Monday 26 September 2016

Is Yellen right about stronger growth ahead? Things can only get better, economists say

In World Economy News 26/09/2016

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Even as the Federal Reserve decided against raising rates at its most recent policy meeting, policymakers all but confirmed they’d most likely do the deed in December.
Central bank officials are “generally pleased with how the economy is doing,” Chairwoman Janet Yellen said. She and other policymakers want to give the economy a little more “running room,” she said, but they mostly believe growth will be stronger in the second half of the year than the first.
The Fed has been notoriously far too bullish on economic growth throughout this cycle, but most economists are inclined to agree. As Beth Ann Bovino, chief U.S. economist for S&P Global Ratings, points out, that’s a low bar. Growth in the first half was likely under 1%.
But data from two of the economy’s biggest sectors out in the coming week may help paint a clearer picture on the rest of the year.
On Monday, the Commerce Department will report on sales of newly-constructed homes in August. In July, new home sales surged to an 8-year high, and most economists expect a slight pullback. Bank of America Merrill Lynch is forecasting an annual 570,000 pace in August.
That kind of cadence is what Stu Hoffman, chief economist for PNC, calls “two steps forward and one step back.” He also expects a step back in the coming report, but cautions that new construction and housing starts data are notoriously volatile and likely to be revised.
One good sign in recent housing starts reports, Hoffman said, is a higher number of homes completed and available for sale. Those homes may help kickstart a virtuous cycle in housing, in which more inventory helps ease the supply crunch for buyers and brings better sales volumes to builders to help them break more ground.
A closely-watched builder sentiment gauge hit a one-year high in September and that may also lead to more hiring, he said. That’s one way housing will contribute to the overall economy, not just the housing market. As more people get better jobs, “it puts people in a better position to move or to move up,” he said. That means more realtor fees, moving crews, home furnishings, and so on.
Because hiring was slow in August, Hoffman expects income and spending growth to also be subdued. The Commerce Department reports on personal income and outlays on Friday and Hoffman forecasts a 0.2% gain for income and 0.1% rise in spending.
In contrast to housing, manufacturing took a wallop in late 2014 when the price of oil plummeted. It’s remained under pressure since then but many economists think it may have found a bottom and started to stabilize.
Bovino calls the recent trajectory of the economy a “roller coaster.” She thinks the real news on manufacturing is how resilient it’s been given the headwinds stacked against it. It wasn’t just the oil price plunge, she points out, but also a stronger dollar and weaker overseas economies.
The same might be said for the U.S. economy as a whole in the months leading up to one of the nastiest presidential elections in recent memory, Bovino noted. “While there is a lot of frustration with the election, it doesn’t seem to be stopping willingness to spend and invest and hire.”
Still, Bovino doesn’t expect a big surge in pent-up capital spending once the election is over. Businesses have been more reluctant to invest in this recovery than in past cycles, and it’s likely the pace of capital spending will remain more tepid than before


Source: MarketWatch