Friday, July 3, 2009

Show Me Some REAL Economic Indicators

This week the government released it's monthly reports on economic indicators. As reported by the major media most indicators are down. But here through minor media I wonder why.

Why do we still use New Residential Construction (a.k.a. New Housing Starts) as a measure of economic health?

The reasons residential construction is down is that 1) banks don't have funds to lend builders 2) demand is low. Okay the first reason is a universal problem that resulted from careless lending, we get that. The second reason, low demand, is because we've already got a glut of housing. We just don't need to keep buying new homes. The majority of new homes are built in massive groups, not single lots. Meanwhile, we've still got existing homes ready for sale. Yet, a basic measure of home sales is not an economic indicator. Why not?

The reason likely stems from the fact that construction, whether residential or commercial, has a trickle down effect. When construction is down many other sectors of the economy are also down since materials aren't purchased, workers aren't hired, salaries aren't paid.

But doesn't this seem to be old thinking applied to a changing world? Everywhere you look there is a focus on being 'green': organic food/farming, green energy, and green construction. Yet, sprawling residential housing is economically healthy?

The key economic indicators published by the government are as follows:
Advance Monthly Sales for Retail and Food Services
Advance Report on Durable Goods
Construction Put in Place
Gross Domestic Product
Manufacturers' Shipments, Inventories, and Orders
Manufacturing and Trade: Inventories and Sales
Monthly Wholesale Trade
New Residential Construction
New Residential Sales
Personal Income and Outlays
U.S. International Trade in Goods and Services
U.S. International Transactions

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