Housing Isn't the Whole Story

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I see it all the time: the too-common error of focusing on housing–you might have heard the sector's been a bit dodgy of late–to the seeming exclusion of virtually all other economic factors. The foolishness of that myopic mistake was once again illustrated by today's solid durable-goods report for March. Orders for "core" nondefense capital goods (excluding aircraft) jumped by 4.7 percent, and that strength helps alleviate fears that, in the words of Global Insight economist Brian Bethune, "business investment was on the cusp of spiraling downwards." One reason businesses can afford to invest is that earnings continue to surprise. But that shouldn't be surprising at all, given the strength of the global economy, which the International Monetary Fund predicts should grow about 5 percent again this year. And that growth is helping U.S. exports. They were up 13 percent last year, and the ISM export index rose 1.5 percentage points in March to its highest level since November. One more nugget from Bethune:

"Corporations reported good earnings momentum in the first quarter of 2007, aided by strong overseas sales and currency translation gains from a lower U.S. dollar. The strength of demand that we are seeing in several major regions around the world–including Europe, Africa/Middle East, and Asia–should contribute to solid earnings momentum in 2007 for many U.S. companies, notwithstanding the slowdown in domestic spending."

Not only does the booming global economy get ignored but so does the wealth effect from the stock market–to the tune of nearly $2 trillion in new wealth over the past year. That has helped offset losses from the housing market. The record-setting Dow has hovered around 13,000 today, and the S&P 500 is also nearing a record high. A booming global economy, an equity market wafting higher, and fatter personal incomes (up at a 5 percent annual rate over the past six months)–all fantastic news. Housing is an important thing–but not the only thing.

global economy

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