Oh, That Miserable Economy!
The strong data on jobs, growth, and even house prices belie the naysayers
To paraphrase Bob Dylan, you don't need a Wall Street economist to know which way the economy is blowing. For weeks, the experts have worked themselves into a cold sweat worrying about inflation, aftereffects of the killer hurricanes, oil prices, avian flu, and the prospect of the red-hot housing market turning white cold. Rest easy. Things are nowhere near as bad as the worrywarts would have you believe, if recent bountiful economic data are any indication. Indeed, firms add-ed a rock-solid 215,000 jobs in November, the government reported last week. And estimates of third-quarter growth of gross domes-tic product were revised up from a healthy 3.8 percent to a blistering 4.3 percent. Improved figures on residential housing, business in-vestment, and personal spending fueled the new number. So, what else is there to worry about?
GOLDEN TIMES FOR METALS
Gold, that favorite of inflation-phobes and doomsdayers everywhere, is on a roll, topping $500 an ounce, a level it last reached in 1987. The bullion bull market is 4 1/2 years old, which also coincides with a period of benign inflation and a recovering economy.
"Gold is a safe-haven hedge against global imbalances," like the trade deficit, a low savings rate, and high household debt levels, says Joe Foster, portfolio manager of the Van Eck International Investors Gold fund. Other metals are soaring, too--have you checked out platinum at $1,000 an ounce and counting? That's a 25-year high for the white metal; less-than-glitzy copper is also at record highs. "People are seeking some way of protecting their wealth in the event that some economic catastrophe does happen," says Foster. Ah, those doomsdayers.
But maybe there's another explanation. Growing wealth in regions of the world where consumers have long lusted after the metal--Asia and the Middle East, most prominently--is also bolstering gold's price. Also helping, perhaps, is a strong economy in America, where lovebirds still woo one another with fancy baubles.
FEWER HOMES SOLD, BUT AT HIGHER PRICES
Now here's something to really fret about. After all, you can sell the SUV if oil hits $100 a barrel or pawn the gold bracelet if you are laid off. But you still need a roof over your head, and lately it's been looking as if the roof may be springing a leak. Yet no sooner had the ink dried on the housing-boom-is-over stories when up popped a report showing a 13 percent jump in new-home sales in October. True, there was a slight 2.7 percent dip in sales of previously owned homes, and the supply of available houses rose to 4.9 months, from 4.3 months a year ago. As for prices, they are still rising: The median national price of an existing home is $218,000, 16.6 percent higher than a year ago. If there is still a dark cloud out there, it is that homes are becoming less affordable with the 30-year-fixed mortgage rate at 6.28 percent, more than a half percentage point above rates at the beginning of 2005. Add a rising price to a costlier loan, and home affordability is sinking like a rock. Maybe the gold bugs are on to something after all.
MORE PAYCHECKS AND RISING CONFIDENCE
Job growth in November proved strong, with big gains in construction and services. Even manufacturing, long the weak link in the U.S. economy, added a net 11,000 jobs, and monthly job growth returned to its pre-Hurricane Katrina trend, a sign of the economy's resilience. The unemployment rate remained unchanged at 5 percent, though wages are still growing slowly. All in all, it was a solid report that did little to rattle the inflation-obsessed on Wall Street. Indeed, the Dow Jones industrial average has been flirting with 11,000 in recent days. Still, says Joseph Ellis, author of Ahead of the Curve: A Commonsense Guide to Forecasting Business and Market Cycles, "the employment rate shows you where we've been, not where we're going." He looks instead at growth in consumer spending as the primary indicator of the economy's health. Unfortunately, the profligate consumer of the summer months seems to have disappeared, with spending up a meager 0.2 percent in October.
Consumer confidence, however, rose briskly in November, amid falling gas prices. Some investors say that augurs a healthy return to the mall this winter by consumers. Bet the first place you'll find them is in all those jewelry stores.
ROBUST GROWTH
Gross domestic product
[LABELS]
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0 pct.
2004
Q4
3.3%
2005
Q1
Q2
Q3
4.3%
Revised estimate
Source: Bureau of Economic Analysis
This story appears in the December 12, 2005 print edition of U.S. News & World Report.