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Naroff: Aside From Energy Industry, the Economy 'Doing Just Fine'

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By    |   Wednesday, 16 Dec 2015 10:32 AM

  • INDICATOR: November Housing Starts and Industrial Production
  • KEY DATA: Starts: +10.5%; Permits: +11%/ IP: -0.6%; Manufacturing: 0.0%
  • IN A NUTSHELL:  “Except for the energy sector, the economy seems to be doing just fine.”

WHAT IT MEANS:  The Fed is starting to raise rates and if you think that the economy cannot handle it, well you are wrong.  Economic growth is just fine.  OK, maybe it is not spectacular, but it is also hardly just bumping along the bottom as so many would like us to believe.  Take the housing market.  Starts rose sharply in November.  Yes, mild weather probably helped, but construction activity has been up and down this year.  Still, for the first eleven months of the year compared to the same period in 2014, home construction is up 11%.  That is pretty good.  The November surge was driven by a rebound in the South.  For some unknown reason, housing starts fell sharply in that part of the country in October.  They got back to more normal levels in November.  There was a solid increase in the West and no change in the Midwest.  As for the Northeast, the sharp decline should be viewed as more of the same.  In the past year, starts in that region have ranged from a low of 46,000 units annualized in the brutal February weather to a high of 223,000 units annualized in June. As I said, the data have been volatile.  Looking forward, the surge in permit requests points to even stronger activity in the months ahead.  For the past two months, permits increased about 10% faster than starts and we know that builders are not paying good money for permits just for the fun of it.

As for the industrial component of the economy, production cratered in November.  But that is just the top line number.  The details are not nearly as dismal.  Utility output was off a staggering 4.3% as the unseasonably warm weather led to lowered heating needs.  Add that to the continued slowdown in the energy sector and bingo, output dropped sharply.  The flat manufacturing number was also somewhat misleading.  While vehicle sales are near record levels, assembly rates actually declined last month.  I don’t think we need to worry too much about that sector.  There was also a major drop in the electrical equipment and appliances, but that came after a much larger jump in October.  In other words, manufacturing may not be soaring along, but it is moving forward. 

MARKETS AND FED POLICY IMPLICATIONS: Nothing in these reports should worry the FOMC members as they begin the process of raising rates.  We know the economy is not a rocket ship, but it is growing above trend and that is all that that should matter.  What fascinates me most is those who think a quarter-point increase will have a major effect on the economy.  Indeed, if that small a rise does do harm, then the economy is in worse shape than anyone thinks.  And I am also amazed that people think this is a one and done process.  Once again, if all the economy can withstand is one small move, then the better part of valor is to do nothing.  In other words, rates are going up and the discussion, finally, should turn toward how fast they will rise and what level the FOMC will eventually stop raising them. 

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm. To read more of his blogs, CLICK HERE NOW.

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JoelNaroff
Except for the energy sector, the economy seems to be doing just fine.
economy, energy, invest, growth
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2015-32-16
Wednesday, 16 Dec 2015 10:32 AM
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