Thursday, January 20, 2011

The news is still positive

A quick roundup of today's good news:

The December Leading Indicator (above) rose much more than expected (+1.0% vs. +0.6%). It has been rising steadily, and at a healthy clip, ever since March 2009, with the exception of a flattish period from Mar-Aug of this year. That period included the Euro sovereign debt default scare, the US economy's "soft patch," and an apparent slowdown in the housing market. Those problems are now in the past, and fiscal policy is now pointed in a much more optimistic direction, leaving open the strong possibility, in my view, that we could see an acceleration in U.S. economic growth this year.

Weekly unemployment claims jumped unexpectedly last week, but settled back down this week, leaving us with a significant and convincing decline in the 4-week moving average over the past several months. The labor market is definitely improving. As an anecdotal aside, my cousin landed a decent, full-time job yesterday after a relentless, at-times-heartbreaking, two-year search.

China's economy grew about 10% last year. For years, it seems, markets have been on tenterhooks over the possibility that China's economic growth bubble might burst, bringing the rest of the global economy down with it. Yet the Chinese growth engine just keeps on chugging. It's amazing what can happen when a government unleashes market forces in an economy that was formerly highly regulated and suppressed. The minor amount of "tightening" that has been applied by the central bank in recent months is unlikely to make much of a difference here, since at best it offsets the dollar's weakness (which in turn is a function of the Fed's quantitative easing).

Existing home sales surged 12.3% in December, and have rebounded hugely from last summer's terrifying (at the time) weakness. The lion's share of the volatility in home resales in recent years can be attributed to government incentive programs which have come and gone. That's apparent when you consider that the average level of existing home sales over the past three years is unchanged from what it was in early 2008. Meanwhile, the inventory of unsold homes has fallen by 20%, from 4.5 million in mid-2008 to 3.5 million. These are not scary numbers at all, and are fully consistent with a market that has found a new equilibrium.

The January Philly Fed business outlook survey was a tiny bit lower than expected (19.3 vs. 20.8), but remains at a healthy level, providing further confirmation that the "soft patch" that troubled market participants last summer was just temporary.


Benjamin Cole said...

You gotta love these charts.
QE is not working? Tax cuts are not working?

Oddly enough, the Dow did nothing on the R-Party move to kill Obamacare.

Bill said...

Confirming your concerns about commodity inflation, I'm negotiating a construction contract for a new apartment building and the builder is insisting on a price escalation clause to cover him for expected increases in the prices of commodities that will be incorporated into the project.

Benjamin Cole said...


that is more good news. That means builders have the gumption, in today's economy, to try to break even.

More good news-a guy I work with say he can no longer order small lots from China, cabinets. They won't do it. And my neighbor, who is Chinese and sources garment items from China, said the same thing.

All of this is good news--maybe especially good for America. In some ways, if China becomes expensive, the USA becomes the manufacturing platform of choice, We are big, but cheaper than Japan and Europe.

I see a lot of good times ahead, if we can keep our economy growing.