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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

This week's economic data paint a gloomy forecast

There is an old joke in journalism that if three of anything happens, you've got a trend story, no matter how vaguely tied together the three things may be.

In economics, however, three data points can tell you something. Consider three things that happened this week:

  • On Wednesday, the Commerce Department reported that January new-home sales dropped 11.2 percent from December, plunging to their lowest level in nearly 50 years.

  • On Tuesday, the Conference Board reported that February consumer confidence fell sharply from January, driven down by the survey's "present situation index" -- how confident consumers feel right now -- which hit its lowest mark since the 1983 recession.

  • On Thursday, the government's report on new jobless claims filed during the previous week shot up 22,000, which was exactly opposite of what economists predicted. Forecasters expected new jobless claims to drop by about 20,000.

    Taken together, what do these reports tell us?

    We've got a long way to go to get out of this economic mess, and we may be actually losing a little ground.

    "Whatever recovery we think we are having is still not believed by those who are trying to generate it," writes Miller Tabak equity strategist Peter Boockvar.

    Any recovery we are experiencing is wobbly, has an uncertain future and will not come about with a burst of new job creation. We know from past recoveries that unemployment has remained high for months -- if not quarters -- following the official end of each recession. Economists predict that unemployment will hang between 9 and 10 percent for the remainder of 2010.

    That means that Americans will have to spend their way to recovery, as 70 percent of GDP is based on consumer spending. But with stubbornly high unemployment, a spending surge should not be counted on, at least until the seasonal one at the end of the year, and that goes on credit cards, which presents a whole other set of problems.

    About the only thing this economy has going for it right now is surprisingly low inflation. Fed Chairman Ben Bernanke told Congress last week that his central bank foresees low inflation for the rest of this year, which at least will keep prices down. If we had inflation on top of high unemployment, we would see the return of Carter Era "stagflation," a noxious combination of stagnant economic growth and high prices.

    Of the three pieces of data that we're focusing on, the new-home sales figure is probably the most troubling, because it could represent a step backward in the recovery. Consumers can say one thing to a survey, but they vote with their pocketbooks. If they don't feel confident about the economy, they stop buying new homes.

    Sales of new homes make up only about 25 percent of the entire housing market, but they are closely tied to construction and manufacturing jobs, and shine a light on the health of those sectors. The fact that new-home sales dropped so precipitously in January even with low mortgage rates and an extension (and expansion) of the government-subsidized home-buyer credit tells you just how weak demand is. Sales of new homes peaked in July and have been slipping ever since.

    This crisis began with plummeting housing prices. It will not end until housing prices hit bottom, and they're not there yet.

    On the unexpected rise in new jobless claims numbers, the more optimistic are blaming the snow: They say the most recent claims number was boosted by a processing backlog, because government offices were closed during the nationwide snowstorms and couldn't process new jobless complaints at a steady rate.

    But take a look at the four-week moving average of new jobless claims, which smooths out volatility. That number is up 6,000 to 473,750. That's going the wrong way.

    Some perspective: One year ago, new jobless claims were numbering 670,000 per week. They now stand at 70 percent of that. That's good. But they seem to be stuck where they are. Indeed, they may be inching back up. It's almost impossible to create new private-sector jobs in an economy that's still shedding them at current levels.

    Also, we need to understand that these three pieces of data are highly interlinked and feed off one another. They do not occur in their own vacuums. With the nation's official unemployment rate at 9.7 percent (and the truer measure of unemployment at 16.5 percent), everything in this economy is pivoting on jobs. Each new person who loses his job -- and files a claim -- is one less person who is likely to buy a new house, or much of anything else, for that matter. And, if that person is one of the 5,000 who was contacted by the Conference Board's survey, then it's a good bet that person will say he is pessimistic about the economy. As the chain goes on, don't forget employers are feeling less optimistic about the economy, which makes them more likely to contract and lay off workers.

    Also, we need to look at the world outside these three pieces of data. The stock market rallied 60 percent from the March 2009 bottom to mid-November of last year. Since then, it's done little but go sideways. People -- investors, traders, holders of retirement accounts -- notice that. It changes the way they think. The euphoria of the 2009 rally is over. It has been replaced by caution, uncertainty and a hard-to-shake sense that we haven't hit bottom yet.

    And that, as much as anything, is what's holding back economic recovery.

    Follow me on Twitter at @theticker

  • By Frank Ahrens  |  February 25, 2010; 5:37 PM ET
    Categories:  Data , The Ticker  | Tags: Dow Jones, consumer confidence, inflation, new home sales, stocks  
    Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   StumbleUpon   Technorati   Google Buzz   Previous: Stocks stage mighty rally but fall short
    Next: Fourth-quarter GDP revised upward to 5.9 percent


    While the unemployment rate decreased in January, the rate of those unemployed for greater than 27 weeks has been on the rise. According to the Bureau of Labor Statistics, in January 2009 22.6% of the total unemployed had been for greater than 27 weeks, in July 2009 it was 34%, and in January 2010 it rose to 42.5%. These are sobering statistics!
    I'd love to see a poll on the number of those who are taking advantage of their unemployment through additional training, gaining job skills, or going back to college. Those who are in college full time and receiving unemployment should not factor into the unemployment rate.

    Posted by: thegabline | March 1, 2010 5:32 AM | Report abuse

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