Deller's two cents: Lots of economic news this week. I think the Vanguard folks have it right, "The economy is stirring more than it was a few weeks ago, but there's still worry the long slumber will continue." Good news on the European debt crisis and people are realizing we can't wait for Congress to do anything. As I mentioned last week, most economists are in agreement, until the housing market "rebounds" economic growth will be weak.
Economic Week in Review: Awake, asleep, or somewhere in between
October 21, 2011
The economy is stirring more than it was a few weeks ago, but there's still worry the long slumber will continue. Economic reports were mixed this week. Both the Beige Book and a set of leading economic indicators showed slow growth. Industrial production crawled forward. A sizeable gain in new residential construction was muted by a decline in existing-home sales. Consumer and wholesale prices rose, but inflation still appears tame. For the week ended October 21, the S&P 500 Index rose 1.1% to 1,238 (for a year-to-date total return-including price change plus dividends-of about 0.1%). The yield of the 10-year U.S. Treasury note fell 3 basis points to 2.23% (for a year-to-date decrease of 107 basis points).
Fed's Beige Book reflects slow growth
The economy grew slightly in September and the first week of October, according to the Federal Reserve's latest Beige Book survey. The Beige book provides observations from economists and business leaders from the Federal Reserve's 12 bank regions. The report indicated consumer spending increased in most districts, with auto sales and tourism leading the way. On a more negative note, the job market showed little progress and weak conditions continued for residential and commercial real estate.
Leading indicators rise slightly
The Conference Board's leading economic indicators-a weighted measure of ten indicators designed to signal future economic activity-advanced 0.2% in September. The gain was the fifth straight, but the lowest result since the index plummeted in April. Five of the ten indicators increased. Interest rate spread, the difference between the federal funds rate and the yield of the 10-year Treasury, contributed the most to the rise. Building permits were the largest detractor among leading indicators. The coincident index, which measures current conditions, inched ahead 0.1%, and the lagging index rose 0.2%.
Small gain for industrial production
Industrial production increased 0.2% in September, in line with analysts' expectations. The figures for August were revised to flat from an initial 0.2% gain. Industries used 77.4% of capacity, a high for this economic cycle but below longer-term averages. Manufacturing and mining production both rose, while utilities output declined as temperatures fell from their summer highs. Business equipment production, which advanced 1.0%, helped drive the manufacturing gains. In the third quarter, industrial production climbed at a 5.1% annual rate, compared with a 0.5% bump in a second quarter marred by the Japanese earthquake.
Prices increase, but inflation not a threat
Consumer prices rose 0.3% in September as gasoline and food prices increased. The third straight monthly increase was on target with analysts' forecasts. Although prices were up, they're growing at a slower place than in August or July. Core prices, which exclude energy and food, rose 0.1%. The moderate rise is a signal that inflation is in check. Lower prices for clothes and automobiles, as well as a slower pace for rent increases, kept the core number lower.
Producer-or wholesale-prices surged 0.8% in September, also behind an increase in gasoline and food costs. Analysts expected a smaller bump but were surprised by the largest increase since April. Gasoline prices contributed most of the spike in energy, while vegetable prices drove the advance in food. Core prices, which exclude food and energy, climbed 0.2%.
Existing-home sales slide
Sales of existing homes fell 3.0% in September, to an annualized rate of 4.91 million units. The decrease follows strong gains in August. Compared with a year ago, home sales (including single-family dwellings, townhouses, and condominiums) are up 11.3%. Single-family sales fell 3.6% in September, while condo sales rose 1.8%. Sales increased in the Northeast, and declines in the three other regions were most notable in the West. The median home price is $165,400, down 3.5% from a year ago. There's an 8.5-month inventory supply.
Housing starts soar on demand for apartments
New residential construction leaped 15.0% in September, more than analysts forecast. Most of the gains came from a 51.3% surge in multifamily units. There's a large demand for apartments as buyers are reluctant or unable to purchase a home. Construction of single-family homes increased a more modest 1.7%. All four regions of the nation showed growth overall, although single-family starts were flat in the West and down in the South. Permits-which reveal the demand for new homes-were down 5.0% in September. However, permits for single-family homes were off just 0.2%.
The economic week ahead
A variety of reports are on tap next week, which kicks off with Tuesday's data on consumer confidence. The releases continue with durable goods and new-home sales on Wednesday, gross domestic product on Thursday, and employment costs and personal income on Friday.
--
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
