Black and White Program

Housing recovery is on track but fiscal cliff fears may kill it off

November 20th, 2012 by John Eastman

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Home sales in the U.S. rose 2.1 percent in the month of October, according to the National Association of Realtors. The increase is a seasonally adjusted annual rate of 4.79 million units. Hurricane Sandy had little effect on the October housing numbers, as it did not hit the U.S. east coast until late October. Analysts will be anticipating statistics for the month of November to determine what is likely to be a negative impact on housing. But the increase underscores a generally accepted notion that the economy continues to be on the mend, driven by the housing market. The median price for a home resale was $178,600 in October, up 11.1 percent from a year earlier period. As sales rose, inventory depleted, as indicated in the 1.4 percent decline during the month to 2.14 million, reportedly the lowest level since December 2002. Most analysts attributed the positive sale numbers to improvement in the nation’s labor market.

But as the home sales increase was viewed as a positive, the impending “fiscal cliff” could send many of the positive economic indicators on a downward trend in a matter of a few weeks. A negative economic ripple is expected, and in some instances could already be impacting the economy, as companies plan significant spending cuts in expectation of a downturn. Some analysts expect the plans of reduced capital spending alone, coupled with other elements of the fiscal cliff effects, could send economic indicators plummeting towards a renewed recession. Many corporate business strategists are concerned that the automatic tax increases and spending cuts set to take place in Jan of 2013 can not be avoided, this due to political differences between President Barack Obama, the Republican controlled House of Representatives, and the Democratic controlled Senate. The end result would be a slowdown of the economy due to reduced corporate investment, investors losing confidence and a decline in consumer spending.
Consumer confidence has been growing, along with a host of other indicators, but that growth has been in small and slow increments. If consumer spending decreases sharply because of fiscal cliff fears, or worse yet, because of actual negative economic policies should an agreement not be reached, the economy is expected be in dire straits. According to published reports nationwide, business investment in equipment and software was flat in the third quarter of this year, the first such occurrence since early 2009. Equipment and software spending are seen as keen measures of economic vitality in the corporate sector.

According to the Department of Commerce preliminary report, business investment fell at a seasonally adjusted annual rate of 1.3% in the last quarter. That drop included a decline in investment in large structures and buildings at a 4.4% annual rate. Investment in equipment and software was flat after growing at approximately 5% annually in the first six months of the year. In an interesting twist, small businesses seemed more forward thinking than large corporations as indicated by a survey by the National Federation of Independent Business in October, which found an uptick in capital spending among small businesses. While the slowdown in capital spending and holding pattern by large corporations contrasts with a rebound in U.S. consumer spending and confidence, the very near future will reveal whether or not the meager economic growth the country has achieved from its deep recession can be saved and built upon, or if a dead head back to negative growth is in store for the U.S..

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