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The Atlanta Fed's macroblog provides commentary on economic topics including monetary policy, macroeconomic developments, financial issues and Southeast regional trends.

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February 07, 2007


Summing Up 2006

With the results on economic activity in 2006 nearly in -- details available at Econbrowser -- I think the verdict, as Kash concludes, is pretty clear: 

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 Capital Spectator is even more upbeat: "Expected or not, 3.5% growth is impressive."  Carpe Diem gets to the point: "The Dangerfield Economy Rocks." 

The themes are nicely captured by the employment picture:

   

Employment_slides_2207

   

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 thoughtsMichael 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:

   

Adjustable_rate_share 

   

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. 

February 7, 2007 in Data Releases, Housing, Labor Markets | Permalink

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There is a way to get free access to the Wall Street Journal with a netpass from: http://news.congoo.com

This has been in several blogs lately.

Posted by: Rachel Gumphrey | February 07, 2007 at 11:24 AM

Good advice, "be happy", happy people go to the malls. Nothing would bring our ever-faster spinning economy to its knees quicker than if people decide to pay down the outrageous debt they've accumulated in the last four years.
Don't worry, be happy - DOW 20,000 here we come!
Don't worry that is, unless you have kids & grandkids you love.

Posted by: bailey | February 07, 2007 at 01:28 PM

Geez, Bailey. I'd swear if a had a post that said "It's a beautiful day today, I think I'll play golf" you'd respond "Yeah, but ....

Speaking of the WSJ, here's an excellent article talking about our economy from a financial historians point of view.

http://online.wsj.com/article/SB117063838651997830.html?mod=opinion_main_commentaries

Posted by: cb | February 07, 2007 at 03:16 PM

HOW DARE YOU TELL ME TO BE HAPPY!

Posted by: DrToast | February 07, 2007 at 06:04 PM

CB, If it were baseball games we were discussing (sorry, I haven't dressed up in funny clothes to swat at mesquitos for a very long time) & you contributed as much as Dave does to this site, I'd probably offer you my seats for a few Angels games. That would be fair for the inquisition I've been holding here lately, don't you think?

Posted by: bailey | February 07, 2007 at 08:08 PM

kudos for "Dangerfield Economics".
For the Happiness Case, one has to concede a point or 2 on that account.
For the Worry Case, let's kindle our fears and anxieties on this:

"But the truth (accept reasonable facsimiles) [leveraged and notional amounts] is that the evidence from last year does not easily support an assertion that the US economic train is about to derail."
and imagine the sweat you might be in if you bought a house last year. No, of course you couldn't afford anything but a sub-prime mortgage. There are more than a few in this bucket as the folding of some of these sub-prime lending agencies now attest.
But no worries, even Greenspan noted that there would be some (fools who listened to him and went for the ARMs), but not many.
There would be a manageable correction and a return to trend.
So the impetus that the housing market has imparted to the economy over the last several years will be supplanted by....a military expansion?
Ok, that's all I can do for the Worry Case.

Posted by: calmo | February 07, 2007 at 08:16 PM

And a fine job you did, calmo. Although I'll note I did give you permission to worry -- bailey wouldn't let me get away with doing otherwise.

Posted by: Dave Altig | February 10, 2007 at 01:48 PM

Stinging remark Dave...this happiness business is so touchy. The idea that happiness can be commanded (or perhaps even stranger, "permitted"). You see what I mean? Not quite the same story for worry...a la "I would worry if I were you...", some sort of recommended emotional set given the facts if only I could get you to appreciate them.
I don't know which is more idiotic: trying to command someone to Be Happy (or Worry) or the commander. It reminds me of my father dishing out corporal punishment (I know this is hard to believe but as a toddler I got my ass spanked a lot.) and then demanding to know that I still loved him. People need time to digest circumstances maybe. And economists can, I suppose, embellish a case for happiness or worry...and, provided you just didn't get your ass spanked (or lose your house), you might be susceptible to this persuasion.

Posted by: calmo | February 11, 2007 at 01:20 AM

Well, I must say that 2006 was an unexpectedly great year for equity investments. US stocks are almost fairly valued.

Posted by: Rich Berger | February 11, 2007 at 08:21 PM

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