Friday Economic Snapshot: Not Fed up yet
How are you feeling as we approach a new season? If you’re like the markets this week, you’re enjoying life, but harboring a sense of foreboding that something bad is about to happen. Nothing sounds more autumnal than that.
This has been a big week in current events. The Federal Reserve clearly stated its plans to keep bolstering the economy with its QE program, the debate over Syria has cooled and there’s even talk of a peace with Iran. Keeping things optimistic, existing-home sales rose, unemployment ticked up from last month’s questionable numbers and the stock market is living the high life.
It’s been quite a week, so break out the candy corn and let’s get to it.
As the Federal Reserve continues to pump nearly $100 billion into the bond market every month to boost the economy and, hopefully, lower unemployment, the markets have reacted in sheer terror any time it’s suggested the Federal Reserve will reduce its monthly binge. While everybody knows this can’t go on forever (or can it?), several of the most recent volatile days on Wall Street have been based on reading the Washington tealeaves.
Now we finally have an answer, as Chairman Ben Bernanke said the job market remains too soft to taper its purchases, using the parlance of our times. While it’s uncertain if a reduction in buying would truly hobble the economy, many investors and economist saw this move as a relief and clear indication that the government isn’t going to stop stimulating until the job market truly grows.
Leading Economic Index
From The Conference Board comes a big kahuna, the Leading Economic Index, giving the U.S. economy positive marks: an increase of 0.7 percent, following a 0.5 percent increase in July.
“After a brief pause, the U.S. LEI rose sharply in July and August, resuming its upward trend,” said Ataman Ozyildirim, Economist at The Conference Board. “If the LEI’s six-month growth rate, which has nearly doubled, continues in the coming months, economic growth should gradually strengthen through the end of the year. Despite weakness in residential construction, consumer expectations, and the stock market, improvements in the LEI’s labor market and financial components, as well as new manufacturing orders, drove this month’s gain.”
“The latest reading points to more pep in the pace of economic activity in the near term,” said Ken Goldstein, economist at The Conference Board. “One unknown is how resilient confidence will remain, both consumer and business, given the mixed signals from the housing and labor markets. Perhaps the bigger question is a satisfactory resolution to federal budget squabbles.”
We’ve kept a close eye on many facets of the housing market, a significant contributor to the growth experienced throughout much of 2013. In the latest data from the National Association of Realtors, existing-home sales increased in August to the highest level in more than six years.
Another finding was that median home prices posted double-digit year-over-year increases for nine consecutive months. This is either full-strength recovery or a full-on bubble, depending on your source. Lawrence Yun, NAR chief economist, said the market might be experiencing a temporary peak.
“Rising mortgage interest rates pushed more buyers to close deals, but monthly sales are likely to be uneven in the months ahead from several market frictions,” Yun said. “Tight inventory is limiting choices in many areas, higher mortgage interest rates mean affordability isn’t as favorable as it was, and restrictive mortgage lending standards are keeping some otherwise qualified buyers from completing a purchase.”
So where does this all leave us as the leaves begin turning in the country’s cooler places? We have nothing to fear, but instability in the Middle East, the increasing chatter of a government shutdown, Putin’s power plays or fears that the Fed is going to derail our still-fragile economic recovery.
Those concerns aside, life is looking pretty good. Job growth remains slow, but as we’ve reported through much of the year, important fundamentals are improving and the lagging job market eventually, one would hope, will get on board and spur true economic growth.
Let’s hope this autumn’s dying leaves and cooler temperatures are the contrast to optimism, global cooperation and economic growth that actually starts putting people back to work. Stranger things have happened.