Friday, April 23, 2010

Three Reports This Week

The Lehmann Letter (SM)

Three economic reports released this week show strength, but also illustrate how far the recovery must proceed before it becomes a true expansion.

Yesterday The National Association of Realtors announced 5.35 million existing-home sales that an annual rate in March:

That was a strong improvement over February's 5.01 million report. But updating the chart below in your mind's eye shows the difficulty in assessing recent developments.

Existing Home Sales

(Click on chart to enlarge.)

Recessions shaded

The initial announcement of the tax advantage for homebuyers caused sales to pop up over 6 million. Then they slumped to 5 million and now have improved to 5.35 million as the tax break is set to expire. It's too early to declare a trend, especially an upward trend, because of the recent volatility in the data generated by the tax incentive.

There is little doubt that this series has hit bottom and will probably rise. But we should prepare for the possibility of a drop in the data in the next report as the tax law expires. Then we can see how soon and how swiftly we return to 6 million home sales a year.

Today the Census Bureau announced 411,000 new-home sales at an annual rate in April:

That was a big improvement over February's 324,000 figure. But once again updating the chart below in your mind’s eye puts recent data in perspective.

New Home Sales

Click on chart to enlarge.)

Recessions shaded

You can see the crash and the bottom of about 400,000. The data have been fluctuating in this trough for a while. February's 324,000 rate was unusually low. March’s jump to 411,000 was probably influenced by the tax law that is set to expire at the end of April. It appears that we will have to pass through the 600,000 level before we can claim true expansion.

Today the Census Bureau also released April data on new orders for nondefense capital goods:

This figure represents bookings for all kinds of machinery and equipment for nonmilitary uses. April's $56.1 billion figure is less than March's $60.7 billion. You can gain perspective by updating the chart below.

New Orders For Nondefense Capital Goods

(Click on chart to enlarge.)

Recessions shaded

The data have been fluctuating recently below $60 billion. It appears that a breakthrough above $60 billion and solid growth from there would signal expansion. But we're not there yet and cannot claim that kind of expansionary trend. Lately there's been noise in the data as this series has moved sideways not upward.

This week's economic reports have confirmed that we have nowhere to go but up. The downtrend is over. But that's not to say that true expansion has begun.

(The charts were taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2010 Michael B. Lehmann

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