An egg on a spoon
That's the economy for you, delicately balanced on a spoon in the egg race that is the country's future. The finish line is a recovery. But the housing market could be a pothole up ahead, and the stock market might be the blindfold we're wearing.
Today's housing report from Case-Schiller showed an 8th consecutive month of price increases but many economists don't think that trend will continue, and in fact, they expect a "double-dip" in prices.
Historically, when the economy is in recovery mode, economists always talk about the housing market being a key component. But perhaps this time, it's different. Can this economy recover without the housing market bouncing back? It may have to. Recently, Daniel Gross at Slate made this wise observation:
The continuing problems in housing have changed the way Americans consume, borrow, and invest. And that's all to the good. Instead of purchasing things with money borrowed via home equity loans, we're buying things with cash from earnings or savings. That may mean spending somewhat less, but spending somewhat smarter. Capital investment, instead of going into new housing and condo developments, is going into solar plants and retrofitting existing buildings. Growing without housing, and the cheap money it spun, may be harder. But it's not impossible.
Speaking of cheap money, the stock market is "partying like it's 2003," as The New York Times put it:
Judging from stock prices alone, one would think the economy was poised for a roaring comeback. But the federal government plans to unplug the economic life-support programs that stimulated production, kept interest rates low and placed a thick cushion under the real estate market...
"A lot of people believe the government will just keep pumping money into this," said Doug Roberts, chief investment strategist for Channel Capital Research.
There are signs that some of investors' optimism may be excessive.
Interest rates, kept at historical lows by the Fed during the financial crisis, are starting to rise because of the flight from bonds and concern over rising debt, particularly that of the United States.
Higher interest rates will not only push investors out of stocks, they will delay the rebound of the housing market. But as long as the jobs start coming, the economy should weave its way forward, hopefully without falling off the spoon. For example, there are signs today that demand for imports from Asia is surging:
Container shipments at Busan, the world's fifth-busiest port, rose 21 percent in the first two months, rebounding from the slump last year that forced Park to lease extra space to help store more than 31,000 empty boxes. In the U.S., retail container traffic will likely rise 13 percent this month and by 17 percent in the first half as shops restock, according to the Washington-based National Retail Federation.
That's caused rates for ad hoc shipments on Asia-U.S. routes to jump about 50 percent this year to around $2,100 per forty-foot box, according to Johnson Leung, a Hong Kong-based analyst at Tufton Oceanic Ltd., the world's largest shipping hedge-fund group.
"The volume is surprisingly high," he said.
American businesses are in a transition period. They've cut their inventories but are seeing orders increase. They're trying to find balance, and that's just what the egg needs.