have risen for four consecutive months.

Does that mean that U.S. residential values have finally hit that elusive bottom? Zillow chief economist Stan Humphries says yes: “After four months with rising home values and increasingly positive forecast data, it seems clear that the country has hit a bottom in home values,” he remarked.

But Humphries suggested that rising foreclosures could push more homes otto the market toward the end of the year, and more lower-priced homes at that. “But we think demand will rise to absorb that, particularly in markets where there are acute inventory shortages now,” he added.  “Looking forward, we expect home values to remain relatively flat as the market works through a backlog of foreclosures and high rates of negative equity.”

Middle-Market Companies a Bit More Pessimistic

The Middle Market Indicator, a quarterly survey by the National Center for Middle Market Research at Ohio State University, reported on Tuesday that U.S. middle-market companies continue to lose confidence in the U.S. and global economies, but are expecting their own revenue growth to continue, if at a slower pace. The respondents also anticipate that employment growth will remain stable into next year, though they believe gains will be modest.

Conducted in June, the survey showed that middle market companies – in the opinion of 1,000 CEOs, CFOs and other executives of companies with annual revenues of $10 million to $1 billion – expect revenue growth to slow from 5.2 percent to 4.8 percent over the next 12 months. Companies projecting revenue increases of 10 percent or more in the next year dropped to 23 percent, compared with 28 percent in the first quarter. Even so, middle-market businesses continue to outpace S&P 500 revenue projections, which were a reported 3.4 percent this quarter.

“The middle market is the bellwether for the U.S. economy,” commented Anil Makhija, academic director of the National Center for the Middle Market. “This quarter’s indicator is showing that while the middle market continues to see revenue growth, hiring and job creation, it is becoming more conservative. Compared with last quarter’s results, we are seeing some softening and a greater emphasis on building a stronger cash position.”

Europe on the Edge?

Meanwhile, the Europe’s financial pot continues to simmer, if not boil. “We believe that as of July 2012, Europe is sleepwalking toward a disaster of incalculable proportions,” asserted a report published on Tuesday by the Institute for New Economic Thinking, a group of economists backed by George Soros. “The last domino, Spain, is days away from a liquidity crisis, according to its own finance minister.”

What to do? The economists have a number of suggestions, including greater short-term “burden sharing” for the economies that can afford it (that is, Germany). “Absent this collective constructive response, the euro will disintegrate,” the report warned. Investors seem to be thinking similar thoughts: 10-Year U.S. Treasuries once again touched record low yields on Tuesday as money looked for perceived safety.

Wall Street also continued to fret on Tuesday, with the Dow Jones Industrial Average losing 104.14 points, or 0.82 percent. The S&P 500 dropped 0.9 percent and the Nasdaq was off 0.94 percent—and that was before Apple announced (after the markets closed) that it has missed earnings expectations for the quarter, even though it’s doing quite well.