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After Labor Day: The Return of the Pols and the Oxpeckers

12:00 AM, Aug 31, 2013 • By IRWIN M. STELZER
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·     Sales of previously owned homes rose 6.5 percent in July, reaching an annual rate 17.2 percent above last summer’s and the highest rate since the summer of 2009. House prices continue strong, and are about 12 percent above year-earlier levels after recording year-over-year gains for 17 consecutive months. But sales of new homes were down 13.4 percent in July from June, causing some nervousness, and there are signs that rising mortgage rates might be discouraging some buyers. However, with inventories of unsold homes rather low, builders in cities such as Houston complaining that they cannot meet demand for new homes because of labor shortages, and cash sales – no mortgage required by buyers – increasingly common, it is too soon to declare the housing recovery stalled. Goldman Sachs’ economists, after a detailed study, conclude, “We do not think that higher mortgage interest rates are a deal breaker for the on-going recovery in housing activity…. With the improving underlying demand driven by household formation and economic recovery, we think housing demand will remain on an upward trajectory despite occasional ups and down along the way.”

·     Small-business optimism is running at the highest level since the onset of the recession. A Wall Street Journal survey of owners of small businesses find that 73 percent expect revenues to increase in the next year and 54 percent expect profits to rise. Separate surveys by Wells Fargo and the National Federation of Independent Businesses both indicate that small business optimism is up and rising despite these firms’ difficulty in getting bank credit. This runs contrary to the view that the onset of Obamacare has small business owners on the brink of nervous breakdowns, but doesn’t tell us much about whether improved business conditions would lead an employer of 40+ workers to add to his staff and become enmeshed in Obamacare requirements.  

·     The auto boom continues apace, with Ford leading the charge to expand output to meet robust demand. As further proof that 60 is the new 40, oldsters are snapping up the sportier models that grace dealers’ show rooms.

·     The banking sector is in decent shape: bank failures are down, industry earnings have been rising for 16 consecutive months. “We are looking at a banking industry that is significantly stronger than it was three years ago, FDIC chairman Martin Gruenberg told The Wall Street Journal.

The usual clouds dot the horizon. Consumers, their incomes more or less static, are at least for now, inclined to leave their wallets in pockets and their purses snapped shut, and continue to make do with existing wardrobes, hurting low-end retailers such as Walmart and high-end retailers such as Saks Fifth Avenue and Neiman-Marcus, but creating long check-out lines at Home Depot and Lowe’s . Unemployment is too high and the labor force participation rate is too low to turn this recovery into an above-trend growth rate. Share prices closed the month of August after their worst performance in a year. The structure of the banking industry remains sufficiently unreformed to have eliminated “too big to fail, too big to jail.” Political stalemate over funding the government and raising the debt ceiling is adding to uncertainty. Obamacare’s job-crushing implementation date approaches. And interest rates might continue to rise even if the Fed attempts to hold them down, which it plans to do even if it does “taper.”

All of that is for next week. For now, it’s a holiday weekend in which to eat, drink, visit and be merry, for Tuesday we go back to work.

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