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Monday, February 28, 2011

Pending Home Sales January

In the post below I took a skeptical look at the January Personal Income and Outlays report. The press seems a touch confused about what it's really saying.

Now on to Pending Home Sales. What was previously reported as an increase in December has been revised to a decline, and January's pendings dropped again. YoY -1.5%; the west and south are doing better with only small YoY declines, whereas the northeast and midwest fell at 3% and 3.2% YoY. It should be interesting to watch WS economists try to put lipstick on this pig. Oh,but maybe they aren't going to play that game. Read the Bloomberg article and the projected impacts on housing values.

I guess the takeaway is that the Fed is going to be considering QE3 or something to that effect. CR is absolutely right about the strong marginal effect that home-building has on the US economy.

Chicago PMI jacked up again. It's a really strong report. But now integrate consumption trends and home-buying trends, and the cautionary motto appears. ISM and PMI reports really can't get much better than we have now, and if you don't believe me, read the full report at the link. These figures are close to the 40 year maximums and way above the medians. Except for employment, which dropped hard to 59.8, still well above the 40 year median of 50.1. Last month it was very close to the 40 year maximum (64.1 to a 40 year max of 67.4). Comments this month are mostly focused on price increases.

What is different about the current recovery compared to the end of the early 1980s downturn and 84 rebound are the previous bubble and its hangover effects on consumer incomes, debt loads, and ability to take on new debt. Plus demographics, of course. These are intractables that must be lived down and through. Blaming Obama for a lot of this is inane; no US administration can change what happened before or the ages of the population. But it is true that high-speed rail and windmills, and cutting taxes on those with incomes significantly above the median while raising taxes on those with below median incomes won't help and will do damage.

I feel sorry for our politicians; they are governing in an environment in which beneficial policies are hard to develop and give relatively little return.

PS: One thing I forgot to mention reqarding western pendings: Since November there has been an epic drop on a seasonally-adjusted basis. November 2010 was 117.8 and January came in at 98.7. The likely primary cause was a CA housing tax credit which expired, but which should have produced a short-term peak at the end of the year. I would suggest using the YoY as more indicative, and the western YoY was only down 0.9%.

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