Economic News Makes for a Mixed Forecast

News today from the Commerce Department that consumer spending barely increased last month–and, if you consider inflation, didn’t at all–along with a higher amount of unemployment claims doesn’t indicate our economy is doing all that well.

And yet, some signs exist that the worst of the current growth problems may be over:

• Wall Street Feels Good. CNNMoney.com reported this week that real estate developer- and operation-related stocks have risen from recent low points. (They also rose in the past two days based on the anticipation and announcement of the most recent Fed rate cut.)

• The Stimulus Plan Offers Hope to Some Organizations. The House approved President Bush’s stimulus plan Tuesday; the Senate may do so by the end of the week–a move the National Association of Realtors says will start turning the current housing situation around. The NAR isn’t so focused on the money Americans are set to receive as part of the plan to increase consumer spending; but the plan’s stipulation to increase Fannie Mae and Freddie Mac’s loan limits has the NAR excited. An economic impact study conducted by the real estate agents’ organization this month said the new government-sponsored enterprise limits could result in as many as 500,000 refinanced loans and help prevent 210,000 foreclosures.

And yet, of course, signs also indicate that we haven’t seen the last of the housing decline, economic troubles or recession talk:

• GSEs May Not Be Able to Save the Day. As the Seattle Post-Intelligencer points out, Freddie Mac and Fannie Mae getting larger limits may not have the effect the government hopes: Freddie Mac recently announced a $5.5 billion loss over the next two years related to bad loans, and both have debts or guarantees of about $5 trillion that have been leveraged without much cash. So will giving them the OK to finance larger loans really help much?

• The Unemployment Rate Rose. Recent Labor Department data showed unemployment hit a 27-month high last week; however, it should be noted that adjusting for the Martin Luther King Jr. Day holiday may have thrown those numbers off, according to Bloomberg. (Things may become clearer tomorrow when the Labor Department releases its monthly report.)

• People Stopped Spending. After much speculation, the numbers are in: Consumer spending was less than spectacular during the holiday season. Sales at retailers during the typically golden holiday season increased a paltry 2.2 percent–the smallest rise in five years, the International Council of Shopping
  Centers said. It also appears the rising amount of personal debt–and economic fear–is taking its toll. Profit at the third-largest U.S. credit card company, American Express Co., sunk 9.9 percent after the company set aside more funds for customer defaults.

And that all leaves us … just as unsure as we were last week about when the economic downturn will end and what damage it will do.

However, one thing is certain: We’re likely to receive mixed reports and conflicting data for several weeks, if not months, until the economic situation visibly–and vastly–improves.

What will that one, clear sign of economic turnaround be? We’re not sure–but we’ll be looking for it.