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Tags: housing | hiring | economic | disaster

Strong Housing, Hiring Don't Reflect Looming 'Economic Disaster'

Strong Housing, Hiring Don't Reflect Looming 'Economic Disaster'

(Dollar Photo Club)

Joel L. Naroff By Tuesday, 23 August 2016 01:59 PM EDT Current | Bio | Archive

  • INDICATOR: July New Home Sales and August Philadelphia Fed NonManufacturing Survey
  • KEY DATA: Home Sales: +12.4%/ Phila. Fed: -4 points; Orders: -14.9 points
  •  
  • IN A NUTSHELL: “With housing and hiring looking really good, where is this economic disaster I keep hearing about?”


WHAT IT MEANS: I know, I know, politicians never let facts get in the way of a good political speech, but the idea that the economy is nearing recession is also coming from mainline business commentators and even a few economists. Well, it is hard to believe all the doom and gloom when you look at what is happening in the housing market. New home sales surged in July to the highest level since November 2007. But before we get carried away, it should be noted the jump in demand was concentrated in two regions, the Northeast and South. The West was flat and the Midwest rose modestly. The Northeast has been in the dumps since the recession began and it is still not great. However, the South, which is the biggest region, has been steadily recovering. That is important for overall market health. On the price side, the median price went down in July and was off over the year. The growing number of lower price level sales may reflect the growing importance of new-entry Millennials as well as builders recognizing the need to downsize homes to actually sell them.

Nonmanufacturing activity was largely flat in the Philadelphia region, despite a softening in new orders. Interestingly, sales/revenues were pretty much at their July levels, which seems to indicate that firms have yet to see much of a decline in demand. Special questions asked of the respondents pointed to solid increases in wages (3%), as well as inflation (2.5%) over the next year, which is above the Fed’s target. Both manufacturers and nonmanufacturers expect inflation to average 2.5% over the next ten years. That should open some eyes at the Fed.

MARKETS AND FED POLICY IMPLICATIONS: I will never argue this economy is strong, but it is also hardly on its deathbed. I don’t know how many times I have seen a headline saying the economy is either already in recession or spiraling into one. Maybe I am looking at different data, but the labor market is solid and so is the housing market. The Atlanta Fed’s GDP Now third quarter forecast remains in the 3.5% range, which is my estimate. Of course, I also thought second quarter growth would be in the 3% range, so what do I know. The second quarter decline in inventories, rather than the usual smaller increase, should reverse, implying a sharp rebound in growth is possible. In the second quarter, the inventory swing took 1.2 percentage points out of growth, with total business investment reducing GDP 1.7 percentage point. Modest investment gains, coupled with decent consumer demand, get us to 3%. In other words, the sky is not falling. Existing home sales come out tomorrow morning and a modest July decline is expected. But new home sales were also expected to ease. If existing home demand is largely flat or even up, given the recent steady improvement, we can conclude the housing market is solid. And with jobs being created decently, can anyone who is not a politician or who works for one say the economy is a disaster?   

 

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm. To read more of his blogs, CLICK HERE NOW.

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JoelNaroff
With housing and hiring looking really good, where is this economic disaster I keep hearing about?
housing, hiring, economic, disaster
583
2016-59-23
Tuesday, 23 August 2016 01:59 PM
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