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There were some comments on my post Friday that hit two different sides of the housing coin. Personally, I don't see a doom and gloom situation in housing. Not at all. So much so, that I'm trying to put together a little luncheon with Big Ben and myself... perhaps a couple of the other Fed governors as well, just to settle them down a bit. We don't need any more comments regarding how housing is slowing down. It's not that important - to the aggregate.

Pointing out the aggregate is important. One of the comments mentioned that there appears to be a bad scene in Laguna Beach, California. Certainly there may be areas around the nation that bubbled up, as the opposing commenter mentioned. However, the aggregate of the entire nation, didn't bubble up. Likewise, those previously-perky areas are now slightly-slumping. Again, though, the rest of the nation appears to be on normal footing. But, as high as it might get, it will always come crashing down.

But... man does not live on real estate alone. Nor does our economy. But, it does help from time to time.

When we saw the large increase in the mortgage refinancing here in the States, specifically during the 2003 timeframe, there was a coincidental move higher in the personal consumptions expenditures. Americans don't save money. When the refinanced their homes, the saving from the lowered interest rates helped the economy along. Any other increased funds drawn out of the refinancing was also spent. Again, helping the economy along.

That was then. This is now.

Real PCE

This is Real PCE. This is the chart that I start all analysis from. In this chart, around the 2003 timeframe, you can see the move higher in consumption. There was actually another factor that affected that increase. Bush's tax cut. The combination pushed the economy along.

Right now, I see the economy firming as the latest developments show in the chart. Where is this being derived from? Incomes. We'll get that release tomorrow. But, for now, just know that incomes are increasing, pushing the economy along like it normally does.

Incomes are always the answer when it comes time to evaluate how the economy is progressing. However, from time-to-time, we'll see other elements pop in that may push the economy along. Tax cuts are certain one of those items. The real estate boom that some areas saw seems to have helped out a lot. But, I see that as a one-time deal. It's over, and now it's back to basics.

Source: Housing: That Was Then, This Is Now