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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Signs of life spotted in economy

Durable goods, home sales rise; analysts predict worst not over

Martin Crutsinger Associated Press

WASHINGTON – Glimmers of hope for the economy – better home sales and higher demand for goods, plus optimism from the White House and a nearly 20 percent rally in stocks – have some people wondering if the worst is over.

Not so fast, say many economists. Layoffs are still mounting and home prices are still falling in an economy shrinking at an alarming rate. A recovery anytime soon doesn’t seem likely.

“We may be seeing the end of the beginning of this recession, but it is not the beginning of the end of the downturn,” said David Wyss, chief economist at Standard & Poor’s in New York.

Still, the recent news has been better than expected. On Wednesday, the Commerce Department said demand for big-ticket manufactured goods, which had fallen for six months in a row, actually rose by 3.4 percent in February.

And reports this week have shown sales of both new and existing homes rising by about 5 percent last month.

On Wall Street, the landscape looks better. The Dow Jones industrials gained about 90 points on Wednesday to close a fraction of a point under 7,750 – an 18 percent rally from its low point on March 9.

“The good news is that we don’t have the sort of unrelentingly persistent declines we had been seeing,” said Nariman Behravesh, chief economist at IHS Global Insight, who thinks the economy “may be approaching a bottom.”

The GDP fell at an annual rate of 6.2 percent in the fourth quarter. Behravesh expects an even more severe decline for this quarter, and even a slight positive by the end of this year.

For now, in five key areas of the economy, there are both signs of life and reasons to believe the worst is not yet over.

Durable goods

The good news: Orders for manufactured products expected to last at least three years, or durable goods, rose last month for the first time since July. And orders for nondefense capital goods, a key indicator of business investment plans, surged 6.6 percent.

Reality check: Orders for durable goods are still below their levels of a year ago, and analysts believe they will remain low.

New home sales

The good news: Sales of new homes rose 4.7 percent in February from a month earlier. It was the first monthly gain for new home sales since July.

Reality check: Developers still face competition from foreclosures, and there’s still a mountain of unsold homes. The results from February were still the second-worst in records that have been kept since 1963. (January was the worst.)

Existing home sales

The good news: Sales of previously occupied homes went up 5.1 percent in February from the month before. Buyers took advantage of a market that pushed the median price down 16 percent from a year earlier. Mortgage rates are historically low, and a new $8,000 tax credit for first-time home buyers also could further lift sales.

Reality check: It’s too early to proclaim a comeback for the beleaguered housing market. Sales of existing homes are still the lowest they’ve been in more than a decade. Mounting layoffs are likely to keep many borrowers on the sidelines, and thousands of foreclosed properties have yet to go up for sale in an already glutted market.

Retail sales

The good news: Shoppers bought a few more necessities in February, offering some hope for stores. Retail sales only dipped 0.1 percent, and they rose in January. Reality check: A lot of the retail industry’s better performance is because of sales gains at Wal-Mart, where shoppers have hunted for discounts in the recession. Take out Wal-Mart Stores Inc., and same-store sales across the industry were down 4.3 percent.

Wall Street

The good news: The stock market has finally caught a break. Major banks such as Citigroup and Bank of America have said they were profitable in January and February, and Wall Street embraced the details of the Obama administration’s plan to relieve banks of toxic assets.

Reality check: Stocks could easily plummet again, especially if the banks are unable to eke out first-quarter profits or if the Obama plan doesn’t entice investors to buy up the toxic assets. And the Dow is roughly 6,500 points below its all-time high. Retirement funds look better compared with two weeks ago, but distrastrous compared with almost anything else.