Ugly. Horrific. Troubling. These are just a few of the adjectives one could use to describe yesterday's batch of U.S. economic reports.
Here's another one: hopeful.
Before we explain why, let's make it clear that we are by no means predicting an imminent rebound for the broken U.S. economy, which is grappling with a credit crisis and housing slump of epic dimensions. What we are saying is that Uncle Sam may be close to hitting rock bottom, which is a necessary condition for recovery.
Let's start with the Conference Board's consumer confidence index.
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In August, confidence rose for a second consecutive month, to a better-than-expected 56.9 from 51.9 in July. While such a reading is hardly indicative of unbridled optimism, it's clear that consumers are at least feeling less miserable than they were a couple of months ago.
In particular, the expectations index - which measures consumers' attitudes about the future - showed a hefty jump, rising to a six-month high of 52.8 from 42.7 in July, lifted by lower gasoline prices.
Lynn Franco, director of the Conference Board's consumer research centre, said the survey results depict an economy that "remains stuck in neutral, but may be showing signs of improvement by early next year."
There was also some encouraging - or at least less discouraging - data on the housing front. First, new home sales rose 2.4 per cent in July from June, to a seasonally adjusted annual rate of 515,000 units. While the jump was largely because of a downward revision in the June figure, the number of unsold new homes on the market fell 5.2 per cent, which indicates that builders are reducing their inventories by slashing prices and scaling back construction.
At current sales rates, it would take 10.1 months to clear the existing backlog of homes on the market, down from 10.7 months in June and 10.8 months in May. That's still an awful lot of unsold homes - a five- or six-month supply is considered healthy - but the trend is in the right direction.
"If this continues, inventory will shrink rapidly, setting the scene for stabilization and then recovery," said Ian Shepherdson, chief U.S. economist for High Frequency Economics.
A second shot of optimism came from the S&P/Case-Shiller home price index of 20 U.S. cities. The index fell just 0.5 per cent in June from May, marking the fourth consecutive month that prices have declined at a slower pace. What's more, nine metropolitan areas - including Boston, Chicago and New York - reported a gain, up from seven in May.
"While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level," said David Blitzer, chairman of the index committee at Standard & Poor's.
It will be many months yet - perhaps a year or more - before the housing market stabilizes and consumers start to feel appreciably better. But it's starting to feel more and more like we're near the bottom.
Thurs., Aug. 28, 2008
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