Sunday, July 26, 2009

Economy: A Little Sunshine

by Bill McBride on 7/26/2009 04:14:00 PM

This will be a very busy week for economic news, and some of the key data will be new home sales for June released on Monday, the Case-Shiller home price index for May released on Tuesday, and Q2 GDP from the BEA on Friday.

At the beginning of this dark and dreary1 economic year, I was looking for a little sunshine. I argued that three key data series would find a bottom in 2009, and that the drag on employment and GDP from these industries would slow or stop.

This doesn't mean green shoots - just the end of cliff diving. So it is probably time for a review ...

Vehicle Sales Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA.

Sales in June were at a 9.7 million at a Seasonally Adjusted Annual Rate (SAAR), up from 9.1 million in February.

Although this increase barely shows up on the graph, this is a fairly significant rebound, and I expect light vehicle sales over 10 million SAAR later this year.

Total Housing Starts and Single Family Housing Starts Total housing starts were at 582 thousand (SAAR) in June, up sharply over the last two months from the all time record low in April of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959).

Single-family starts were at 470 thousand (SAAR) in June; 31 percent above the record low in January and February (357 thousand).

Although I don't expect much of a pickup from here (and I expect starts in July to be slightly lower than June based on permit activity), it appears likely that housing starts have bottomed. For more on housing starts, see Housing Starts: A Little Bit of Good News

New Home Sales and Recessions The third graph shows New Home Sales vs. recessions for the last 45 years. New one-family house sales in May 2009 were 342 thousand SAAR.

Sales were barely above the record low of 329 thousand SAAR in January. Of the three key series, this is the one that is still closest to the bottom - and the June numbers (Monday) will be interesting.

Here is what I wrote at the beginning of the year:

2009 will be a grim economic year. The unemployment rate will rise all year, house prices will fall, commercial real estate (CRE) will get crushed ... but there might be a few rays of sunshine too.

... my guess is all three of these series [housing starts, new home sales, new vehicle sales] will find a bottom (or at least the pace of decline will slow significantly). This means that the drag on employment in these industries, and the drag on GDP, will slow or stop.

These will be rays of sunshine in a very dark season. That doesn't mean a thaw, but it will be a beginning ...
And on the dark side, CRE is still getting crushed - resulting in the seizure of many regional and local banks, house prices are still falling (that is my view) and the unemployment rate is still rising. But there is a little sunshine.

1 From Longfellow ...
The Rainy Day
The day is cold, and dark, and dreary
It rains, and the wind is never weary;
The vine still clings to the mouldering wall,
But at every gust the dead leaves fall,
And the day is dark and dreary.

My life is cold, and dark, and dreary;
It rains, and the wind is never weary;
My thoughts still cling to the mouldering Past,
But the hopes of youth fall thick in the blast,
And the days are dark and dreary.

Be still, sad heart! and cease repining;
Behind the clouds is the sun still shining;
Thy fate is the common fate of all,
Into each life some rain must fall,
Some days must be dark and dreary.

Henry Wadsworth Longfellow, 1842