Forecasting index surges to solid gain New statistics suggest recession may be ending


WASHINGTON -- On Good Friday, the government provided fresh evidence that America's recession appears to be ending.

New-home sales surged in February to their biggest monthly gain in almost five years, the Commerce Department reported. Meanwhile, the government's index of leading economic indicators reversed seven months of sinking numbers to post a solid 1.1 percent gain for the month.

"It looks as though we're coming out of recession," said Joel Popkin, president of Joel Popkin & Co. consultants in Washington. "These [reports] add to a growing list of indicators that we seem to be bottoming out and turning around right now."

Other analysts were more cautious.

"The sharp rise in the leading indicators may represent a 'false positive' reading," said Gordon Richards of the National Association of Manufacturers. Citing other less-cheery recent data, such as weak car sales, Mr. Richards said that "it would be premature to forecast an early end to the recession."

New-home sales registered a 16.2 percent increase in February, the first upturn since November and the biggest since March 1986. Sales rose above January's pace in every region of the country, led by a record 70.3 percent surge in the Midwest. Sales of existing homes also jumped in February by 7.9 percent, the government reported earlier this week.

However, last month's surge in home sales may be less robust than it first appears, analysts cautioned, because the one-month rebound is measured against January's unusually weak

performance, when Persian Gulf war anxieties threw the whole economy into a stall.

Midwest new-home sales soared from only 64,000 in January to 109,000 in February, for example. But "average those two and you get 86,000, and that's pretty close to the 84,000 [home sales] the Midwest had in December," noted Mark Obrinsky, senior economist for the Federal National Mortgage Corp.

"When the December numbers came out, we thought they were pretty bad. Now that we are back to December levels, let's not get carried away," Mr. Obrinsky said.

February's sales were still 23 percent below February 1990 levels. Even so, Mr. Obrinsky expects the housing recovery to firm up gradually by the second half of 1990.

Harley Rouda, president of HER Realtors, a medium-size firm in Columbus, Ohio, thinks such caution is ill-founded; he's convinced that "happy days are here again. I wish I could sing it."

Mr. Rouda, who is president of the National Association of Realtors, insists that "across the country, real estate is absolutely exploding."

L His business exemplifies the Midwest's great February surge.

"In January we sold $25 million worth of homes. Way down from a year ago. It was the war. People spent more time looking at the war on TV than they did looking at houses or anything else," Mr. Rouda said.

"In February, we sold $45 million, which is as good a February as we'll ever have. And projections now for March will be $50 million or $55 million, which is great for us. Unbelievable," Mr. Rouda said.

Several key economic factors suggest the trend should continue. Interest rates remain relatively low even though 30-year fixed-rate mortgages have edged up since mid-February -- to 9.6 percent last week from 9.25 percent six weeks before. Also, many sellers have lowered their asking prices, enabling even many first-time buyers to enter the market,Mr. Rouda said.

"But probably most important -- [consumers] have confidence in themselves and in the economy," he said.

But that may not be enough to end the recession soon, said Allen Sinai, chief economist for Boston Company Economic Advisors Inc.

"There's a lot of pent-up demand for houses. It's a buyers' market on prices and on interest rates. We may be seeing a rush to buy houses while the getting is good," he said. "If that's the case, the rush would not continue."

The rush never started for car sales, which declined 11 percent during middle March, measured against last year. Auto sales may be sluggish because, unlike houses, car prices have not been cut to lure buyers. Car manufacturers abandoned discounts this year to maintain profit margins. Car prices actually rose in the last two months as sales declined, Mr. Sinai noted.

As for the big jump in February's index of leading indicators, soaring stock prices and consumer-confidence polls caused three-fourths of the gain. Both phenomena could be unsustainable reflections of America's euphoria over victory in war, Mr. Sinai said.

In addition, unemployment remains worrisomely high at 6.5 percent and apparently rising, while consumer income levels have not risen much in recent years and remain under debt pressure.

So despite the positive indicators suggesting the recession will end soon, "I guess I remain skeptical . . . I need more data to have it proved to me," Mr. Sinai said.

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad