The Good Economic News . . .
12:00 AM, Nov 19, 2011 • By IRWIN M. STELZER
Retail sales are not the only indicator to be flashing signs that things might be improving. Industrial production rose a healthy 0.7 percent in October, and the rate at which manufacturing capacity is being utilised rose from 77.3 percent to 77.8 percent. Most significant was the 1.0 percent rise in the output of business equipment, supported by strong corporate profits, up 24 percent year-on-year for the S&P 500 in the third quarter.
There is even some good news from the housing sector. Although new home construction last month declined, permits for future home construction rose 10.9 percent last month, on the back of a 30 percent increase in permits to construct apartment units. And luxury homebuilder Toll Brothers reported that, contrary to its expectations a few months ago, revenue in its recent quarter was up 6 percent over last year, its backlog of orders is up 15 percent, and the cancellation rate of orders is down. Frank Sorrentino, CEO of North Jersey Community Bank, told a television audience that the builders he is dealing with are “more confident in the future” than they have been in the past. And the Mortgage Bankers Association reports that households delinquent on their mortgage payments (at least one month past due) has fallen to its lowest level since late 2008, and now stands at 8 percent compared with 9.1 percent at this time last year.
Before assuming that all signs point to accelerating economic growth, recall that the housing sector remains a drag on the economy. New home construction is barely above 50-year lows. Prices are still falling, and foreclosures remain high, contributing to a glut of unsold homes. The National Association of Home Builders estimates that housing accounted for 15 percent of economic growth during past recoveries; since the end of the recent recession it has contributed only 4 percent to growth.
Also, don’t forget that we really don’t know how well positioned American banks are to withstand widespread defaults on the debts of eurozone countries, how badly exports will be hurt by a Europe headed into a recession, whether president Barack Obama and Congress can cut a deficit-reduction deal that prevents still another downgrade in America’s credit without slowing growth, whether the job-stifling regulations that have small businesses cowering in their bunkers will remain in place, and whether oil prices will continue moving up from $100 per barrel.
The Economist Intelligence Unit remains among the pessimists. In a report issued late last week it cited “headwinds from fiscal tightening and reduced European demand” as well as weak labor and housing markets for its forecast that the U.S. economy will grow at a rate of only 1.3 percent next year, and that meagre rate only in the absence of a euroshock. But Blankfein insists, “the world will snap back faster than people think.” Take your pick.