Global Economy Is Clearly on the Mend

The year to date is part of what I call the preparatory phase for a recovery. Mortgage rates are falling, helping the housing market to begin to stabilize. The decline in consumption has slowed or shown a reversal. Inventories are falling. Factory orders are beginning to pick up. Confidence is slowing picking up.

The National Association of Realtors reported that while existing home sales in March fell, median sales price rose to $175,200 from $168,200 in February, and added that while median sales prices typically rise slightly in early spring, the 4 percent monthly increase was larger than expected. This followed UK report for its Nationwide Housing Price Index (pdf) of a rise of 0.9% in March, the first monthly rise since October 2007, and an earlier report from Federal Housing Finance Agency that U.S. home prices rose 0.7% on a seasonally-adjusted basis from January to February, according to its monthly House Price Index.

Orders for durable goods had risen 2.1% in February but dropped 0.8 percent in March, but both months showed results better than what economists generally expected. UK retail sales rose 0.3%, against market expectation of a 0.5% decline. France retail sales rose 1.1%, against market expectation of a 0.3% increase. The IFO business climate index in Germany beat market forecast of 82.3 and rose to 83.7.

These developments are very positive for the global economy. Although the global economy is still contracting, the force of contraction has been weakening noticeably. Stock markets have risen strongly amid widespread disbelief. While unemployment and weak business confidence continue to be a drag on the economy, there is little doubt that the worst is behind us.

The firming up of American home prices is the most significant among the positive news. It means the root of the problem that had haunted the financial market, namely the problem of toxic assets is now beginning to abate. A firming up of home prices is a big relief to homeowners, and will soon trigger a rise in sales volumes, especially when mortgage rates stay at their currently low levels or when they fall further. Indeed, new home sales in March at 356,000 units beat market forecast of 340,000 units.

The global economy is clearly on the mend, although it will be months before an improvement in unemployment will show up.

Comments

[No Eye Deer:]

I don't think so..

Traders already whisper that some governments are buying their own debt through proxies at bond auctions to keep up illusions – not to be confused with transparent buying by central banks under quantitative easing. This cannot continue for long.

www.telegraph.co.uk/fi...



Lots more bad news to come,

Apr 26 12:24 PM

[Dave Wrixon:]

"The National Association of Realtors reported that while existing home sales in March fell, median sales price rose to $175,200 from $168,200 in February, and added that while median sales prices typically rise slightly in early spring, the 4 percent monthly increase was larger than expected."

As somebody that purports to know something about economics, I would have expected you to make the connection between millions of people at the bottom end of financial spectrum being eliminated from the housing market due to the unavailability of credit, and a rise in median sales prices. If the bottom end of the market closes down but part of the top end survives, then average transaction prices will rise.

Is that a sign of an improving market? Not in my universe it is not!

Apr 26 12:46 PM

[Prudent Man...:]

This is proof that the analysts and economists (not always the same) have done what they usually do, do more trend analysis than primary research.

How anyone can say the recession is over when we don't even know what the damage is let alone ascertain a strategy to survive. If one believes that printing money while saddling the country with unmanageable debt is any answer to our over use of credit they are terribly mistaken.

The government is de facto owner of the banking, auto and soon-to-be health industries. The politicians control what they cannot manage and until we wake up and pass Congressional Term Limits we will continue on the road to being a Banana Republic.

Now that BHO has squandered the advantage in Iraq we obtained from the "surge", has castrated the CIA and is losing Pakistan and its Atomic Weapons to the Taliban and bin Laden our risks of another terrorists attack has grown exponentially. Then, BHO can blame it on Right Wing Extremists, veterans, church goers, dissenters, etc. the way Goebbels did for Hitler in his drive to Fascism.

BHO wasn't blowing smoke when he said he would bring "change".

Apr 26 12:48 PM

[CautiousInv...:]

I think your analysis is a tad bit US-cenctric.

Scanning the globe, there are green shoot here and there is always the now familiar second derivative argument but the IMF still expects world output to shrink 1.3% this year.

Goldman has upped their most recent forecast for China but their exports, which make up about one-third of their economy, were 17% lower in March than a year earlier, the fifth consecutive month of declines as the world economy slowed to a crawl.

Japanese exports slumped 46% in March, compared with February’s unprecedented 49.4 percent plunge. If you use monthly seasonally adjusted annual rates, you can probably squeak out an increase of 2% or so out of Japan’s March exports.

What is conspicuously missing from economic commentary is what will serve as the catalyst for resumption of global growth? The US has been the engine of growth because of our spending prone consumer who must now retrench and get on with increasing savings and balance sheet mending.

Who or what will take his/her place?

Apr 26 01:17 PM

[Dustinian:]

As CautiousInvestor noted, there is still lots of pessimistic data to accompany your numbers of optimism.

I think the fact that not every economic indicator is negative is a sign that the world crisis is slowing, but I cannot support the notion that it is on the mend. One cannot heal when all the damage has yet to be done.

Apr 26 02:01 PM

[LilBob:]

I have to agree with the rest regarding the economy not being on the mend just yet. The US economy still has some significant structural problems that have not been effectively addressed, chief among those-to my mind-being outrageously high health care costs that strangle entrepreneurship and an enormous backlog of commercial real estate that's rapidly following residential real-estate into the tank.

We also have a growing Chinese middle class-which will eventually mean higher production costs and greater trade deficits, and may even eventually lead to a need for rebooting some of those US factories that were shut down over the course of the last ten years; and that's just the beginning of US financial problems. We still have a long LONG way to go. This country needs to realize it's future position in the world and take effective steps to prepare for that future.

Apr 26 04:09 PM

[Ferdinand E...:]

The author used the expression "preparatory phase for a recovery". Allow me to agree with him. If he and his teams do not pay too much attention to some of the pessimists in this forum, we could receive some good news next year.

Apr 27 09:29 AM

[MarkitWacha:]

We're still in the 'transfer wealth' phase. In America and China, the wealth will be transferred to the middle class that stay employed. Those who don't will be impoverished. The ignorant but wealthy class of people who don't take precautions will enter into middle class or bankruptcy. The Chinese are going to demand more quality of life.

Inflationary action from the Fed will hit the wealthy class hard. Those who have leveraged their house with a fixed rate mortgage are about to benefit.

The energy situation is at a crossroads. We're about to hear about plug-in windmills, possible fusion energy (generalfusion.com, Sandia Natl. Labs), wave generators. In short, all the investment that was made into alternative energy in the last 2 years will make headlines. The Saudis should be quivering, because their security situation could deteriorate rapidly if oil prices decline or stay low.

Apr 27 09:41 AM

[Old Trader:]

First, I'd not put a lot of faith in NAR numbers, as they're historically pretty worthless, due to an excessively optomistic slant. I agree with those above who've pointed out a "disconnect" between certain EMs and the developed markets, specifically, the US, UK, and EU. Though the ride may not be smooth, I'd guess that among the EMs whose economies are primarily driven by commodity-based exports will outperform. China may continue to do well, especially if their efforts to stimulate their internal consumer sector are successful.

Apr 27 05:25 PM