Reading media reports of economics is usually an exercise in decoding political bias and trying to find the center of things. Today we’re in enough trouble that to understand “news” we must also strip away hope and pessimism.
Big week for all of that.
First thing first: the US has lost some forward momentum, but is not entering recession. Consumer spending did not rise at all in May, dead flat, but orders for new durable goods doubled the forecast. New claims for unemployment insurance are running 385,000 weekly, up 15% from last year’s best run since 2008, but not spiking. There are some flickers from housing, but that’s all (more below). Definitive reports for June come next Monday and Friday, purchasing managers and payrolls.
Europe… we have another “relief rally” underway today (Dow up 220, gold up $55), as yet another Brussels summit has delivered yet more fibs to buy time. However, this time is different. After all prior can-kicking, markets took the bait, believing that Europe intended actual material progress. This time a lot of people (including me) had talked themselves into believing the euro zone was about to pull its own plug, maybe as soon as this weekend. Today’s relief rally does not reflect any belief whatever in European progress; it is instead a cynical, tired, shoulder-slump at the sight of people without the courage to take the Luger to a quiet spot and do the honorable thing.
The tell-tale as always in these last years: the 10-year T-note. The sum-total extent of relief is a rise in yield from 1.57% to 1.65%. Mortgages high-threes, unchanged.
Housing is improving, but in a 17-step program to recovery has reached perhaps stage two. Case-Shiller found a 0.7% rise in prices in April to a level about even with one year ago. The FHFA House Price Index (which I much prefer) found a 3.0% price increase year-over year, essentially all of it in the first four months of 2012, the most recent data from April (housing data suffer terrible lag, especially the accurate stuff).
Today’s greatest mystery: where is the distressed inventory? www.lpsvcs.com has the best data: the number of homes in foreclosure somewhere has not changed in a year. Serious delinquency (90-days late or in foreclosure) has fallen from 7.86% of all homes to 7.37%, a huge swamp draining imperceptibly. Total foreclosure sales were only 66,000 in April versus 4.5 million shadow inventory in terminal distress, outflow not significantly larger than inflow.
For descriptive amusement, visit www.fhfa.gov and scroll to pages 36 and 37 of the HPI, the 20-Best and 20-Worst markets of 303 total MSAs. My home town, very-low-inventory Boulder, CO ranks as the 10th best of all, and we feel like it, although our one-year price gain is only 2.35%, and 5-year plus 1.60%. Bend, OR ranks third-best with 4.85% appreciation last year; however, its overall 5-year result has been minus-43%. The 20-Worst: #4 Las Vegas has lost 60% of value in five years, including 8.79% last year. #16 Atlanta: minus 23% 5-year overall, including 6.33% lost last year.
We have a long way to go before housing will lead the economy up.
Speaking of leading… the economic stories this week and year are dwarfed by events in leadership often responsible for the economic results. The principal reason that housing is unable to lead the economy: there is no public policy. Congress is entertained by gridlock on the subject, the Right hating any federal assistance whatever, and the Left amused by hating all bankers. Mr. Bernanke, the leadership hero of this time, in January orchestrated the finest housing-policy recommendations of the decade and got no response from any other office of government.
Competing theories of leadership: great people appear and then move events; alternately, deeply troubled times call great people forward. Look around the world, and it’s hard to figure by either theory how the supply could be so thin.
Then from nowhere, a man granted high station and for seven years in office amounting to nothing, from that nowhere somehow found greatness. Thank you, John Roberts. Not for saving ObamaCare, but for showing the way beyond partisanship.
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