If Washington could manage (for once) to stay out of the way, there are several solid reasons to think the U.S. economy will pick up speed. Stock market indices are at or near all-time highs, home prices are rising at a double-digit percentage pace and, in good news for almost everyone, the price of gasoline is falling.
A counter argument is also being voiced, however, that a dangerous price bubble is going largely unnoticed. Asset prices are being pumped up as a result of the vast sum of money the Federal Reserve is spending on bond purchases each month, $85 billion. Authorities are either not paying attention or are letting this slide because the impact on inflation has been muted, due to weak world trade, low commodity prices and fierce competition in the consumer marketplace.
Against this backdrop, the following are economic nuggets “ripped” from the latest data releases and media headlines.
(1) The Dow Jones Industrial average has been setting new all-time highs on a daily base in the first half of this month. The IPO for Twitter was even more successful than imagined, with the stock price immediately appreciating by 75%. The NASDAQ index keeps climbing higher. Its mountain summit achieved during 2000’s dot.com boom is finally, after a dozen-plus years, back within reach. This is causing some investors to pause and consider.
(2) There are three main authoritative sources of U.S. resale home prices. S&P Case-Shiller’s 10-city and 20-city composite indices were both +12.8% year over year for September. Four cities (three of them in California) recorded increases of 20% or more: Las Vegas (+29.2%); San Francisco (+25.4%); Los Angeles (+21.7%); and San Diego (+21.5%). Also for September, the National Association of Realtors (NAR) says the median price of existing home sales was +11.7% compared with a year ago. The slowest rate of increase, +8.5% for August, has been reported by the Federal Housing Finance Agency (FHFA), based on sales agreements involving mortgages either sold to or guaranteed by Fannie Mae and Freddie Mac.
(3) The Canadian Real Estate Association has calculated a September year-over-year increase in the nation-wide average resale price of 8.8%. The cities with the fastest increases were Vancouver (+8.8%), Hamilton-Burlington (+8.7%), Calgary (+8.2%), Edmonton (+8.1%) and Saskatoon (+7.8%).
(4) One surprising factor driving U.S. home prices higher is a shortage of properties for sale. Foreclosures are down and new home starts are still far below what they have been on many occasions in the past. The latest figures on U.S. groundbreakings remain unavailable at the time of writing on account of the partial government shutdown.
(5) Canada’s new home starts, which were supposed to moderate significantly this year, have hovered slightly below 200,000 units seasonally adjusted and annualized (SAAR) for six months straight. Most analysts are sticking with 175,000 units as the long-term sustainable figure. A high level of immigration and enthusiastic purchases by foreigners are among several factors that may be raising the benchmark to 200,000 units.
(6) According to “gasbuddy.com”, the price of petrol in the U.S. is edging down to a two-year low. For the nation as a whole, the latest price for “regular” gas is about $3.20 per gallon. Approximately 15% of transactions are taking place at less than $3.00 per gallon, a level which provides a significant psychological lift. Lower-priced gas frees money to be spent in other areas and on other important “stuff”.
(7) Canadians are jealous. Factoring in the difference between U.S. gallons and liters (1 gallon = 3.7854 liters), plus taking into account the difference in value of our currencies (one Canadian dollar buys only 95 cents U.S.), the $3.20 price level for U.S. gas converts to a cost of only 90 cents per liter north of the border. That’s sure not what we’re paying. The price at the pumps in Canada is at least one-third more (i.e., $1.25 to $1.30 per liter).
(8) U.S. total employment in October jumped by 204,000 jobs, the third highest month-to-month gain in 2013, but the unemployment rate was stuck above 7.0%. If the U.S. economy can keep up its current rate of job creation, it will return to its pre-recession peak employment level at the beginning of summer next year. Leisure and hospitality was the leading sub-sector for new hires in November, +53,000, followed by retail, +45,000. Both manufacturing (+19,000) and construction (+11,000) added to their payrolls.
(9) Canada’s total employment increase in October (+13,000) was almost the same as in September (+12,000) and the nation’s jobless rate stayed flat at 6.9%. The manufacturing sector shed another 7,000 positions to bring 2013’s change so far to -74,000. Construction also suffered job losses in the month (-9,000), but its net position year to date is +57,000.
(10) Expectations of growth in Europe have been cut slightly. The European Central Bank (ECB)’s response has been to drop its key interest rate from 0.50% to 0.25%. One effect has been to lower the value of the euro, which helps the German economy more than any other. Germany is sitting pretty. Its export sales are already strong and unemployment is low. Its financial position is unquestionably solvent. Other economically-challenged nations in the euro-zone think Germany should be doing more to stimulate its own domestic economy, which would draw imports into the country from its neighbors.
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