Here are a few thoughts about some of the economic news that’s been coming in over the last few weeks.
Hard to complain here. We’re back at a point where not just the hurricanes but in fact the whole summer could seem like just a bad dream. And with gasoline futures on NYMEX now below $1.40, we could see retail prices nationally below $2.00 a gallon soon.
When Katrina first arrived at the end of August, I asked whether the gas price hikes that it induced might be enough to bring about a recession, and reasoned:
If it were just the consequences of the storm itself, my answer would have been, “probably not.” The reason is that I think most people would see this as a special event, tragic but thankfully short-lived. But this event did not arrive out of the blue. Instead, it came in an environment in which there was already considerable anxiety about gas prices.
The fact that the additional gas price declines of the last month have completely reversed all of the anxiety-inducing hikes of the summer should do much to soothe that, and indeed the University of Michigan’s index of consumer sentiment, which as shown in the graph on the right had plunged from 96.5 in June to 74.1 in October, rebounded somewhat to 81.6 this month. The separate Consumer Confidence Index calculated by the Conference Board rocketed up from 85.2 in October to a November figure of 98.9 announced yesterday.
Stock prices. The stock market is another very useful leading indicator. Although it had been giving a slightly pessimistic reading a month ago, we’ve seen a significant move up over the last four weeks. Those Wall Street bulls wouldn’t be charging this way if they saw a recession just around the corner.
Autos. No way to smile about this one. Although I have no doubt that high gas prices were a key factor that precipitated Detroit’s current problems, I have no delusions that lower gas prices will make the problems go away. GM last week announced plans to eliminate 30,000 jobs. Although there are those who argue that there is little that can be done to help the U.S. auto industry, I remain more concerned than most observers about the consequences that Detroit’s woes may bring for the rest of the economy.
Monetary tightening. It would be pretty unusual historically for the Fed to raise interest rates as dramatically as they have over the last year and a half without causing an economic slowdown. The current spread between the yields on long- and short-term bonds is at the narrow levels that historically often precede slower economic growth, and a couple more FOMC meetings could easily put the yield spread all the way into negative territory. Kash at Angry Bear shares my concerns about that prospect, while Dave Altig says only that it “could at least be interesting.”
Housing. (???) This may prove to be the sector that tips things one way or another. This week we received news that (a) sales of existing homes fell 2.7% with inventories increasing 3.5% (which I take to be very bearish developments), and (b) sales of new homes were 10% higher in October compared to the previous year, setting a new record (which I take to be a very bullish development). So, what exactly do the two pieces of information put together signify? Beats me. Altig notes the doubts expressed at Housing Bubble about the accuracy of the October new home sale data. But I like Dave’s summary:
I’m not sure which one it is, but one piece of this puzzle just doesn’t seem to fit.
Putting it all together, what are this month’s data telling us? Overall, the numbers are better than expected, so whatever your take on the economy was at the start of the month, you should be a little more optimistic about things now. Like, if you started out maybe now you’re .