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Despite Recent Bad News, Recovery May Be On Track


March 2 — Despite a string of recent negative economic reports, the U.S. economy remains on track to recovery, says Jim Haughey, chief economist for Reed Construction Data, in his blog at www.reedconstructiondata.com.

Haughey cites several recent indications that the economy continues to falter:
  • Stock market indexes are down from high points earlier in the year.
  • Unemployment insurance claims have spiked in recent weeks.
  • New home sales in January fell to a record low.
  • Consumer confidence plunged in February.
  • Factory shipments fell in January.
  • Interest rates slipped slightly, suggesting weak demand.

But, he says, "This run of bad news is not unusual at this stage of an economic recovery." There are two reasons to believes these reports actually underestimate the strength of the economy, he adds.

"First, the unseasonably bad weather has clearly cut the job count, especially in construction. This is temporary and will be reversed," Haughey says. But in the meantime, fewer people working means fewer goods produced and this affects other economic reports.

"Second, inflation is now barely above 0.0%," he says, some are even falling. "While this is positive in the long run, it is currently reducing the reported value of factory and consumer sales."
  • Focus on the good news, Haughey says.
  • Factory orders for durable goods rose in January.
  • Factory production—units, not dollars—rose, too.
  • Federal withholding tax collections are rising recently.
  • Credit is becoming more available for commercial real estate.

"Lenders are selling bad loans to speculative investors at discounts as high as 70% and using the cash to increase mortgage rollovers and new lending."

Read the complete blog entry here.