Green Shoots and Dour Pundits

Let’s get all the economic news and opinion out of the way with one post. It’s not that dramatic and all of the pundits are beginning to sound tediously repetitive.

According to the National Association of Realtors, single family home sales were up but so were inventories.

Single-family home sales rose 2.5 percent to a seasonally adjusted annual rate of 4.18 million in April from a level of 4.08 million in March, but are 2.8 percent below the 4.30 million-unit pace in March 2008. The median existing single-family home price was $169,800 in April, which is 14.9 percent below a year ago.

Existing condominium and co-op sales increased 6.4 percent to a seasonally adjusted annual rate of 500,000 units in April from 470,000 in March, but are 9.4 percent lower than the 552,000-unit pace a year ago. The median existing condo price4 was $173,900 in April, down 18.5 percent from April 2008.

Total housing inventory at the end of April rose 8.8 percent to 3.97 million existing homes available for sale, which represents a 10.2.-month supply3 at the current sales pace, compared with a 9.6-month supply in March. “The gain in inventory is largely seasonal from sellers entering the spring market. Even with the rise, inventory over the past few months has remained consistently lower in comparison with a year earlier,” Yun noted.

All of this is consistent with other reports that indicated strong buyer interest at the lower end of the housing market. Foreclosure sales still make up a large part of total sales. The next few months will pretty much define where the market is going. If foreclosures spike up (they might) or banks dump inventory they’ve been hiding (persistent rumor) or investor/first-time buyer frenzy sputters then the market could take another turn down. Personally, I think a bottom is probably forming but it’s hard to see any sort of meaningful rebound. At best, just a long hard crawl upwards.

Second derivative green shoots are coming from Japan. The WSJ reports that exports from that country are falling less slowly (tired of this argument yet?).

Exports fell 39.1% on year, dropping less precipitously than March’s 45.6% decline and down from a record 49% slide in February, led by stronger shipments of semiconductors, electronics and autos, the Finance Ministry said Wednesday.

The improvement in exports for the second straight month lends support to the view that the key export segment has already bottomed out, as overseas markets slowly begin demanding more Japanese products and manufacturers here dial up production while completing the process of clearing their shelves.

“I think we can say the brakes have, to an extent, been put on the declining trend (in exports) we’ve seen since last fall,” said Naoyuki Miyazawa, a ministry director in charge of trade statistics. “The decline in exports to all areas has moderated.”

China has played a big role in the improvement, with exports to the key trading partner falling only 25.8%, the third month of moderated falls from January’s 45.2% plunge. Shipments to the U.S. also fell less sharply for the second straight month.

So things are getting worse but not as quickly. Wonderful! The key is that exports to the U.S. are still at depression levels and until consumption picks up here Japan isn’t looking at any meaningful recovery. I hope they aren’t holding their collective breath.

Martin Feldstein offers a bearish view opining that economic data does not support optimism. His view is that we’ll see some positive growth in the second half due to stimulus funds hitting the economy but revert to negative growth unless more help is forthcoming from the government.

But the key thing to bear in mind is that the stimulus effect is a one-time rise in the level of activity, not an ongoing change in the rate of growth. While the one-time increase will appear in official statistics as a temporary rise in the growth rate, there is nothing to make that higher growth rate continue in the following quarters. So, by the end of the year, we will see a slightly improved level of GDP, but the rate of GDP growth is likely to return to negative territory.

The positive effect of the stimulus package is simply not large enough to offset the negative impact of dramatically lower household wealth, declines in residential construction, a dysfunctional banking system that does not increase credit creation, and the downward spiral of house prices. The Obama administration has developed policies to counter these negative effects, but, in my judgment, they are not adequate to turn the economy around and produce a sustained recovery.

Having said that, these policies are still works in progress. If they are strengthened in the months ahead – to increase demand, fix the banking system, and stop the fall in house prices – we can hope to see a sustained recovery start in 2010. If not, we will just have to keep waiting and hoping.

The ultra-bear, Marc Faber is still beating the inflation drum. From Bloomberg:

The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

I’m not sure that Feldstein and Faber can both be correct. Either the economy slides sideways or it overheats and the Fed doesn’t cool it down quickly enough. Now all of you stagflationists out there can launch your attack.

Finally, from Infectious Greed, a good bit of advice/philosophy from Doug Kass:

The perma-bear cult, of which I have often been accused of being a member, is an especially strange clique that often sees the clandestine plunge protection teams saving the U.S. stock market at critical points. They have never met a government statistic they like but instead see the U.S. government as “massaging” and revising employment, inflation and many other economic statistics in order to paint a positive picture. They express contempt for second derivative economic improvement and never or rarely ever see prosperity. They view seeds of recovery as Superman saw Kryptonite and extrapolate economic/stock market weakness to the extreme.

And they never ever or rarely make money.

It seems to me we’re in the muddling phase of this entire cycle. Given the natural tendency of economies to grow and some positive signs it’s reasonable to assume continuing improvement. However, given the natural tendency of government to screw things up, we’re far from being out of the woods. Cross your fingers.

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