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The Economic Recovery Is Looking Stronger Every Week
Published: 12/7/2009 11:30:00 AM |
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The stimulus efforts were expensive for sure, and the cost, like the cost of two 7-year wars that were supposed to be three-month skirmishes, will be with us for years to come. But the stimulus efforts at least seem to be working even faster than expected. Not only did the recession end in the third quarter, but signs of economic recovery seem to be getting stronger with each week’s economic reports. That is not quite what I expected, which was that the economic recovery would be temporary and the economy would slide back into recession next year. I’m still not convinced that won’t happen, but some of my concerns are going away, at least temporarily. I’ve been writing for more than a year about my belief that the problems began in the housing industry and the eventual recovery will begin in the housing industry. With consumers over their heads in debt, soaring foreclosures likely to keep home prices declining, a record percentage of homes (14%) either in foreclosure or with owners behind on mortgage payments, I didn’t expect recovery could show up in the real estate sector for some time yet. However, recent reports were that existing home sales shot up again in October (by a big 10.1%), new home sales rose a better than expected 6.2%, ‘pending’ home sales rose 3.7%, and home prices rose again in October. I expected those improvements would be temporary, since 30% of the sales were to first-time home buyers who were assisted by the $8,000 tax rebate program, which was going to expire at the end of November. But the program has now been extended into next spring, and expanded to include some folks who are not first time buyers. Meanwhile, consumer confidence rose in November, while mortgage rates are now under 4.8% again, near their record lows of last May. And we’re getting reports that banks with worrisome levels of home-owners in default on their mortgages, and large portfolios of foreclosed homes on their books, are looking at programs that will prevent those homes from being dumped on the market at fire-sale prices. Last month Fannie Mae, the largest mortgage lender in the nation, with 57,000 foreclosed properties on its hands, announced a ‘Deed for Lease’ program. It allows qualifying people to stay in their foreclosed homes and pay rent at a level they can afford (rather than putting them out and putting their homes on the market). Other major banks are reported to be launching similar programs. It would give banks some income while they hold onto houses for the possibility of getting higher prices when they do unload them a couple of years down the road. There has also been the continuing decline in the number of new monthly job losses. The employment picture is a lagging indicator, since employers won’t begin hiring again until well after the economy has recovered and demand for their products and services has increased enough to require more employees. But Friday’s report that there were only 11,000 jobs lost in November, the fewest since December 2007, and much better than the consensus forecast for 110,000 more job losses, was a very positive surprise. The report that the unemployment rate fell to 10.0% in November from 10.2% in October (versus the consensus forecast that it would kick up to 10.3%) was perhaps a bigger positive surprise. Not that everything is looking great again, or that there are not large continuing worries. For instance, credit-card delinquencies have grown to a near record high. That may explain another big worry, which is that so far retail sales in the very important holiday shopping period have been a big disappointment. That still keeps the possibility of more layoffs after the first of the year in the picture, and with consumers accounting for 65% of the economy, keeps worries alive about the economy slowing down again. One of my biggest concerns is that the stock market has already factored in a much stronger economic recovery than seems likely. So although we are now in the market’s favorable season, it is not without risk, and is almost sure to continue its nervous up and down volatility. And as I note on my daily morning market blog, next week is the frequently negative week before this month’s options expirations week. Getting back to signs of the stimulus efforts working out quicker, and possibly better than anyone expected in February (when Congress authorized the additional $780 billion of stimulus money), estimates vary but apparently only $175 billion to $250 billion of it has been spent, and the rest may not be. And already a total of $70 billion of the TARP money used to bail out financial firms has been repaid to the Treasury. This week Bank of America made arrangements to pay back all of the $45 billion of TARP money it received. Thanks to the big rally in bank stocks, the Treasury Department has so far also been able to sell at a profit the warrants it received from Capital One, JP MorganChase, and TCF Financial as additional sweetening in their bailouts. (They have also paid back all of their TARP loans). So while there are many remaining clouds that can, and probably will cause setbacks, the large patches of sunshine have been surprising. |
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