Growth Story Unchallenged by Recent Data, but Also Unbolstered
- Real Gross Domestic Product growth for 2011Q4 was unchanged in the third estimate at 3.0 percent.
- The Case-Shiller 20-City House Price Index was unchanged in January, down 3.8 percent year-to-year.
- February New Orders for Durable Goods increased by 2.2 percent following a 3.6 percent January loss.
- Mortgage Applications for the week ending March ticked up for purchase and down for refi.
- Initial Claims for Unemployment Insurance decreased by 5,000 for the week ending March 24, to 359k.
The grab bag of economic data released over the last three days does not challenge the improved moderate growth story for the end of 2011 into the beginning of 2012. It also provides no evidence of an ongoing acceleration into 2012Q2. Instead the data are consistent with a moderately improved economy, relative to the “soft patch” of early-to-mid 2011, and consistent with an economy that is still unwilling and unable to accelerate into a typical above-potential post-recession growth pattern. The third estimate of real GDP growth for 2011Q4 was unchanged at 3.0 percent. Inventory accumulation still accounts for over half the GDP growth of 2011Q4 and that factor will likely dial down in the first half of 2012. Corporate profits remained strong in the fourth quarter of 2011, 7.0 percent above a year earlier, but the quarterly growth rates of profits declined into the third and fourth quarters. We will likely see growth in corporate profits continue to erode and perhaps dip into the negative on a year-over-year basis by the end of 2012.
Residential real estate conditions are improving modestly in terms of sales and construction, but not yet in terms of pricing. The best we can say at the moment is that all the various house price surveys point to more stability in pricing, but are not yet pointing to sustained price increases for most areas. The Case-Shiller 20-city house price index for January was unchanged for the month, but remains down 3.8 percent from a year ago. Eight out of 20 cities showed monthly price gains in January. With the resolution of important legal challenges to foreclosure practices we can expect to see the rate of foreclosures increase over the next few months. Think of foreclosures like you would about house construction. The rate of foreclosure starts has already increased, the rate of foreclosure completions will soon follow. New orders for durable goods increased by 2.2 percent in February, bouncing back after a 3.6 percent decline in January. The manufacturing sector as a whole remains sustained by increased demand for transportation equipment and by strong energy exploration and production activity. Mortgage apps for the week ending March 23 increased for purchase but fell for refi as mortgage rates ticked up. Moderate improvement in purchase apps for March points to moderate gains in home sales for the month. Initial claims for unemployment insurance dropped by 5,000 for the week ending March 24, but the base was revised up, so we are now at a level of 359,000. This is about 8k higher than where we thought we were a week ago, so the signal is clearly muddy.
Market Reaction: Equity markets are down. Treasury yields are also down. Oil is down to $104.92/barrel. The dollar is down against the yen and up against the euro.