Making a call on where the economy is headed over the near term is seldom easy, but times like these only ratchet up the difficulty and really force economists to earn their paychecks. Steady improvements in the capital markets and a handful of better-than-expected data releases have prompted some analysts to revise their positions (subscription req'd) on whether the economy is in or headed for recession, due to the fact that we are simply moving through a tough period. Other factors nudging people into the sluggish-but-not-sliding camp have been massive monetary and fiscal policy responses in the form of interest rate reductions and federal stimulus rebate checks.

This week also included several indicators that only muddied the waters even more. Kicking off the confusion were retail sales data for April, which showed consumers cutting back on spending to the tune of 0.2 percent from March. However, the topline number was driven lower by sluggish auto sales. Retail sales excluding automobiles increased 0.5 percent. As the rebate checks make their way through people's wallets and purses in the coming weeks, sales should pick up. Some of the rebate will certainly go to fill gas tanks, given $3.70+ gas, but if the previous round of federal rebate checks serves as a guide, ‘regular' spending will be higher than it would have been and the movie industry for one should receive extra lift this summer.

Manufacturing has been one of the more obvious struggling sectors of the economy over the past year or so. Nonetheless, much of the sector's problems can be traced back to two specific areas: auto production and housing-related goods. Recent reports on industrial production suggest the rest of the sector is just bouncing along-not expanding but not contracting either. These conditions are expected to persist over the near term, as strength in export markets offsets flagging auto and housing-related consumer goods output.

Housing starts offered perhaps the most mixed assessment of all, suggesting that perhaps the housing market turned the corner. A deeper look showed this was definitely not the case since all of the increase was attributed to the metric's most volatile and trendless component: multifamily residences. In fact, single-family housing starts rang in their lowest (unadjusted) April reading since the early 1980s housing bust. On a positive note, with permits and starts now well below new home sales and completions off a whopping 13 percent in April-the largest decline of the cycle-a bottom may indeed be in sight by early next year.


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