Light At The End Of The Tunnel?

There are plenty of mixed signals on the economy today. Each bad report is followed by something good only to be followed yet again by something negative. This is actually a good thing. It wasn’t that long ago that the news was almost universally bad. The mixed signals are actually a sign that things may really be improving.

The housing numbers for June were positive in terms of sales with new construction reporting a gain of 11% and re-sales posting a 4% increase. The flip side shows that prices were still falling. Some of these sales can certainly be attributed to the $8,000 first-time buyer tax credit, but they’re still sales. So we have the good and the bad, but it is nowhere near as ugly.

More Pain to Come

To be sure we are not out of the economic slump by any means. Consumer confidence fell for the second straight month in July. That seems to be a reflection of the persistent woes in the job market. On the national level unemployment is expected to reach 9.7% for July and is expected to continue rising for the foreseeable future. Foreclosures are expected to continue to climb as well. Until the job market stabilizes people will continue to lose homes.

Some markets, such as Las Vegas, are having an unexpected problem. The thinking was that all of these people who were losing their homes would boost rental demand and cause rents to rise. However, investors have been buying theses bank-owned properties and using them as rentals, thereby increasing the supply. A recent article in the Las Vegas Review Journal (article) explored how the glut of apartments and rental homes is resulting in a decrease in rent. The theory of rental demand hadn’t taken into account that the population in Las Vegas has decreased for the first time in more than twenty years. That decrease is directly attributable to the loss of jobs.

Some Things Are Working

In a recent article we talked about the first-time buyer tax credit program being successful. It seems that another program has proven to be more popular than anticipated. The CARS program, otherwise known as “cash for clunkers”, exhausted its budget in a little more than a week. Congress has scrambled to add more money to keep the program running.

Money is starting to move again which is the key to any recovery. An economy is nothing more than money in motion, when the money stops flowing there is a ripple effect that is felt by everyone. Things won’t suddenly get better, a recovery is gradual. These mixed signals that we are now seeing is a sign of better days to come.

Sure there’s still a lot of trouble ahead, but perhaps the light at the end of the tunnel isn’t an oncoming train after all.

In economics, the majority is always wrong. – John Kenneth Galbraith (economist)

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