If D.C. settled down, private sector could take off
WASHINGTON (MarketWatch) — Don’t look now, but the private sector actually isn’t doing so badly. If only the policymakers in Washington wouldn’t keep pulling the rug out from under it.
“The fundamentals in the private sector are better than in some time,” says Richard Moody, chief economist at Regions Financial. “The household balance sheet is in better shape, and corporate balance sheets are in quite good shape.”
A big reason households are doing better is the rise in home prices, leaving fewer Americans underwater on their mortgage. From lows in Feb. 2012, U.S. home prices are up 21%, according to S&P/Case-Shiller data. The latest report on that series is due on Tuesday.
“If we get some clarity from Washington — that’s an awful big ‘if’ — we may be surprised to the upside next year,” Moody said.
Moody isn’t alone in his view that the uncertainty from Washington is having a restraining force.
“Businesses and households are unsure about how their tax liabilities will evolve over time, and firms doing business with the federal government are uncertain about their prospects as well,” said Jeffrey Lacker, president of the Richmond Fed, in a speech last week. “Although it’s hard to quantify, I believe this budget uncertainty is weighing on business hiring and investment decisions.”
Though durable-goods orders data for October, due out Wednesday, may show a decline, economists pay close attention to a series called core capital-goods orders, which is a good proxy for business investment. On a year-over-year basis, they were up 8.7% in September.
Recent regional manufacturing surveys, notably those conducted by the Philadelphia and New York Fed, haven’t been so strong. But Regions’ Moody points out that the reports out of the Northeast don’t necessarily speak for the nation as a whole.
“In the Northeast and the Atlantic, you would tend to see defense contracting and exposure to Europe, as opposed to the Midwest, with [exposure to ] autos and durable goods, and the Southwest, [with exposure to] energy and durable goods,” he says.
In a week stuffed with data like a Thanksgiving turkey, the housing-permits report on Tuesday also will be of interest. (The Commerce Department announced late Friday it has postponed the release of housing starts, which usually are released alongside permits data, owing to a lack of data after the government shutdown.)
While much attention has been paid to the spike in mortgage rates this past summer, which has since subsided a bit, another factor restraining housing is tight lending standards.
“No one wants lending standards near where they were, but there’s some room for banks to ease up a little bit,” Moody says.
Behind the discussion of the economic data is the focus on what the Federal Reserve is up to.
“Every piece of data in context is being looked at for what does it mean for QE,” Moody says. “One reason that is the case is because overall growth is lackluster. If you did see overall growth, you can get away from the good news-really-is-bad-news kind of thing.” http://www.marketwatch.com/story/if-dc-settle...2013-11-24
