I have been remiss in my posts on data releases this week, so herein is my penance.
Sales of existing U.S. homes surged an unexpectedly large 4.5 percent to a record high in April and home prices posted the biggest annual gain in almost 25 years, a trade group said on Tuesday, in a report renewing concerns of inflated prices in housing markets...
The national median home price rose 15.1 percent to $206,000 from the same month a year ago, the NAR report showed. That price increase was the biggest since November 1980, when prices rose 15.6 percent, NAR said.
These comments by Alan Greenspan were widely reported...
"We don't perceive that there is a national bubble but it's hard not to see ... that there are a lot of local bubbles," Greenspan told the Economic Club of New York last week.
... and the purveyors of the data see of bit too much frothiness themselves:
"The record was basically unexpected, but low mortgage rates were unexpected as well," said David Lereah, chief NAR economist.
"Prices are now becoming a concern. There's a speculative element in home buying now," he added.
The beat went on with Wednesday's report on April New Residential Sales. From Bloomberg:
U.S. new home sales unexpectedly increased in April to a record pace, a sign historically low mortgage rates and job gains keep powering housing. Prices rose, reflecting an increase in purchases of more expensive homes.
Sales rose 0.2 percent to a 1.316 million annual rate during the month, after a 1.313 million in March that was less than initially reported, the Commerce Department said today in Washington...
Home sales so far this year have averaged a 1.27 million rate, compared with last year's record 1.2 million.
The median price rose to $230,800 in April from $217,500 a month earlier. Compared with the same month last year, the median price has increased 3.8 percent.
The median price fluctuates depending on which regions are strong and the types of homes being sold. More higher-priced homes were sold in April, while the number of cheaper houses sold declined, today's statistics showed.
Geez. How long can this go on?
"I think home prices are going to slow down,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. ``In some local markets, you're actually going to see housing prices decline,'' although it ``may not happen until interest rates go up,'' he said...
Some economists still expect housing sales to fade in the second half of 2005 if mortgage rates rise in response to Fed rate increases. So far, that hasn't happened. The average 30-year rate is lower now than it was in June 2004, when central bankers embarked on a series of eight interest-rate increases.
Oh, that crazy conundrum.
Calculated Risk opines that the real surprise "was the significant downward revision in the March numbers" for new home sales.
Need more signs that the soft patch is past? Here's April Advance Durable Goods for you, from BusinessWeek online:
Orders to U.S. factories for big-ticket manufactured goods shot up 1.9 percent last month...
The Commerce Department said the increase in demand for durable goods, items expected to last at least three years, was the best showing in five months. Orders rose by $3.71 billion to a seasonally adjusted $200.3 billion last month, reflecting strength in autos and aircraft...
The 1.9 percent jump in durable goods orders, the largest advance since a 2 percent increase last November, followed three straight monthly declines including a sharp 1.6 percent drop in March. That decline had raised worries that the economy could be faltering as consumer and business confidence were jolted by higher energy bills.
But several stronger-than-expected reports of April activity have eased fears of a prolonged slowdown.
As expected following the surprise decline in the first quarter trade deficit, first quarter GDP growth was faster than originally reported. First Quarter GDP, from CNNMoney:
The U.S. economy grew at a faster pace in the first quarter than earlier estimates, the government reported Thursday...
The gross domestic product, the broad measure of the nation's economic activity, rose at an annual 3.5 percent rate in the first quarter, compared to the 3.1 percent gain reported in an earlier report...
A smaller-than-expected trade gap in March was one of the major reasons for the upward revision in GDP. Purchases of imported goods and services reduce the GDP, while exports, which grew to record levels in March, increase the measure of the nation's economic activity.
That didn't get in the way of a little negative spin:
... but the stronger reading fell a bit short of Wall Street expectations.
... Economists surveyed by Briefing.com had a consensus forecast that the GDP would be revised up to 3.6 percent growth, while Reuters found a range of estimates from 3.2 to 4.0 percent growth...
"I think the slowdown is still in the cards," [John Silvia, chief economist with Wachovia Securities] said. "We're probably looking at 3.5 to 3.25 (percent growth) in the second quarter, and 3.0 to 3.25 (percent) in the second half. Part of what drove the first quarter number was an increase in inventories, and a lot of that was unintentional. You've already seen businesses starting to scale back production to reduce that inventory.
"I don't see a reacceleration of this economy at all, unless there is an external factor," he said.
The market, however, was not quite as hesitant. From msn Money:
US stocks rose on Thursday as investors welcomed a modest upward revision of first-quarter US gross domestic product growth
Thus, the Capital Spectator asks...
The stock market yesterday was encouraged with the upward revision in first quarter gross domestic product. So too was the bond market. Can both markets be right?
... and answers:
The stars arguably are aligning in the bond market's favor. As a bonus, the stock market doesn't have a problem with the data either. When everyone's bullish, there's no place for bears.
Perhaps First Quarter Corporate Profits had something to do with it. From Reuters, via the Chicago Tribune:
U.S. corporate profits grew 4.5 percent in the first quarter and accounted for the largest share of the economy since early 1967, the Commerce Department said Thursday.
Although that was down from 13.5 percent growth in the fourth quarter, profits accounted for 10.9 percent of gross domestic product in the January-March period, the most in almost four decades.
The earnings growth in excess of GDP will underpin business investment and help fuel the expansion, said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh.
"Businesses are going to spend with profits at these levels and with the amount of capital that's available," he said. The economy is "fairly firm."
Closing the week, the April Personal Income report generated some mixed reactions. From BusinessWeek online:
Personal incomes rose in April at the fastest pace in five months , helped by a big jump in employment, while consumer spending slowed a bit, the government reported Friday.
The Commerce Department said incomes rose by 0.7 percent last month, the best performance this year. Analysts said it reflected the strong gain of 274,000 jobs last month and a rise in the workweek, which both boosted private wage growth.
Consumer spending rose by a lower-than-expected 0.6 percent in April but the government revised the March gain to a stronger 0.9 percent, up from the 0.6 percent increase that had been originally reported for March.
General Glut warns, however, that real disposable income gains are less impressive, and consumption growth still outstrips disposable income growth (though the gap is closing). The Financial Times had a similar perspective:
Personal income climbed by 0.7 per cent in April. Yet Americans saved an even smaller portion of their disposable income, just 40 cents for every $100 of disposable income.
The real growth in wages was also chipped away by a 0.4 per cent increase the personal consumption expenditure index, a broad measure of price rises. A sharp rise in tax payments also ate into earnings growth, leaving disposable income just 0.5 per cent higher.
Ian Morris, US economist at HSBC, said that growth in disposable income was decent rather than booming. Year over year the rise was 3.3 per cent. With consumption running at a year on year rate of 4.1 per cent, the savings ratio hit a new cyclical low of 0.4 per cent. The savings rate has only ever been lower once, in October 2001.
All in all, to me it adds up to a pretty solid set of statistics, but confusion seems to reign supreme. This is from the lead item at Market Watch, at the time of this post:
Soft patch persists
Somewhere in the last few weeks, a fog seems to have descended over the U.S. economy, and economists seem lost about where it is headed.
That was immediately followed by this item:
Stocks lifted by upbeat economic view
U.S. stocks ended higher Friday, wrapping up a week of solid gains ahead of the three-day Memorial Day holiday, as investor confidence in the economy returned after a number of positive reports.
Go figure.