Better News
Yes. Aside from the distraction of the sequester lunacy there is an actual economy to concern us. Today’s reports are decent, so they are worth mentioning.
According to CoreLogic, a research firm, home prices rose 0.7% in January bringing the gain over the past year to 9.7%. That’s the fastest one year rate of growth since mid-2006. All but two states have shown growth – the laggards are Delaware and Illinois – which suggests that the recovery in real estate is now well established and widespread. As we would expect those states hit the hardest in the bubble are those showing the most rapid re-adjustment, with Arizona logging a 20.1% gain over the last twelve months. We should remember though that prices are still well below their bubble driven peaks. Prices are off 26.4% since those ridiculous days, or are down 19.9% if we exclude distressed sale prices. Let’s hope sanity prevails and people are not swept away once more. Meanwhile today’s report suggests that the general economy is also well in its recovery.
The other good news today was the monthly reading on the Institute for Supply Management’s service sector index. The report showed the index rising slightly in February to reach 56%. Remember that any reading over 50% tells us that business is expanding rather than contracting. February’s rise means that the index has now risen for thirty-nine straight months, a streak dating all the way back to the dark days of crisis in 2009. There are eighteen industries monitored in the index and thirteen reported expanding activity – up from only eight in January. So while the monthly improvement was modest – January’s reading was 55.2% – it was more extensive. Hidden beneath the surface are two trends we ought to note. The employment sub-index actually fell back a little – by 0.3% – but still is above the magic 50% mark. Meanwhile the new orders index jumped 3.8% to 56.9%, suggesting that the string of months with a gain will continue for a while longer.
What do we make of these reports?
Clearly the economy is still growing. Last week’s news of a poor fourth quarter – GDP only grew at an annual rate of 0.1% – was misleading because of a number of oddities that will not be repeated. Real estate and services look to be in solid if not spectacular shape which means that my projection of GDP growth in the range between 2.0% and 2.5% this year would be intact were it not for the efforts of Congress to undermine everything. The sequester cuts, if they remain on the books all year, will slice about 0.75% from that projection. This implies a poor year rather than a decent year.
Let’s hope that the austerity pundits don’t get their way and make matters even worse.
