"The American economy will recover even if the housing market doesn't."

[Clio the Leo]

Well now this is interesting....

The American economy will recover even if the housing market doesn't.
By Daniel Gross
Posted Wednesday, Jan. 6, 2010, at 5:27 PM ET

On Tuesday, the National Association of Realtors reported that pending home sales—an indicator of future sales activity—fell 16 percent in November, which was much worse than expected. That pitched the stock market lower and led analysts to express concerns that a new housing bust would snuff out the recovery. After all, housing—a massive asset class, a huge provider of employment and cash for spending—led us into the ditch in 2008. Without a housing recovery, sustainable growth seems difficult to imagine.
But there are two reasons the home-sales report shouldn't have been a big deal. First, housing is a highly seasonal business, so the most relevant statistic isn't the month-to-month trend (comparing November 2009 with October 2009) but the year-to-year trend (comparing November 2009 with November 2008). And in November 2009, pending home sales were 15.5 percent higher than they were in November 2008.

Here's the second reason: People! Wake up! It may be difficult to imagine, but we're going to have to have this recovery and expansion without housing. In fact, we already are.

<snip>

We've shown that we don't need housing to produce growth. The U.S. economy has staged an extremely dramatic turnaround, from contracting at an annual rate of 6.4 percent to growing at a 2.2 percent rate in the third quarter. Macroeconomic Advisers says fourth-quarter growth is tracking at a 4.9 percent annual rate. If that proves true, the economy's growth rate will have risen 11.3 percent in a nine-month period—an astonishing shift. And all this growth has occurred as house prices continued to fall and consumer lending declined. With apologies to Larry Kudlow, it's the greatest story never told!
What's driving this recovery? Ultra-low interest rates and government spending, yes. But also education and health care. And in recent months, sectors tethered to the global economy have come back: commodities, energy, and exports. Since April, exports have risen six straight months. Manufacturing is growing again, and business services are adding jobs. Instead of one big thing, it's a bunch of smaller things.

The continuing problems in housing have changed the way Americans consume, borrow, and invest. And that's all to the good. Instead of purchasing things with money borrowed via home equity loans, we're buying things with cash from earnings or savings. That may mean spending somewhat less, but spending somewhat smarter. Capital investment, instead of going into new housing and condo developments, is going into solar plants and retrofitting existing buildings. Growing without housing, and the cheap money it spun, may be harder. But it's not impossible.

http://www.slate.com/id/2240713/

I can vouch for that last one myself .... my customers are spending a bit less than they were two years ago, but they're spending a LOT more than they were a year ago ... and they're not doing it with credit.

It's certainly something to consider.

[rfranklin]

1. What type of business do you have?

would help to have some context.

[Clio the Leo]

3. It's retail, but it's not typical retail...

.... it's a bridal shop .... and even when the economy was at its worst, people still got married ('cause those babies just keep coming! lol)

What I've seen in the last two years are smaller wedding parties (fewer bridesmaids) .... more simple gowns for the brides ... and the BIG difference .... more at home weddings (as opposed to places you have to pay to rent.)

Two years ago, probably half of our customers used credit to pay for their merchandise .... I'd say that number is probably now 3 out of 10. Our layaways have increased however and we're now starting to see the $$ they're spending on the gowns and the number of bridesmaids go BACK up. .... December is typically our slowest month .... but I had the best December last month I've ever had in the 10 years I've worked there.

It was like our customers collectively exhaled. (Now, in our busiest month, they're working me to death and I'm pooped! lol)

Couple this with the good sales numbers the entire retail market saw last month .... the NIGHTMARE traffic I saw with my own eyes around the mall the last two months ... it's reassuring.

[rfranklin]

4. I am a wedding photographer and this year is the worst of 20 years...

I think the consumer's view of photography and digital imaging is a big part of the problem, but the inquiries and bookings fell off a cliff this year. I talk to catering halls and they have experienced a 40% drop in many cases.

[Robb]

2. Well, sure.

If jobs return, the overall economy can recover without any single sector coming back. Look at the data from the HAMP program -- despite the popular rhetoric against fix-n-flippers or other speculators, people struggling to modify their loans and keep their houses were overwhelmingly in that position because of a job loss/downsize/loss of hours.

We can do without about any one sector, if the others create enough jobs to make up for it. In the case of housing, that's a big space to fill.