This may be a good week for R.E.M., as a lot of the people feel like it’s the end of the world as we know it. For liberals and Democrats, Tuesday’s elections will likely signal the end of control of the House of Representatives. For hard-money types and gold bugs, the prospect of further quantitative easing from the Fed on Wednesday betokens the further debasement of the currency.But three recent data points have a distinctly non-end-of-the-world flavour to them. And they speak to three trends that — beyond housing, beyond the foreclosure mess, beyond the big deficits — are slowly and quietly indicating an economy on the mend.
We may have entered the fifth year of the housing debacle, and there’s no end in site to the foreclosure mess. But that shouldn’t obscure the fact that credit quality, outside of housing, has improved dramatically. Low rates have allowed many consumers to refinance. Companies have aggressively cut costs and are having an easier time remaining current on lines. Usually I report bank failures on Friday afternoon. Since I didn’t get any FDIC alerts on my blackberry Friday night (some people’s weekends are less exciting than others), I assumed something must have gone wrong with the messaging system. But no, it was the case that no banks failed — as I confirmed Monday morning when I surfed over to the FDIC’s website .
Now, that’s only one failure-free week, and more banks will certainly go under. But as I’ve noted, the banks going tapioca today are smaller and less systematically important than those that failed over the past two years.
Second, the Commerce Department Monday morning issued data on income, savings, and consumer spending for September. The conventional wisdom has held as follows:
— Consumer spending accounts for 70 per cent of economic activity in the U.S.
— Consumer spending is fuelled by credit.
So long as people save and reduce credit — the rational response to the crisis and recession — consumer spending won’t rise and the economy won’t expand much. But the data flow over the past several months disprove these theses:
— Consumer spending has been rising, not at a boom-era pace, but rising nonetheless.
— Consumer debt has been falling, in large measure because of write-offs of bad credit issued in the boom years — but falling nonetheless. And the savings rate has remained elevated.
Monday’s report confirmed that trend is intact. Personal income fell slightly — because of a fall in unemployment and a decrease in salaries paid by governments. Salaries and wages paid by private companies actually rose. The savings rate remained high, at 5.3 per cent. Consumer spending rose (for the seventh-straight month), increasing by 0.2 per cent in September, while the August figure was revised upwards to 0.5 per cent. These aren’t the kind of figures that will send the hearts of retail executives aflutter, but they represent continued steady improvement.
Third came the October Institute for Supply Management’s report on manufacturing , which speaks more to the health of a long-stricken sector of the business economy. For the 15 th straight month, the sector grew. “With 14 of 18 industries reporting growth in October, manufacturing continues to outperform the other sectors of the economy,” ISM reported. The rate of growth accelerated in October. The internals of the release paint a picture of an engine with many pistons firing: Sales, new orders, production, employment, and exports are all moving in the right direction.
An absence of big trauma in the lending sector, a muted, sustainable increase in consumer spending, and continued growth in the manufacturing sector — boring stuff easily overshadowed by the more dramatic news coming out of Washington. And of course, this Friday’s jobs report could easily upset the applecart. But, at least for one day, the economic data has a distinct non-end-of-the-world air about it.