Once again this morning a couple of positive economic developments, or at least the news sounds good.
The National Association of Realtors reports that their Pending Home Sales Index, a forward looking measure of contracts signed, was up 3.2% in July to 97.6 from 94.6 in June. The index was at 87.1 in July 2008. A lot of the gain is being seen at the lower end of the market and the NAR estimates that 1.8 million to 2.0 million first time homebuyers will take advantage of the offer. They also estimated that the tax credit is responsible for 350,000 sales that wouldn’t have occurred without the credit. Sounds like their gearing up the PR machine for an extension of the credit, doesn’t it.
Regionally, here’s how the numbers break down:
The Pending Home Sales Index in the Northeast declined 3.0 percent to 78.8 in July but is 4.7 percent higher than July 2008. In the Midwest the index slipped 2.0 percent to 88.1 but is 8.1 percent above a year ago. In the South, pending home sales activity rose 3.1 percent to an index of 103.8 in July and is 12.0 percent above July 2008. In the West the index jumped 12.1 percent to 112.5 and is 20.0 percent above a year ago.
August ISM rose to 52.9 from 48.9 in June. As you all know, anything above 50 represents an expanding manufacturing sector. The index had bottomed at 32.9 in December and hasn’t had a reading above 50 for 19 months. Once again, a good number that tells us things are improving but not why.
I think that it’s reasonable to assume that given the trend of most measures over the past couple of months that we can expect to see continuing modest improvement in the economy. Whether this represents real, sustainable growth remains to be seen and it’s probably going to take us many months to get a firmer handle on that issue. Individuals snapping up cheap houses with subsidized interest payments and tax credits and industry rebuilding depleted inventories do not make a recovery but at the same time if they impart enough momentum to the economy it may well translate into something permanent.
I thought Yves Smith at Naked Capitalism had a great post today. She points out that one of the factors that contributed to recovery from the Great Depression was the significant amount of debt destruction that occurred. In her opinion, and properly I think, that has yet to be accomplished this time and we’re banking solely on fiscal stimulus and monetary policy to carry the day. Definitely worth a read.
So, relax, things are getting better. It’s just a question as to whether it’s a False Spring.