Sideways shuffling

I hope that the Holiday season is unfolding with ease and smiles!

The economy continues to move in a mostly sideways direction with a slightly upward bias. Some economic statistics bear this out…

U.S. Home Prices:

The Case-Shiller home-price index was showed that U.S. home prices in October fell 7.3% versus prices in October of 2008. Meanwhile, prices relative to September ’09 were flat. Case-Shiller looks at the selling prices in 20 major metropolitan areas. Of those 20 markets, 7 posted price gains.

Analysis: Supply and demand forces continue to find equilibrium. There are just fewer buyers out there than there were when mortgage money was practically free. So the only way to unload a property is to lower your price. I would continue to expect prices to stay flat, or even decline a little. Look for prices to take a hit when the Federal government special tax deduction for first time home buyers expires next year. This assumes that the Feds won’t renew it again.

In short, the home price data could best be described as flat. Clearly this is a fairly good description of the U.S. economy right now: flat.

Consumer Confidence:

The Conference Board said that consumer confidence rose to 52.9 in December from November’s revised 50.6. Any reading above 50.0 indicates positive economic growth sentiment. Consumer confidence for economic growth over the next six months increased to 75.6 from 70.3

Analysis: As far as I am concerned, there are only two economic statistics worth discounting into economic analysis right now: unemployment and consumer confidence. As you can see, consumer confidence is only slightly positive for the month. However, optimism is UP as indicated by that 75.6 expectation for growth in the next half year. That reading is the highest since December 2007 – the technical start of the U.S. recession.

What will be important to track is to see if the optimistic outlook translates into consumer spending. That spending will be the necessary step to give businesses confidence to begin hiring again. Meanwhile, we sit in a Mexican standoff where neither side, consumers or businesses, is willing to commit to any move too strongly.

*****

In conclusion, most economic data are indicating a sideways shuffle in the economy. Those indications that are positive are sentiment oriented and not actual hard data. Positively, economic comparisons are generally made on a “year over year” basis. Because economic data were so weak in the first 6 months of last year it is likely that the first 6 months of 2010 will show economic “growth.” Yet this growth is simply growth that gets the economy back to breakeven. The economy will have made actual progress when it grows beyond the economic peaks of 2007. Don’t misread me…over the past two years of recession the U.S. has gotten real. The economic growth that is occurring now is not easy-money/bubble driven, but actual gains in efficiency. My point is this: easy comparisons do not a recovery make.

Jason