November 22, 2011
As yet another week begins, a spate of depressing news seem to be unfolding. In the European Union, many analysts seem to be coming to the conclusion that the “landmark” agreement to save the Euro-zone from potential monetary collapse may be unworkable. Not to be outdone, here in the U.S. the Congressional “super-committee” that was charged with finding a minimum of $1.2 trillion in deficit reduction has thrown in the towel and admitted failure. Given the debt-ceiling expansion agreement from earlier this summer, that means $1.2 trillion will be automatically cut on an across-the-board basis among impacted programs, encompassing virtually all federal spending categories outside of the entitlements such as Social Security, Medicaid and (most of) Medicare.
Despite the very depressing nature of these most recent influences, there really are some economic developments in this country which, in their very modest way, ought to be celebrated.
For example, late last week and early this week statistics regarding the beleaguered housing sector indicate a bottom may have been found and the long, laborious slog toward sustainable recovery can begin. First and foremost, delinquency rates associated with home loans are starting to drop, with the most visible improvement coming in the early stages, that is, 30-day delinquency rates. Since these figures represent the early stages of the delinquency “pipeline,” a falling number here — if it continues — should move through the system and allow longer-term delinquency statistics to improve over time. Sadly, despite better delinquency figures, the latest numbers on home foreclosures showed a slight tick upward, indicating that the foreclosure slowdown from earlier this year may have resulted from financial institutions holding back so as to correct problems associated with the “robo-signing” mess. Obviously, this foreclosure rise was not a good sign.
But then, other housing-related developments gave reason for optimism beyond just delinquencies. October housing starts showed stability after a good increase the prior month, and the number of October building permits rose sharply, suggesting favorable opportunities for additional residential construction over the next several months. As well, the number of existing home sales in October rose by nearly 2 percent; not a great number, but far better than the decline that was anticipated. And with more existing homes being sold, even with foreclosures increasing very modestly, the inventory overhang on the housing market is beginning to slowly burn off.
Good news is not limited to the housing sector, however, with GDP statistics for the third quarter indicating businesses remain at least somewhat optimistic about the future given a 13.1 percent average increase in inflation-adjusted spending on new equipment over the past nine quarters. As well, with business inventories very well controlled, the possibility exists for increased manufacturing production schedules as 2011 ends and 2012 begins. The 0.7 percent gain in industrial production for October provides some hope for such an outcome.
And favorable news is not limited simply to the domestic front. The most recent GDP data indicate that during three of the past four quarters, American exports have grown more vigorously than the volume of goods and service imported from abroad. As such, our net export position has improved for much of the past year by becoming modestly less negative and thereby providing an environment within which export-related production and job growth might be possible.
Finally, speaking of job growth and U.S. labor market activity, the unemployment rates for both the U.S. and Ohio have edged down slightly over the past two months from 9.2 percent in August to 9.0 percent by October. While this is certainly not a performance worth celebrating at this late juncture of a recovery/expansion, it does provide some evidence that the resilience of the U.S. economy continues to be underestimated and good economic results, however modest, may unfold slowly as time progresses.
With all of these positive developments that I have outlined, one could most certainly point to offsetting negative influences. But sometimes it seems reasonable to stand back and marvel that the U.S. economy continues to expand despite the seemingly unending capabilities of monetary and fiscal policymakers, both domestic and foreign, to foul up the atmosphere within which both people and businesses must adapt and attempt to prosper. And despite the uncanny capabilities of politicians to blunder time and time again, the U.S. economy continues to chug along. If this doesn’t give us all good reason to pause and be thankful for our economic blessings, I’m not sure what does.
Dr. James Newton serves as chief economic advisor to Commerce National Bank and is an auxiliary faculty member in economics and statistics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not necessarily reflect those of Commerce National Bank or OSU-Marion/Newark.