Wednesday, March 23, 2011

Home Sales Down: What Will Drive the Economy?

The Lehmann Letter (SM)

Yesterday's letter reported that February housing starts and existing-home sales fell. This morning the Census Bureau announced that February new-home sales dropped to 284,000:

Place this number on the chart to gain perspective. You can see that new-home sales have fluctuated below 400,000 since they crashed in 2007 -- 2009. This is further confirmation that residential construction remains in a rut.

New-Home Sales

(Click on chart to enlarge.)

Recessions shaded

That bears directly on the recovery's strength. The key issue remains: Will the economy gain sufficient momentum to provide full employment? Put differently: Will we return to the robust conditions that prevailed in the late 1990s or in the years 2003 -- 2007?

Probably not. Unusually high business capital expenditures - accompanying the introduction of a new technology - drove the economy forward during the 1990s dot-com years. Think of it as akin to the railway boom of the 19th century. Residential real estate sparked the economy during the early years of this century. Take another look at the chart and you'll see that we had a 100-year flood of residential building.

There is no sign that a new technological age, reminiscent of the dot-com boom, is about to bolster business capital expenditures. That's why residential construction is so important. If home-building stays in the doldrums, there is no other sector to carry us forward.

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

© 2011 Michael B. Lehmann

1 comment:

zhonglin said...

The situation in March was different; the report from Census Bureau shows that Sales of new single-family houses in March 2011 were at a seasonally adjusted annual rate of 300,000. This is 11.1 percent (±21.7%)* above the revised February rate of 270,000, but is 21.9 percent (±10.3%) below the March 2010 estimate of 384,000.
Few years ago, Biotechnology was thought to be played a significant role in the economic future. But there is no sign that this technological age is coming, that means the economy can’t drove up quickly without the recovery of housing market. Now the relative high unemployment restricted the development of home sales, so the most important thing is improve the employment rate then stimulate the housing market, let them drive the economy back.