I know that I’ve already talked about the disappointing ISM manufacturing report for June, but I just can’t get over it! I’m pretty sure I’m not the only one worried. After all, many deemed the manufacturing sector as the engine that fueled the U.S. economic growth since the 2008 financial crisis.
So I did a little research about the economy and how its recovery could continue as manufacturing activity slows down. You’d be surprised to find out where the country’s glimmer of hope is coming from. Can you guess where?
The housing market.
Yup, you read that right. Analysts are saying that the housing sector could soon lead the U.S. recovery. If you don’t believe me, I don’t blame you. As I have said before, the 2008 crisis essentially started with the collapse of the U.S. housing market.
- The S&P Case-Shiller home price index rose for the first time this year in April by 1.3%. On an annualized basis, the index shows that property values in 20 cities are only down by 1.9% which is the smallest decline we’ve seen since November 2010.
- Housing starts also grew by 710,000 in May following the 740,000 increase we saw in April. Construction of residential homes has already gone a long way from the height of the recession when monthly figures came in around 480,000.
- New home sales also rose by 7.6% in May which hikes up the annualized figure to 369,000. The uptick matches the strong pace of growth seen in April 2010 when people rushed to take advantage of home buyer tax credit.
- The NAHB also reported that pending home sales rose to their 2-year highs. In May, sales rose by 5.9% from April 2012 and are up 13.3% from May 2011.
These figures are noteworthy since the housing market is reflective of economic health.
Although residential investments only modestly contribute to U.S. GDP (just 0.42% in Q1 2012), they do have a bigger impact on consumption which is said to be the main driver of economic growth. You see, when the housing sector is doing well and home prices are rising, there is more money for those who are looking to sell their houses. People who take out loans against their mortgages will also have more cash to spend or to begin businesses.
However, don’t get ahead of yourself and bet all your Apple gadgets that we’ll see a more robust recovery because of these developments in the housing sector. Keep in mind that unlike the manufacturing sector which almost immediately picked up after the crash in 2008, the housing market has been virtually stagnant in the past four years. And so, a rebound is bound to happen.
The recent housing figures are definitely encouraging. However, as with any other economy, the U.S. recovery can’t depend on just one sector. We’d have to see other industries pick up the slack too.