Recovery Blemished by Housing in January
With February just about over, the reports for January's economic indicators have mostly come and gone. What's the verdict? The recovery continued at a moderate clip. In fact, the vast, vast majority of measures of economic health got better. While some improved by more than others, there is one sector stubbornly weakening: housing.
Here's our roundup of major economic indicators for January (click to enlarge):
One thing is clear from the "Direction" column -- a lot of green. Of the 15 statistics compiled above, the only two that worsened in January were housing related: new home sales and foreclosures. So if you excluding real estate, there's little doubt that the economy was moving deliberately forward in January.
Of those 13 improving indicators, six were getting better faster. And a few of those were particularly noteworthy leading indicators, like durable goods orders, personal income, and small business sentiment. The other seven still improved, but at a slower pace than in December.
The only two significantly weakening areas of improvement appeared to be in jobs and spending. The meager 36,000 jobs created don't sound like much, and casts doubt on the 0.4% decline in the unemployment rate. But look for that jobs number to be revised upward in Friday's unemployment report for February. The weaker growth in spending and sales could be more due to Americans calming down from a holiday shopping binge or staying in due to bad winter weather.
But what about housing: can the economy move confidently forward as long as the sector struggles? Unfortunately, it will have to, as it's still hard to see when the housing market will begin to improve steadily. This morning, we learned that pending home sales have declined for the second straight month, which implies we aren't going to get much more consistent good news from home sales in the near-term.
The housing market's prolonged troubles are in part due to always having been at the heart of the U.S. economy's problems over the past several years. You can trace most of the problems back to the housing bubble. Such a great a reset was necessary that the correction is still underway.
To make matters worse, housing was prevented from hitting a true bottom for years. First, the government put a home buyer credit in place to pull forward buying demand. That resulted in a double-dip, rather than the market simply falling once to a deeper low. Then, we learned that some banks weren't following proper procedures when it came to foreclosures, which slowed down the process. This will further prolong the housing market's agony, as defaulted properties fated to foreclose will take months longer to hit inventory.
If housing hadn't been artificially lifted throughout most of 2009 and 2010, and if banks hadn't fudged foreclosure procedures, might the housing market have hit bottom by now? Perhaps, but even if it hadn't, it would certainly be closer to a recovery it appears to be now. Instead, as the rest of the economy moves forward housing creates a significant headwind. While the recovery is expected to continue at a modest pace in coming months, it's reasonable to believe that it would have accelerated more rapidly had housing hit its bottom sooner, rather than later.
Notes/Disclaimers about the matrix above:
- This is by no means a completely exhaustive list, but it does take into account many important statistics.
- It represents a somewhat quantitative summary, but no weighting has been used to create an economic index, so the reader can decide how important each statistic is for himself or herself.
- There is some overlap.
For anyone who wants to dig deeper into the numbers above, here's a list of posts that covered some of these January indicators:
Tax Cuts Boost Americans' Incomes in January
New Home Sales Give Back December Gain
Existing Home Sales Growth Continued in January
U.S. Retail Sales Hit Another New High in January
Home Seizures Rebound 12% in January
Small Business Optimism Hits 3-Year High in January
Unemployment Rate Dips to 9%, Hiring Unclear
ISM: Service Sector Activity Strongest Since August 2005