A little over a week ago, the national news media grew hyperbolic over the news that home prices and home sales were rising in many metropolitan areas, declaring that this was proof positive of a more robust economy. But left unreported was the fact that home sales remain far below their highs before the sub-prime home mortgage collapse and that they have barely impacted economic growth.
University of Maryland economist Peter Morici reminds us that home sales at higher prices "only impact GDP [the broadest measurement of economic growth] and employment to the extent those drive up consumer spending and new home construction.
But consumer spending is weakening, and even though home building is up, "housing construction is only 3 percent of GDP," Morici points out."Bottom line: a more robust economy can drive housing but surging housing prices are no panacea for what ails the economy and jobs market."
With mortgage rates rising toward the 4 percent level, (partly in anticipation of the Federal Reserve suggesting it may taper down its low interest rate policy) home sales could decline again.
Let's examine some economic data from the past couple of weeks in the aftermath of the cheerleading from nightly news shows.
-- The Commerce Department reports that consumer spending fell 0.2 percent in April for the first time in nearly a year. Battered by higher taxes (including this year's hike in the Social Security payroll tax) and high gasoline prices, consumers have pulled back -- not a good sign.
-- Manufacturing output fell to its lowest level in four years in May, according to the Institute for Supply Management's manufacturing index (from 50.7 in April to 49 in May). "We definitely have seen some softness in the economic data for manufacturing over the last few months," Chad Moutray, chief economist for the National Association of Manufacturers, told the Washington Post this week.
-- Hourly pay scales for non-farm workers dropped at a 3.8 percent annualized rate in the first three months of this year, the Bureau of Labor Statistics reported this week. Hourly pay has risen by 2 percent annually on average over the past four years. That's "the weakest four-year stretch on record," writes economic analyst Mark Gongloff of Huffington Post. Overall, weekly wages have been flat.
-- Payroll provider ADP reported this week that U.S. businesses added just 135,000 jobs in May, well below the 165,000 jobs created in April. Notably, the private survey firm found that manufacturers lost 6,000 jobs last month.
If Friday's Bureau of Labor Statistics job report falls anywhere near this range, it will be an unimpeachable sign that the economy is slowing once again.
Some analysts insist this downturn is in large part due to government spending cuts, but a meager $85 billion in sequester cuts isn't seriously hurting a nearly $17 trillion economy. This is the result anti-growth, anti-job tax rates, regulations, energy, and trade policies.
Don't look for a dramatic change in the Obama economy anytime soon. The president and his party seem perfectly comfortable with his policies and see no reason to change them now.
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