Stats of the Day
Quarterly Home Prices Report — Appreciation kept chugging along at double-digit rates, as the PDF from the Office of Federal Housing Oversight and the graphic below extracted from that report indicate:
Others, from this AP report:
The Commerce Department reported Wednesday that personal spending shot up by 0.9 percent, the strongest gain in six months, while incomes rose by a solid 0.7 percent.
But in a separate report, the department said that construction spending rose by a tiny 0.2 percent in January, the weakest gain in seven months and far below the 1 percent increase Wall Street had been expecting.
The Institute for Supply Management said its closely followed index of manufacturing activity stood at 56.7 in February. That was a better-than-expected improvement from a January reading of 54.8 and signaled that manufacturing should contribute to economic growth in the first quarter.
For all of 2005, the savings rate registered a negative 0.4 percent, the first time the savings rate has been in negative territory for an entire year since the Depression years of 1932 and 1933.
All in all, not a bad mix, except for that pesky (non-)savings rate.
The negative savings rate, which does take into account retirement savings in 401(k)s and IRAs (discussed and confirmed in the comments at this previous post — especially see my Comment #4), means that the country collectively is engaging in significantly negative savings in the rest of its personal finances. At the individual and family level, this is “semi”-defensible if, as a homeowner, you believe that house-price appreciation (which is NOT considered in the savings rate) and other forms investment (stocks, etc., which are also NOT considered in the savings rate) will roll along at high rates. But if you believe that, you need to recognize that you’re taking a very big risk that steady economic growth will continue. In some overheated metro area housing markets, even steady economic growth might not be enough to prevent a decline in home values and a corresponding decline in the ability to borrow.
