July - September, 2009
Economics 101
Recent figures on home sales and manufacturing activity suggested that economic recovery was likely to occur in fits and starts because of high unemployment, a mercurial stock market and shaky consumer demand.
"It’s not going to be smooth," said Bernard Baumohl, managing director of the Economic Outlook Group, who is expecting a strong rebound. "We will be moving three steps forward and one step back. But on the whole, I expect this recovery’s going to be moving upward."
Reports showed that consumer sentiment rose this week to its highest levels since the start of 2008 and that new-home sales edged up for a fifth consecutive month, but other barometers of the economy revealed uncertainties. The U.S. housing industry remains depressed, but its recovery is critical to restore household wealth and consumer confidence, strategists say.
"We expect a very sluggish recovery," said Cliff Waldman, an economist at the Manufacturers Alliance/MAPI. "It’s more than just a downturn. You had a collapse in the housing market, and a near collapse in the financial system."
Factories and industrial businesses have gradually been ramping up production and hiring part-time workers in some areas as they begin rebuilding their depleted inventories. Most economists say they believe the economy has now technically pulled out of recession, and are expecting businesses to expand in the second half of the year.
Still, that recovery is likely to be jagged, marked by high unemployment and questions about whether consumer or business spending will bounce back or remain subdued.
Meanwhile, a Reuters-University of Michigan survey showed that consumer sentiment rose in September as consumers said they were growing more optimistic about the economy’s progress and the employment picture heading forward. The index of sentiment rose to 73.5, from 65.7 in August.
The Commerce Department reported on Friday that sales of new homes rose 0.7 percent in August, hitting their highest level in almost a year. Sales rose to a seasonally adjusted annual rate of 429,000, largely because home sales increased the West.
Housing prices have shown some resiliency this year although in September, the median price of a new home fell to $195,200, from $215,600 a month earlier. The Federal Housing Finance Agency housing index is forecast to have increased 0.5 per cent in July, according to a survey of economists by Bloomberg. The index increased 0.5 per cent in June and 0.6 per cent in May.
The recovery is being attributed to a record high level of affordability, an $8,000 tax credit for first-time buyers until the end of November and improving consumer confidence, said Michael Gregory, a senior economist with BMO Nesbitt Burns Inc.
Rising house prices are key for consumer spending. Studies indicate an increase in housing wealth has a larger impact on consumption than an increase in financial assets such as stocks, Derek Holt, vice-president, and Karen Cordes, financial markets economist, with Scotia Capital Inc. said in a report to clients. The U.S. Federal Reserve Board has estimated "that housing wealth was four times more powerful as a driver of gains in consumer spending than equity gains."
"What we are getting is a slow fragile recovery in U.S. housing," said Patricia Mohr, vice-president of industry and commodity research at the Bank of Nova Scotia.. However, lumber inventories are at very low levels, sawmills have closed, logging contractors have gone out of business and log inventories are low, she said. "Potentially, you could get a big rally in lumber prices early next year."
Source: New York Times, Toronto Globe and Mail
Source: TimberMart South