4 Economic Indicators to Watch This Week

Markets can give an incomplete picture of the economy. These numbers should make things clearer.

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If recent weeks have proven anything, it's that the only thing predictable about the U.S. economy right now is its unpredictability. The slightest bit of encouraging or troubling news sends the Dow Jones Industrial Average spiking or falling by hundreds of points. This month, the Standard & Poors volatility index hit its highest point in more than two years. Of course, stock market indexes only provide a highly reactive glimpse into economic developments. Here are four trends that indicators could reinforce, thereby providing a broader snapshot of the economy this week:

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Americans Getting Out of the Red

A report released today by the Federal Reserve Bank of New York shows that aggregate U.S. household debt is on the decline, having fallen by $50 billion, or 0.4 percent, since March 31, 2011. Overall, U.S. household debt stands at $11.4 trillion, down 8.6 percent from its peak in the third quarter of 2008. Delinquency rates are also down, with 9.9 percent of all outstanding debt in some stage of delinquency, a decrease of 0.6 percentage points since March 31 and of 1.5 percentage points over the past year. The data is another reassuring sign that U.S. consumers are continuing to improve their balance sheets.

New Houses in the Right Places

On Tuesday, the Commerce Department will release its data on July housing starts. June was an unexpectedly strong month, with an estimated annualized 629,000 starts, up 14.6 percent from May and 16.7 percent from June 2010. Tuesday's number may not be an improvement over June's figure, but even a small decline could be a sign of strength, says Joel Naroff, president and founder of Naroff Economic Advisors, an economic consulting firm based in Holland, Pa. "I wouldn't be surprised if the [July] number is weaker than it was [in June], but if the decline is not large, that to me is a good number," he says.

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Throughout the housing boom, starts were regularly more than three times where they are now, with the annualized rate often hitting above 2 million throughout 2004, 2005, and the first months of 2006. Since late 2008, however, annualized housing starts have mostly been between 500,000 and 700,000. Housing starts near pre-bubble levels of roughly 1.6 to 1.8 million could be a long time in coming, but adding new homes is essential to regaining some of the more than 2 million construction jobs lost since early 2006.

While excessive home inventory is plaguing some areas of the nation and driving prices down, housing starts are still an excellent sign, says Naroff. This is because any new homes being added now are being built where they are needed, and not in foreclosure-ridden cities like Las Vegas, Miami, and Phoenix. "The places that have also been harmed because there was no credit, fears, and everything else ... that's where we're starting to see construction start thriving; it's probably in those areas," says Naroff. "And that's good news."

Easing Prices (Sort Of)

The consumer price index decreased by 0.2 percent in June, suggesting that the cost of living in America dropped, and July's number is also not likely to show much price growth, says Adolfo Laurenti, deputy chief economist at Chicago-based financial services firm Mesirow Financial. "When economic conditions are weakening, and that's the case, that's what the Fed said in its statement after the [Federal Open Market Committee] meeting last week, usually you see prices slowing down," he says.

However, the CPI figure can also be deceiving, as it takes into account a wide basket of goods, including gasoline, which has fallen in price this summer, in determining an aggregate price level. "Gasoline is probably going to be the key factor there," says Naroff. "But that doesn't necessarily mean that things are easing off." Substantial drops in gasoline prices can obscure price increases in other areas, like food and transportation.

Indeed, inflation might not even be the primary threat right now, says Laurenti, who points out that the Federal Reserve has also stated that inflation might fall below optimum levels in coming quarters.