As You Were – Again
Today was one of those days. A flurry of new data about the economy all of which left us exactly where we were. I suppose that’s good. But it could, and should, be better.
New claims for unemployment assistance were pretty much unchanged last week. They had been 334,000 the previous week, they edged up slightly to 336,000. That’s meaningless – except for the people involved of course. The better data is the moving average that smooths bout week to week changes. That is now at 339,750 which is its lowest since February 2008. So claims remain at or close to their five year low, which suggests that the job market is in modest health. It is not in good health though, so let’s not get too upbeat about it. The improvement in the job market comes almost exclusively from a rapid decline in layoffs rather than a pick up in new hiring. So while claims are declining nicely, there is still little sign of a hiring boom. That means getting the unemployment rate down remains a long and arduous task.
Sales of existing homes edged up again to an annual rate of 4.98 million. That’s their best rate of growth since November 2009. Rising activity is being helped slightly by lower mortgage rates and the slow improvement in the labor market, but tight credit conditions and poor wage growth are making the improvement slower than it might otherwise be. Rising home prices are bringing more homes onto the market for sale – prices rose 6.5% over the past year according to the FHA – and so the inventory of unsold homes rose 9.6% in February to 1.94 million. This implies an unsold inventory equivalent to 4.7 months of sales, up from 4.3 months in January. This is the first rise since last April. That January inventory ratio was the lowest since May 2005 when the market was tight for all the wrong reasons. Just to add confusion: the National Association of Realtors, the source of this data, say prices rose not the 6.5% reported by the FHA, but by 11.6%, with a median sales price being $173,600. Since the two organizations are looking at different data this is not necessarily a conflict. Either way prices are rising from the depths they plummeted to after the crash. This is to be expected. Many of us argued that prices had fallen too far, and that there is not enough housing available, so prices would inevitably compensate by recovering before flattening out. This explains in part what we see going on.
Lastly, in our brief tour of stasis, the Conference Board released it index of leading indicators today. Plus ca change. The February increase of 0.5% was fueled by improvements in eight of the ten indicators the Conference Board uses to compile its index. It is precisely the same as January’s increase. Under normal circumstances this would mean we are looking at continued, and possibly better, growth later in the year. But we all know that won’t happen. The spending cuts comprising the infamous sequester will eat into growth as the year progresses and act as a brake. No doubt anti-growth activists will applaud this unfortunate turn of events. For the people whose lives are ruined by unemployment, or loss of wages, and for the businesses who lose revenues, it is not something to look forward to.
In sum: today’s news simply confirms our sideways movement. Every policy step being taken in Washington adds to, rather than subtracts from, the friction slowing growth. Unlike some others I see the economy slowing as the year progresses.
Unless, of course, Congress decides to help and not hinder.
Fat chance.
