What are the arguments for thinking that the U.S. economy will remain on a slow-growth course and avoid a new recession? Unfortunately, there are fewer sources of statistical support these days, but the strongest ones—relatively speaking—remain payrolls and real estate. Today's estimate from ADP (scheduled for release at 8:15 am ET) is expected to post a slower rate of jobs growth for November, but not enough to challenge the notion that the economy is still growing. The nascent real estate revival is the other conspicuous point of optimism… if we can keep it.
Several studies over the years assert that quite a lot of the ebb and flow of the business cycle is closely linked to fluctuations in the residential housing market. For example, Ed Leamer a few years back asserted that Housing IS the Business Cycle and before that Richard Green demonstrated in econometric tests that housing is a strong predictor of GDP. The good news, then, is that a number of housing metrics are showing signs of positive momentum.
Several indicators tell the story, including rising housing starts and increased home sales. Even prices for houses have perked up. The median sales price of new homes sold recently rose above the $250,000 mark for the first time since 2007 before slipping back under that line in September and October. All of this comes from a low base, of course, but even modest progress on housing can pack a punch for the economy. Green wrote that "residential investment has a significant and positive effect on personal consumption." If so, that wasn't obvious in last week's update on personal income and spending numbers for October. But if the housing recovery rolls on, Green's research suggests that spending will find support.
It would be unusual to see a recession start during a housing recovery. Of course, that's assuming we still have a housing recovery. Everything's precarious, again, as the latest update on new home sales reminds. Maybe the current bout of tremors is only temporary. But before we can feel comfortable about housing's recuperative powers, there's a certain political logjam to resolve. Assuming Washington gets its act together, attention can turn once more to the numbers, including the big question: Will the housing recovery survive the attack on sentiment that's currently waged on the economy by our representatives in government?