Read the writing on the wall, says Goldman Sachs top analyst Jan Hatzius in a recent note. The recovery sucks. Or, as he puts it, the recovery is “More ho-hum than ho-ho-ho.“
The latest data is coming in disappointingly weak. We’ve been hitting on this since the end of November (and we’ll soon update our gallery of ugly numbers with the latest housing and GDP data, which is what Hatzius homes in on).
The chart on the right notes that the weakness and downward revisions to GDP are being felt broadly, across all components of the number.
f there is a theme in the latest data on US economic
activity, it is this: the recovery that began at midyear
is turning out to be more sluggish than previously
thought. This is transparent in the latest revision to
third-quarter GDP. It is also suggested by various
reports on industrial activity, which emphasise the
narrow basis of the recent rebound and point to a
slowdown in coming months, and the latest data on
new home sales, which—in contrast with the surge in
turnover of existing homes—underscore impediments
posed to builders by the overhang of unoccupied units.
And on housing:
The Slide in New Home Sales Exposes a Risk
Meanwhile, the 11.3% drop in sales of new homes
reported for November, from a base that was revised
down nearly 7%, exposes downside risk to new home
construction, though not necessarily to fourth-quarter
activity. As shown in Exhibit 4, this sag contrasts
sharply with the surge in sales of existing homes.
In part, this divergence reflects the influence of the
$8,000 tax credit for new homebuyers provided by the
American Recovery and Reinvestment Act (ARRA).
Originally the credit was available only on sales that
closed by November 30. While this deadline has since
been extended, the anticipation of it would have
caused sales of new homes, which are reported as of
the signing of a contract, to peak earlier than
November, to provide time for the transactions to
close. In contrast, sales of existing homes, reported as
of the closing, would have continued to rise.
However, in our view the divergence also reflects a
more fundamental difference. In the case of existing
homes, owners are probably now selling units that had
previously been withheld from the market while prices
were falling. However, new home sales are ultimately
driven by net household formation, which is apt to
remain weak for quite a while. Moreover, those who
do become homeowners may be enticed to take some
of the unoccupied homes off the market at bargain
basement prices. If so, then new home sales will
languish, and builders will not get the signal to build
more. No wonder that the National Association of
Home Builders’ monthly survey of b