After the flood of figures this week, including the Fed’s board minutes, two things can be said with confidence about the US economic recovery.
The first is that it is there, definitely; but will be far more a tease than other rebounds because the sectors that triggered it, housing and banking, remain very sick.
The second thing that can be said with certainty is it will be a very, very slow recovery that will tax the nerve of politicians, bankers, investors, and next year, voters.
An additional point can be made: if you believe in the US recovery story, then current market valuations on Wall Street are more about profits in 2011, not next year, given the lack of any sign of a strengthening trend next year.
Basically the data over the past two days showed that consumer spending rose, durable goods orders fell, unemployment benefit holder numbers fell, and sales of new houses rose.
House prices up again (and for two quarters in a row) in September.
That was after a strong rise in existing home sales in October as buyers got set in case a tax rebate wasn’t extended. It has been, and it had been widened, which will help.
US consumer spending and housing sales rose more than expected in October while new claims for jobless benefits fell sharply last week, suggesting the economic recovery was gaining traction.
But an unexpected decline in orders for long-lasting manufactured goods offset this and was a reminder that the recovery is fickle.
The Commerce Department reported that consumer spending (which accounts for over two-thirds of US economic activity) rose 0.7% in October, after falling 0.6% in September.
That was above market forecasts for a rise of 0.5%.
The Labor Department said initial claims for state unemployment benefits slid to 466,000 last week from 501,000 the prior week in the fourth straight week of declines.
The figure was well below market expectations for 500,000.
And sales of newly built US single-family homes jumped 6.2% in October to a one-year high, driven by those fears the tax break for first home buyers wouldn’t be extended (it has).
But even in this good figure, there was a sign of the teasing nature of the recovery.
It was fuelled by a 23.2% surge in sales in the south. New home sales fell in the northeast, the west and the Midwest.
The rise in sales came with a drop in median new home prices, which fell by 8.3% to $US261,100.
Low prices, sharp cuts to home starts and the government’s first-time homebuyer tax credit which was extended into next year, has helped cut the new housing inventory down by 4.8% to 240,000 homes, the lowest level since 1971.
Consumer confidence in the US Conference Board’s monthly survey was a touch better, but not much.
But offsetting all that was the forecast downgrade in third quarter growth from an annual 3.5% (or 0.9% quarter on quarter) to 2.8%, or 0.7%.
That was Tuesday. Yesterday the second and final reading for the Reuters/University of Michigan Surveys of Consumers Sentiment rose to 67.4 from 66.0 in the first half of the month
But the index fell from 70.6 in October to that 67.4 final reading for November due to lingering fears over unemployment and personal finances.
And figures from the lead bank regulator showed a record fall in bank lending in the September quarter, and another sharp rise in non-performing loans.
Both developments tell us that financing the rebound next year will be very tough for a lot of banks.
And then the Fed’s minutes showed that it was worried about the damage low interest rates could do if left for an "extended period", which they are.
Fed officials raised their growth forecasts for 2010 to 2012, but then indicated that they unemployment continuing above trend levels for three years.
The Fed forecast that the unemployment rate could remain high next year, around the range of 9.3% to 9.7% and would only drop modestly to 8.6% in 2011.
The unemployment rate hit 10.2% in October, a 26-year high.
The Fed had forecast in June that unemployment could hit a range of 9.5% to 9.8% in 2010 and 8.8% in 2011, so the latest forecast is slightly more optimistic, at best.
“Most members projected that over the next couple of years, the unemployment rate would remain quite elevated and the level of inflation would remain below rates consistent over the longer run with the Federal Reserve’s objectives,” the minutes said.
Despite the higher Fed forecasts (which have proved to be more optimistic than actual outcomes), US economists say the downwards revision in the third quarter figure adds to fears the economy will not be able to grow fast enough to start generating enough jobs to make a significant reduction in the jobless rate.
Despite the small rise in the Conference Board’s measure of consumer confidence, it reversed only a quarter of October’s unexpectedly sharp fall.
Consumers’ assessment of their current predicament remains stuck at levels last seen in the early 1980s.
Analysts made a big deal of the part of the confidence survey which showed that while fewer people surveyed saw further deterioration in the economy, there were also fewer consumers believing that business conditions are going to get better.
The Commerce Department said that personal income increased 0.2% in October after a similar adv
