Low Growth Economy Still Vulnerable to “Transient Factors” and Some Not So Transient
- Existing Home Sales for March decreased by 2.6 percent, to a 4.48 million unit sales rate.
- The Conference Board’s Leading Economic index increased by 0.3 percent in March.
- Initial Claims for Unemployment Insurance fell by 2,000 for the week ending April 14, to 386,000.
Last spring Federal Reserve Chairman Bernanke used the term “transient factors” to describe reasons for cooler than expected economic growth. This spring we see that transient factors again appear to be responsible for weaker than expected data. Warm winter weather from late 2011 into early 2012, plus difficult seasonal adjustment calculations around the mobile Easter holiday have combined to dampen data from March and April. There may also be more at play. Renewed concerns about cooler growth in Asia and a death-spiral in the Spanish economy, as housing markets there rapidly deflate, may also be weighing on business confidence here. One important lesson from last spring and from this spring is that in a lower growth economy, there will always be transient factors. In other words, when you are flying closer to the treetops, normal downdrafts matter. What remains to be seen is whether or not the broad current of improvement in U.S. economic data since mid-2011 is sustainable through the temporary downdrafts. At this point it does appear that fundamental momentum will continue into mid-year. Today’s release of the Leading Economic Index showed a 0.3 percent increase in that index for March, up from a 0.2 percent gain in February, which points to ongoing growth through the current quarter. Along with the increase in the leading index, the coincident index gained 0.2 percent and the lagging index increased by 0.3 percent. An improvement in all three indexes is a sign of broad-based gains in economic activity.
Existing home sales fell beneath expectations for March, decreasing by 2.6 percent to hit a 4.48 million unit annual rate. Even though the March rate was below the 4.63 million unit average rate for January and February, it remained above the total 4.28 million units sold in 2011. For the year ending in March, existing home sales increased by 5.2 percent. With gradual improvement in sales we are also seeing signs of firming in prices. According to the National Association of Realtors the median sale price of an existing home in March was up 2.5 percent from a year ago. Initial claims for unemployment insurance improved for the week ending April 14, ticking down 2,000 to hit 386,000. The disappointment in this number stems from the fact that claims ticked up significantly, by 26,000, for the week before but did not correct this week. Here is where the seasonal adjustment factors around Easter wreak havoc with the data. The outsized gain in claims for the week ending April 7 will likely be reversed by early May, but today’s data showed less of a reversal than some expected.
Market Reaction: Equity prices are down. Treasury yields are down at the long end of the yield curve. Oil is down to $102.65/barrel. The dollar is up against the yen and stable versus the euro.