Finance Column » Your Money This Week » The Humpty Dumpty economy

The Humpty Dumpty economy

By Mark Hamrick ·
Monday, August 25, 2014
Posted 6 am ET

© ChameleonsEye/Shutterstock.comAs we approach autumn, we're reminded of the anniversary of when the economy fell down from the wall: The financial crisis was in full bloom in October 2007. All these years later, putting the economic Humpty Dumpty back together again is still a work in progress. The good news is that a number of recent indicators have looked better. But that doesn't mean that all Americans are doing as well as they'd like.

We should have a good cross-section of economic news in the coming week. The schedule includes:

  • The Commerce Department reports on July new home sales, Monday at 10 a.m. (All times Eastern.)
  • The Commerce Department releases July orders for durable goods, Tuesday at 8:30 a.m.
  • The S&P/Case Shiller home price index for June is released, Tuesday at 9 a.m.
  • The Conference Board reports on August consumer confidence, Tuesday at 10 a.m.
  • The Commerce Department releases a revision to second quarter gross domestic product, Thursday at 8:30 a.m.
  • The Commerce Department reports on July personal income and spending, Friday at 8:30 a.m.

Housing's mixed recovery

Figures released last week showed a fourth straight month of improvement for sales of previously-owned homes. So-called existing home sales remain below the year-ago pace and short of the level associated with a "healthy" housing market.

This week, we move on to sales of new homes. In this segment, the signs have been less encouraging. For June, the government said new home sales dropped 8 percent, to an annual pace of 406,000. That pace is about half of "normal" and well shy of the peak of about 1 million new homes sold per year, according to David Crowe, chief economist for the National Association of Home Builders.

Perhaps things have been a bit better lately. Last week, Crowe's group and Wells Fargo reported that their builder sentiment index had risen, marking the third straight monthly gain and putting the index at its highest level since January. Keep in mind that mortgage interest rates last week slipped to their lowest level of the year, which should help sales.

Crowe says stronger figures on GDP and employment seen recently are "encouraging signs."

Where are we on growth?

After dipping into negative territory in the winter-chilled first three months of the year, U.S. growth as measured by the gross domestic product is believed to have hit a good stride recently. This week's revision of second-quarter GDP should only see a modest reduction from the initially reported 4 percent pace.

Ryan Sweet, a director at Moody's Analytics, says that thanks to recent data on construction, trade and inventories, GDP has been tracking at about 3.7 percent. He notes that we "really can't grade second-quarter GDP until the third (or following) estimate when the government incorporates the quarterly services survey, used as source data for health care spending." It was that health care portion that whipped around estimates for GDP in the first quarter of the year.

Generally, economists believe that growth should proceed at roughly a 3 percent pace or better in the current and coming quarters.

A nugget to watch

It is a bit like the old chicken-and-egg conundrum. For business to be confident, it needs to see an upbeat attitude on the part of consumers. But consumers can't do much if businesses aren't hiring and spending. One closely-watched component of this week's durable goods report is the stats involving business investment. At this point, it isn't important which comes first. We need for both sides to be forging ahead.

"Business investment has been fairly sluggish recently," says Sweet, who adds that if what he believes is pent-up demand translates to rising spending on buildings and equipment, it should help the economy take off in coming months. That, in turn, would provide a boost to hiring.

Humpty Dumpty might not yet be his old self again, but he's climbing back up the wall.

This week in business history: Play ball!

© Schenectady Museum; Hall of Electrical History Foundation/CORBIS

© Schenectady Museum; Hall of Electrical History Foundation/CORBIS

On Aug. 26, 1939, the first television broadcast of major league baseball took place on a New York station. It was a double-header between the Cincinnati Reds and the Brooklyn Dodgers.

The audience was small, however, since few people owned TV sets at the time.

These days, networks and cable channels pay hundreds of millions of dollars a year for the TV rights for Major League Baseball.

Follow me on Twitter: @Hamrickisms


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