Thursday was awash with, to us, some pretty darn polarized reporting on global economic data. In some cases, positive news was nearly ignored, others attempted to add a difficult-to-justify negative spin on otherwise positive news and still others seemed overly positive about relatively small (and not new) news. Let’s explore.
Ignoring Irish Improvements
Following Ireland’s first bond auction (since 2010) last week, Thursday brought more interesting developments. Per Ireland’s Central Statistics Office, the Irish economy actually grew 1.4% in 2011—double its initial estimate. Contributing to the jump was Q4 GDP, which rose 0.7%—a huge swing from the previously reported -0.2% decline. This also means Ireland hasn’t had two consecutive quarters of contraction—eliminating what some might view as a technical recession. The revision, which seemed hard to find in the press, means excluding Ireland’s bank bailout costs, its 2011 budget deficit clocked in at 9.3% of GDP—easily besting the troika’s bailout-mandated target of 10.6%. Furthermore, the Central Statistics office noted this means this year’s deficit target of 8.6% seems easily within reach (all else being equal).
To us, it appears Ireland’s tack of maintaining economic competitiveness (via low corporate taxes, etc.) despite applying troika-mandated austerity has reaped rewards. Still, as we’ve said before, Ireland’s not out of the woods just yet—it still has plenty of work to do. Beyond seeking continued economic growth, a potential bailout renegotiation to make the Irish bailout more bank-targeted remains at the forefront. However, should Ireland continue to make economic progress, in our view, it’s likely unemployment there also shows signs of marked improvement.
Unnecessarily Undermining Unemployment
Swimming across the pond to the US, the Labor Department released its report for initial jobless claims for the week ending July 7—reporting the rolls of newly unemployed fell by 26,000 to a seasonally adjusted 350,000 new applications. This widely bested expectations for 375,000 new claims and marks a four-year low in new unemployment insurance claims.
Clearly a plus, right? Well, not to some, who noted this somehow wasn’t as positive as it seemed due to seasonal factors. What are those seasonal factors? That many auto factories remained open instead of shutting down as they normally do in early July. Which is a fair point, except there’s a reason those factories are remaining open: High demand for new cars—which is likely a sign of an overall strong private sector economy.
To be fair, there’s always some volatility in weekly data—but those negating the strong result because of factory demand are likely missing the broader picture of private sector employment growth—spurred by a very healthy corporate America.
Supply of new homes has sunk below 2006 levels, while sales are beginning to rise—which should put upward pressure on home prices. Sensing this, homebuilders have begun ramping up construction. And recent news illustrates this: Home starts were up nearly 30% from over a year ago.
However, those holding out for a vast housing tailwind to supercharge economic growth are likely making mountains out of mole hills. Housing is a very small portion of GDP today—smaller now since it’s been so weak through the recovery as other components of GDP have grown. But you wouldn’t know that from some reports, which seem to be dancing a jig over an industry representing just a small slice of the overall vast US economy.
That’s not to say they’re wrong—it’s positive news. And hey, maybe this is a good solid shot in the arm for economic and investor sentiment. If so, we’ll take it. But we wouldn’t make the news out to be more than it is. True, housing results have certainly improved, but they’ve clearly been improving for some time. Looking forward, although further improvements to housing aren’t necessary for economic growth, they can provide a nice tailwind to it.