Yesterday I contemplated this week's news from the U.S. housing market, and concluded with this:
There is plenty of cause for concern, and plenty of uncertainty about the outlook. But to me it seems just a bit premature to be pushing the panic button.
The early reviews from readers go something like this: The housing market is in the tank, and you, Mr. Dave, are either a knucklehead or afraid to tell the people the straight facts.
First, let me note that I did say this:
... rising inventories of unsold homes -- Barry Ritholtz has the pic -- seems unlikely to be a harbinger of a rally just 'round the corner. And I might join The Capital Spectator in concluding that "the pullback in housing is something more than a minor hiccup."
To put it straight, I harbor no illusions about the state of the residential housing market. But I am a macroeconomist -- and one primarily engaged in thinking about national economic monetary and fiscal policies at that -- so my tendency is to focus on the trajectory of the entire economy. In the best of times there are some sectors of the economy that struggle, and it is not clear that these are the appropriate objects of policy.
More to the point, softening in housing markets, and attendant consequences on consumer spending and GDP growth, are already embedded in every reasonable forecast. They also include the expectation that the future will in part bring a rising share of business investment along with a falling share of household consumption. So an important part of the news yesterday came in the form of the July durable goods report. From Reuters:
New orders for U.S.-made durable goods fell a much greater-than-expected 2.4 percent in July as civilian aircraft and car orders tumbled, the Commerce Department reported.
But non-defense capital goods orders excluding aircraft, seen as a signal of business spending, rose a much larger-than-expected 1.5 percent. Analysts had forecast a 0.4 percent rise in the category.
"The headline was disappointing, but that was offset by a much stronger-than-anticipated reading in the non-defense capital goods orders ex-aircraft component. That provided some reassuring news in terms of corporate business investment," said Alex Beuzelin, senior market analyst at Ruesch International in Washington D.C. "At the margin, this supports the view that the Fed's job may not be done yet."
I put it all together and I'm just not sure that the incoming data is convincing enough yet to substantially alter our forecasts about the general health of the U.S. economy.
I should emphasize that I am very far from sanguine about those forecasts. There has been a spirited conversation of late -- at Econbrowser (here, here, and here), at Greg Mankiw's Blog, at Economics Unbound, at Outside the Beltway, at Brad Delong's Semi-Daily Journal -- on when we ought to date the beginning of the last recession. It is an interesting conversation, but every speech I give these days includes these two pictures:
I've said it before: No matter when you date the official beginning of the last recession, there is absolutely no question -- none -- that the slowdown began in earnest mid-2000. And that despite the fact that everything looked just fine before the bottom fell out.
I haven't forgotten that lesson.
UPDATE: More related commentary can be found at Alpha.Sources (here and here), at The Big Picture (here and here), at Calculated Risk (here and here), at Economist's View (here and here), and from The Skeptical Speculator.