This week is a big one for economic news with housing reports, the Federal Reserve meeting and confidence numbers in just the first two days. The national news outlooks chose to focus on different pieces of the equation. While there’s no easy way to pull it all together, let’s take a look at what we have so far.
The New York Times did an A1 piece Tuesday about expectations for Federal Reserve monetary policy given the nascent recovery in the economy, but not employment numbers:
The Federal Reserve is making modest progress in its push to reduce the unemployment rate. But that is not the jobs goal Congress actually established for the Fed. The central bank is supposed to be maximizing employment. And on that front, it is not making progress.
The share of American adults with jobs has hovered around 58.5 percent for more than three years, roughly five percentage points below its prerecession peak.
Job creation has merely kept pace with population growth. The unemployment rate, now 7.6 percent, has fallen mostly because people stopped looking for work.
There is little sign, however, that Fed officials are considering an expansion of their four-year-old stimulus campaign as the Fed’s policy-making committee prepares to convene Tuesday and Wednesday in Washington.
The article goes on to say that the Fed cites increased home prices as another reason that the economy is rebounding. The Wall Street Journal reported that home prices climbed the most in seven years:
Sharp drops in the number of homes listed for sale and growing demand for home purchases sent U.S. home prices up by 9.3% in February from a year ago, the largest growth rate in nearly seven years, according to a report released Tuesday.
The Standard & Poor’s/Case-Shiller home-price index tracking 20 cities offered the latest signal that the U.S. housing market has rebounded after home prices reached a bottom in March 2012.
All 20 cities in the index posted an increase in prices versus one year ago for the second straight month. That hasn’t happened since 2005. Prices in Atlanta rose by 16.5%, the largest increase in the 21-year history of the Case-Shiller series for that market, and prices in Dallas were up by 7.1%, the record for the 12-year history of that index.
But the story did sound a note of caution:
Some economists have warned that home prices may not be rising nearly as quickly as home-price indexes, such as the widely watched Case-Shiller index, would suggest. The Case-Shiller index is based on repeat sales of the same homes and includes foreclosure-related sales, which tend to sell for less than comparable nondistressed properties because they require more upkeep. The upshot is that when sales of cheaper foreclosed properties are rising, the Case-Shiller index will look worse. The inverse is true today. As the share of foreclosed-property sales has declined, the index is being pushed higher.
The home-price growth shown in Tuesday’s report is “not broadly reflective of what’s happening in the national housing market right now,” said Stan Humphries, chief economist at Zillow Inc., which publishes a separate home-value forecast that doesn’t include foreclosures. That series showed that home prices through March were up by 5.1% from one year ago. The Case-Shiller series, “is overly skewed to quickly rebounding markets…and is being boosted by a shift in transactions away from foreclosure resales,” said Mr. Humphries.
But consumers don’t seem too concerned about the caution some economists are urging as confidence rose in April, according to Bloomberg:
Consumer confidence unexpectedly jumped in April, and the rebound in home values accelerated earlier this year, showing the recovery in residential real estate is buttressing the U.S. economy.
The Conference Board’s sentiment index climbed to 68.1, exceeding the highest estimate in a Bloomberg survey of economists, data from the New York-based private research group showed today. The S&P/Case-Shiller index of home prices in 20 cities rose 9.3 percent in February from the same month in 2012, the biggest year-to-year advance since 2006.
“It’s pretty clear that housing is recovering,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, and the second-best confidence forecaster for the past two years, according to data compiled by Bloomberg. “That’s a positive for growth. It boosts wealth and confidence.”
Rising home and stock prices are helping repair finances left in tatters by the recession, leading to gains in sentiment that may limit any slowdown in household spending, the biggest part of the economy. For now, an increase in the payroll tax and cuts in federal outlays may be starting to pinch, prompting a slackening in manufacturing that is restraining growth.
The increase in the confidence gauge was led by a gain in the measure of expectations for the next six months, which climbed to a five-month high.
The share of households projecting their incomes will rise over that time period advanced to the highest since April 2011.
All of this confidence and recovery will hopefully translate into a more stable economy, but some are still skeptical, Bloomberg said:
Chipotle Mexican Grill Inc. (CMG) is among companies seeing a lack of consistency from the American consumer.
“It seems like the economy is off to a great start and then every time, about this time every year for the last two years in the spring, we get mixed signals on consumer confidence and job creation and things like that,” Chief Financial Officer John Hartung said in an April 18 conference call.
Household spending in the first quarter increased at a 3.2 percent annualized rate, the biggest gain since the fourth quarter of 2010, Commerce Department figures showed April 26.
At the same time, a report yesterday showed spending began to cool late in the quarter. Purchases climbed 0.2 percent in March after a 0.7 percent surge in the prior month, the Commerce Department said. Economists project outlays in the current quarter will grow at a 1.8 percent annual rate, according to the median estimate in a Bloomberg survey from April 5 to April 9.
Hindering households is the two percentage-point increase in the tax that funds Social Security, which took effect at the start of the year. Americans earning $50,000 a year are taking home about $80 less a month.
While there are obviously many different opinions on where the economy is heading, it’s good that most of these stories seem to be presenting a balanced view. Coverage is not just cherry picking the up or the down data to present a simple story, but taking into account the nuances of trying to pull all the data together. Only time will tell which way the economy is heading, but I’m glad to see organizations trying to look at all the data and not just what suits their theories.
