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February 07, 2007
Summing Up 2006
Despite the worries of some (such as myself), 2006 turned out to be a pretty good year for economic growth. Not great, but certainly solid.
The themes are nicely captured by the employment picture:
Michael Mandel focuses on the pace of net job creation in health services, but I see no particular reason to place special emphasis there. Outside of retail trade, employment growth in the service-producing industries did just fine, thank you.
Although manufacturing is almost never a source of significant net job creation, the dichotomy between the fortunes of the service and manufacturing sectors has been showing up clear as day in the ISM business conditions indexes -- nicely illustrated by the Capital Spectator and covered from a global perspective at The Skeptical Speculator. Construction employment reflects the housing-centric part of the story, which is as much about what will come as what has been. Calculated Risk looks ahead, and sees substantial declines in construction employment in the months to come, and it is the view of many -- I'd say most -- that there are more shoes to drop in the housing sector. Dean Baker, for example, notices that the Wall Street Journal notices "the record vacancy rates of ownership units." And I noticed that the Journal articled also noticed something else I noticed:
Not surprisingly, buildings with five or more units -- which include condos that were magnets for speculators -- had the highest rate of vacancy. The vacancy rate among these units rose to 11% in the fourth quarter from 7% in the first quarter. For single-family homes, the vacancy rate rose to 2.3% in the fourth quarter from 1.8% in the first quarter.
Ben Jones rounds up yet more commentary on the vacancy rate report, which has become the latest piece of proof that, no matter what you see, things just aren't as good as you think. Indeed, in the midst of plenty of reasons to have positive feelings, skepticism abounds. PGL touches the employment elephant and feels higher unemployment, a decline in the labor-force participation rate, a shorter average workweek, and "very modest" growth in wages. Under The Street Light, Kash has some similar thoughts. Michael Shedlock sees a declining trend in job growth (albeit in the murk of revisions that has apparently become getting increasing unrealiable in real time).
But, but, but. Fact is, we did pretty well last year, and indications so far are that, in early 2007, the US economy is keeping on keeping on. Not that the risks being touted are safely ignored. It is a fact that there was a surge in mortgage originations with adjustable rate contracts during the height of the housing boom:
If reports are to be believed -- and I have no information to suggest that they shouldn't -- a good chunk of those new adjustable rates are soon to be adjusted, to uncertain effect. And I take seriously Dean Baker's admonition to beware the seasonals -- just how much weather might have distorted the statistics or shifted production and spending decisions, we don't yet know.
A sensible person should always take account of the risks that exist. But the truth is that the evidence from last year does not easily support an assertion that the US economic train is about to derail. Do worry, but go ahead, be happy.
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