Incline Village Real Estate

Relief is Brief, now what? 

National Economic Summary ~

 August 3, 2011

 As if to remind us to keep our feet on the ground, the Dow Jones Industrial Average (DJIA) rose Monday (August 1) by about a full percent as it became clear that a debt ceiling compromise would be achieved—and stayed there for only a few minutes before tumbling again. The DJIA ended the day with a loss of about 10.75 points. It seemed that the debt ceiling legislation was old news even before it was signed; attention turned rapidly to the difficult reality of a very weak reading from the ISM (Institute of Supply Management) that suggested orders for new manufactured items had all but stalled. The prior Friday had already shaken up investors’ nerves by giving us a very low estimate of Gross Domestic Product growth in the second quarter of this year and a lowering of first quarter growth to 0.4%.

 

There was, of course, plenty of noise surrounding the passage of the debt ceiling legislation, but its potential effects on the economy were an immediate cause of concern. By Tuesday evening, the DJIA had fallen more than 1.5%.

 

It is clearly not time to focus strictly on the recent political wrangling. Indeed, Stanley Nabi, chief strategist for Silvercrest Asset Management Group, called the legislation “yesterday’s news,” declaring that “today’s story is what is going to happen in the economy” [quoted in The Wall Street Journal]. 

 

Let’s take the DJIA’s advice, therefore, and plant our feet on the ground again, looking for the good and the bad in recent indicators. The first reminder of reality, listed to the right, is the price of an ounce of gold. At this time last week, it had edged up to $1613.40. Over this past week, it jumped up $30.20 to $1643.60, as investor fears and uncertainties multiplied. The 10-year Treasury note, meanwhile, plunged about 30 basis points to 2.68% (and is still falling as this is being written). This is not what it looks like when investors all over the globe are shouting endorsements of a fiscal deal.

 

At the same time, however, we saw a few real-estate-related indicators move higher—notably the Pending Home Sales Index, which measures the number of newly-signed home purchase contracts each month. The 2.4% increase in contracts suggests that completed sales in July and August may show an improvement over June’s completed sales.

 

New unemployment insurance claims dropped below the 400,000 level near the end of July, and construction spending not only improved by 0.2% in June, but also—after the figures were revised—rose by 0.3% in May, rather than the 0.6% decline earlier reported.

 

In sum, figures for the overall economy published this last week (note especially the GDP numbers) were very poor. Figures for real estate, though, suggested a continuing gradual recovery for that sector. And as for the national debt reduction efforts, the process has thrown us again into the future, where a committee will argue the actual cuts in federal spending—so the jury is still out.