The economic news was generally positive last week, though every release seemed to be accompanied with a “yes, but.” For example, housing starts posted at 1.187 million annualized units in November, which beat the consensus estimate by over 10,000 units. But the nattering nabobs were compelled to douse any optimism with multiple buckets of pessimism, such as “the industry is still struggling with significant overhang,” and “housing starts would need to fall to around 500,000 annually to soak up the excess inventory.”
The GDP rose at a robust 4.9% annual rate – the strongest rate since 2003. GDP growth was powered in large part by continued consumer spending (which only occurs when consumers are confident about the future). In fact, consumer spending rose 1.1% in November, the most in more than two years, as incomes grew and shoppers took advantage of early holiday discounts. But the highlighted media response to the strong economic growth came from one prominent, pessimistic economist: “You can hear the screech and see the skid-marks of the economy slowing down from the third to the fourth quarter. We're going to go from this supercharged rate to somebody-slammed-on-the-brakes.'' There are still serious issues that must be confronted in both housing and mortgage lending. Yes, inventory levels are too high, and prices will likely need to fall further to stimulate more demand. Foreclosures are also on the rise. RealtyTrac reported 201,950 foreclosure filings in November, a 68% increase over November 2006. (But November's filings were actually a 10% decrease from October's 224,451, which showed a spike after an 8% decrease from August to September.) There's work to be done, to be sure, but it's important (and fair) to appropriately note improvements when they occur.
Eric P. Egeland