The national unemployment rate appears to have decreased a bit and some reports are hinting that retail sales are up. This is prompted the Obama administration to declare that the economy is showing signs of recovery.
First of all, some of the reported drop in unemployment levels is questionable because of how the government fudges the figures and the number of seasonal jobs over the holidays may have skewed the figures. I recall my college statistics professor telling us that anyone that understands statistics can make the data say whatever they want it to say, so I’m very hesitant when Obama’s people are reporting positive signs when everything else is saying otherwise.
Secondly, many retailers have been reporting increased sales, but they’ve had to take deeper discounts on many products resulting in lower profits. In a sagging economy, profit margins are already hovering around the break even mark or even lower for many retailers, so the increased discounts in sale prices could have just as much of a negative impact on them as a positive. Many retailers, large and small rely on the holiday sales to account for nearly a third of the annual sales and profits.
Lastly, there is one economic indicator that precludes any of the White House’s holiday cheery news and that is the housing market. According to the latest reports, the sale of new homes is so low this year that it appears it could be the worst year in history.
Many economists say that a healthy economy requires at least 700,000 new home sales a year. The projected figure for this year appears to be around 315,000. Once again, the annual sales of new homes are less than half of the figure needed for a healthy economy. And rather than showing any signs of an economic recovery, this year’s figures are even lower than last year’s horrible numbers of 323,000.
Any increases seen in new construction are largely due to an increase in the number of apartments being built. Single family home construction remains at record low levels and are in indicator that many families can no longer qualify for a mortgage and are forced into apartment living. The economy has also made it difficult for some contractors to get the financing they need to finish a number of the homes they have under construction, so many single family homes sit abandoned in some phase of assembly.
While new home sales only make up about 10% of the total housing market, they have a much larger impact than the sale of existing homes. On the average, new homes equate to 3 new jobs for a year and around $90,000 in taxes.
So as the White House tries to conclude their year on a cheery holiday note, the reality is that it’s more of a Bah Humbug!