Deller's two cents: Mostly positive news this shortened week. But what should we make of Standard and Poor's (S&P) talk about lowering the credit rating of the US Treasury? The bloggers and talking heads have worked up a year's worth of hot air over this. The best that can concluded is that S&P is saying "stop the political games and get to work on fixing the structural budget deficit". The fact that the markets' negative response was very short-termed (i.e., less than one day) speaks to short-term seriousness of the federal budget problems. If we are at a political stalemate a year from now, then all bets are off.
Economic Week in Review: A key gauge grows even as housing struggles
April 21, 2011
Although a credit-rating agency's warning about the outlook for the U.S. government's debt burden dominated headlines this week, reports on the economy were more optimistic. The housing market, though weak, showed some improvement, and leading economic indicators showed an economic recovery that remains on track. For the week ended April 21, the S&P 500 Index rose 1.3% to 1,337 (for a year-to-date total return-including price change plus dividends-of about 6.9%). The yield of the 10-year U.S. Treasury note fell 3 basis points to 3.40% (for a year-to-date increase of 10 basis points).
Residential construction rises slightly
Housing starts rebounded 7.2% to an annualized rate of 549,000 units in March, following an 18.5% decline in February. Both single-family and multifamily units notched gains. While housing starts in March were above analysts' expectations, they remain well below historic averages-and 13.4% less than a year ago. Building permits, which are a good indication of future housing starts, rose 11.2% in March to an annualized pace of 594,000 units. Most of the gains in permits came from multifamily units, such as apartments. Single-family unit construction and permits grew more modestly, as new-home sales have lagged for several months.
Existing-home sales pick up
Sales of existing homes increased 3.7% in March after declining 8.9% in February. Sales rose to an annualized rate of 5.1 million units, largely propped up by sales of single-family homes (+4.0%). All regions in the United States showed improvement, with existing-home sales in the South (+8.2%) and Northeast (+3.9%) seeing the most gains. Yet existing-home sales remain 6.3% below year-ago levels.
There were about eight months worth of inventory in March, slightly lower than its cyclical peak, but still high. The national median existing-home price was $159,600 in March, down about 6% from a year ago.
"With rising jobs and excellent affordability conditions, we project moderate improvements into 2012, but not every month will show a gain-primarily because some buyers are finding it too difficult to obtain a mortgage," said Lawrence Yun, chief economist at the National Association of Realtors.
Leading indicators strengthen
The index of leading economic indicators rose 0.4% in March, better than expected and about 5% higher than a year earlier. Gains were broad-based, with six of the ten survey components increasing. The biggest drag came from consumer expectations, which were lower partly because of rising food and energy prices.
The leading indicators index has risen for nine consecutive months, signaling "sustained economic growth through year-end," said Ken Goldstein, economist at The Conference Board.
Still, Mr. Goldstein remained cautious: "Global disruptions, including unrest in the Middle East, rising oil prices, and the Japan earthquake, may have some repercussions."
The coincident indicator-which gauges current economic activity-rose 0.2% in March. The indicator benefited most from gains in industrial production and employment.
The economic week ahead
Next week's lineup is a busy one, with the highlight on Thursday when the first-quarter gross domestic product figures are released. The remaining reports are scheduled as follows: new-home sales (Monday); consumer confidence (Tuesday); durable goods and the Federal Open Market Committee's report on monetary policy (Wednesday); and employment costs and personal income and spending (Friday).
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Steven C. Deller
Professor and Community Development Economist
Department of Agricultural and Applied Economics
515 Taylor Hall --- 427 Lorch Street
University of Wisconsin-Madison/Extension
Madison, WI 53706
608-263-6251
"I started out with nothing and I still have most of it left."
Seasick Steve
