We’ve been dwelling here quite a bit on the bleak incoming housing data. But I have to admit that I’m not seeing that spilling over so far into some of the other key economic indicators.
Auto sales usually fall a bit between August and September, and perhaps declined slightly more than normal this fall, with total light vehicles sold in the U.S. in September down 3% from September 2006.
Domestic cars, like domestic light truck sales, were also down about 3%, and given the gloomy long run trend there, that makes this the worst September in 5 years for domestic autos, though not by much.
Not great, but taking August and September together, I think we can safely say that the bottom did not fall out of the market in some kind of psychological reaction to events in mortgage and financial markets over the last two months.
The Conference Board’s consumer confidence index fell 5.5% in September, which again raises a concern but is not enough by itself to be really alarming. Moreover, the University of Michigan’s closely related index of consumer sentiment was unchanged in September. Both indexes had shown about a 6% drop in August, which essentially wiped out a similar-sized gain in July. Again, I read this as a modest deterioration, but not the dramatic response to the August financial turmoil that some of us had feared.
Calculated Risk notes that you can get a pretty decent estimate of where the quarter’s personal consumption expenditures will end up using the two months of data that we now have for July and August. That calculation suggests we’re on track for 3% growth of real consumption expenditures for 2007:Q3. It would take some pretty bad numbers for September to turn this into a mediocre quarter on the consumption side.
On the employment front, weekly initial new claims for unemployment insurance have been trending down this month, and online advertised job vacancies were up 4% in September. Automatic Data Processing is estimating that nonfarm private employment increased by 58,000 net workers in September. All of which makes it pretty likely that the BLS payroll numbers reported on Friday will look substantially better than last month.
And, as Menzie noted yesterday, the stock market does not seem to believe we’re about to plunge into a recession.
Here’s how Tim Duy puts it all together:
the Fed is overestimating the downside risk to the economy. Certainly, the past correlation between housing downturns and recessions is nothing to ignore. But too many indicators are not consistent with a recession for me to be embrace a dark outlook. Why are initial unemployment claims flat? Why does the consumer appear to have momentum in the 3Q07? Why are readings on manufacturing activity not solidly on the decline? Why did the inventory to sales ratio slide back to its lows? Why does the Baltic Dry Index continue to reach new highs? Why isn’t faltering demand undercutting support for oil prices?
We’ve been staggering along for over a year now with a very poor housing market subtracting 1% from GDP growth while the rest of the economy overall continued to grow. Who’s to say things won’t just continue that way until the overhang of unsold houses eventually wears off?
It’s not an unreasonable expectation. But selling off that overhang likely also involves significant declines in real estate prices. And it’s hard to ignore the potential implications of those price declines for mortgage default rates, financial failures, and the psychology that’s so far still holding consumer spending up.
Not enough to persuade Tim to embrace the Dark Side, no doubt. But I’m sure that, like the rest of us, he’s eyeing her over.