Jabba the Economy

I have taken to imagining the economy to be an odd, corpulent, Jabba-the-Hut type of monster, sitting in all its majesty among psychophants and various job applicants. Throw Jabba some good news and he giggles and belches and convinces the analysts that things have turned around at last. Meanwhie, the stock market indices climb, the dollar gains a bit in value, and interest rates edge a bit higher on general confidence that the economy is turning.
But if the food is not forthcoming, then suddenly the economy shakes and moans, and there is a growing certainty among the analysts that Jabba’s health is threatened; stock market indices decline, the dollar declines, and interest rates edge down.

Last week was a climbing-interest rate sort of week. With nourishing good news in its craw, the economy was looking fatter and healthier. The HSH & Assoc. average of all 30-year fixed mortgages being written climbed from 5.33% the preceding Friday to last Friday’s 5.47%. The Freddie Mac average climbed from 4.99% to preceding Thursday to 5.08% last Thursday.
The DJIA, meantime, climbed from 10895.86—the Friday close for the preceding week—to last Friday’s 10927.07 close. And the current buzz is that perhaps we’ll see an 11000 Dow before the week is out.

We have still more good news with which to feed Jabba…for the moment, at least. Today (Monday April 5), we are finally seeing the effects of the $8,000 and $6,500 tax credits for home buyers. According to the February Pending Home Sales Index of the National Association of Realtors?, the number of sales that should close in the coming weeks and months should be up by 8.2%. Now, I would love to be more excited by this finding than I am. Home sales have been groveling at the bottom like a starving mudsucker for months. Lawrence Thun, NAR’s chief economist, said the improving numbers may signal the coming spring surge brought on by the conclusion of the tax credit program. “Surge” may be a rather optimistic word. So far, Jabba has probably gulped down the news in one quick bite. And we remain with a significant worry: If the real estate market has been this slow to improve when buyers have to put together signed purchase agreements by April 30, what will happen after April 30 passes?

Nonetheless, last week provided yet more good news. One piece of news was of the it-didn’t-explode variety, and the jury is still out on how this market will act in coming months—but it was heartening to see that the credit markets barely reacted to the long-awaited day when the Federal Reserve ceased its program of buying up mortgage-backed securities. The idea had been that, with so many securities being created, the Fed would create a market for them, making sure their value remained high and their yields (and mortgage rates in general) relatively low. The big question now, of course, is whether the private markets can take up the slack left by the Fed. The answer? We don’t yet know. But…so far, so good.
And reports last Thursday indicated gratifying growth in manufacturing—not just in the U.S., whose manufacturing index reached its highest level since 2004, but throughout the world. It’s a big, positive wave and, as was mentioned last week, companies like FedEx are surfing it.

Lastly, the March employment report, showing a gain of 162,000 payroll jobs and a relatively benign stability of the unemployment rate at 9.7%, gave the impression that the season of job declines is ending. Still, it takes about 250,000 new jobs just to keep up with the number of Americans normally moving into the jobs market each month. So this good news, like the rest, seems only to satisfy Jabba for the moment, leaving us waiting for the next good news—or prepared to duck under cover when some bad economic news arrives.

So it is in a nearly trendless economy.

by: Bill Fisher