Signs Of Life?

I was asked yesterday, by a stranger who knew that I write about such things, what I think about the economy. I said it sucks. Which it does in many ways. Yet there are signs of life because the news this week has been good so far.

Take, for example, the monthly report from the Institute for Supply Management. This is one of our more eagerly awaited pieces of data because it gives us insight into conditions in our manufacturing industries. The latest report covers information gleaned about industry in November, and was much more ebullient than anyone expected. The index of activity rose to 57.3% in November, up from October’s 56.4%. This continues a recent run of continuing strength and brings the index back up to where it was back in April 2011. There is  no way to interpret this other than to say it is very positive – any number over 50% points to expansion, and a series of such numbers suggests a steady gain in momentum.

The problem is that other statistics, also seeking to measure strength in manufacturing, seem at odds with this rosy picture. For instance, the Commerce Department’s data on orders for manufactured goods, has been relatively flat all year and is now suggesting a rather sluggish immediate prospect far removed from that the ISM data seems to support.

Time, will of course, resolve this apparent discrepancy, but the ISM index has generally stood the test of time and is a fairly reliable barometer of what is likely to go on over the next few months. So I err on the side of optimism, albeit cautiously.

Supporting this, and in another sector of the economy, is today’s news about new home sales. They jumped much more than expected in October, the latest moth for which data is available. Indeed that annualized rate of 440,000 new home sales represents a remarkable 25.4% increase over September’s rate and is a heady 21.6% up from last October. The median sale price in October reached $245,800, and the mean rose to $321,700. Meanwhile the inventory of new homes available for sale shrank to 183,000 which is around 4.9 months of supply at current rates of sale. This news is simply another in quite a long string all suggesting that the recovery in real estate is now fairly complete. Another well known report in this sector is the Case-Shiller index that tracks prices of existing homes being re-sold. The latest data we have from Case-Shiller – for sales through September – has prices at around 11.2% higher than last year, with p[rice gains showing up right across the country.

Incidentally, anecdotal information suggests that the new regulatory requirements issued by the Consumer Federal Protection Bureau which come into effect in January, may slow the real estate market down a little because they some of the easy money style mortgages that fueled real estate activity during the bubble. These regulations may end up damping bank lending down a little and thus making financing a home more costly and difficult. If they appear to be too stringent they may be revised. Then again such damping down is exactly what they are intended to do. They will make the emergence of a new bubble less likely.

Lastly, in this good news fest, is today’s employment report from ADP the big private payroll processor. ADP measures employment gains across the private sector and publishes its data a couple of days ahead of the government’s more complete employment and unemployment report, the next of which is due out Friday. According to ADP the economy added 215,000 new jobs last month which is well above expectations. It is also the best monthly gain in a year, and suggests that all the confusion caused by the government shutdown which depressed October’s numbers is well in the past. It also suggests that those dire reports about the negative effects on employment of health care reform were false. But we knew they would be didn’t we?

So there you have it. Three good reports in the span of a few days. Three very different parts of the economy doing well – very well.

So, why do I think the economy sucks?

Because of the longer term problems we have notably the enormously unequal distribution of the way in which new wealth is distributed. Our divided society is getting ever more sharply divided, and I consider that a major impediment to our ability to return  to a path of both strong and steady growth.

But that’s old news. Most of the newer reports are good. So let’s absorb that for a while before we dive back into the arguments over inequality.