Gasoline is cheaper than it was before Hurricane Katrina slammed into New Orleans. Consumer confidence jumped last month, and new-home sales hit a record. The stock market has been rising. Even the nation’s beleaguered factories appear to be headed for a happy holiday season.
By most measures, the economy appears to be doing just fine. No, scratch that – it appears to be booming.
But as always with the U.S. economy, it is not quite that simple.
Consumer confidence is bouncing back from some of its worst readings in years.
Gasoline prices – the national average is now $2.15 for a gallon of regular unleaded, according to the Energy Information Administration – have fallen because higher prices tamped down demand and supplies in the Gulf Coast have been slowly restored.
The latest read on home sales, released Tuesday, contradicts virtually every other recent measure of housing activity that generally indicates a slowdown.
And yes, manufacturers’ fortunes are on the mend, but few besides airplane makers are celebrating.
It all means that the economy is likely to end the year with a splash, but that does not mean the broad economic picture next year will be even better.
Indeed, the Organization of Economic Co-operation and Development on Tuesday said the U.S. economy is likely to repeat 2005. The OECD projected that 2005 growth will settle at 3.6 percent, down from 4.2 percent in 2004.
The OECD also forecast 2006 growth at 3.5 percent, but other economists think that may be too optimistic.
Now investors, whose stock buying had been fueling an end-of-year rally, fear that the latest positive figures will lead the Federal Reserve to take the punch bowl away by raising interest rates more than most analysts expected just a few weeks ago.
In turn, that could further slow the housing market, dampen consumer spending and crimp corporate profits.
“The two major concerns are the extent of slowdown in housing and how it can feed into growth and consumer spending,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a research firm in New York.
Many analysts, including Shapiro, believe a housing slowdown is already underway.
Along with rising interest rates and anemic job growth, any such drop-off could sap the economy next year. By just how much is still subject to debate.
Americans have taken advantage of historically low mortgage rates to buy homes, refinance existing loans and borrow money for renovations or other household needs, all of which have been an important and substantial boost to spending, Shapiro said.
Even a modest tapering off could knock growth down a peg or two.
Shapiro says growth could drop to 3.2 percent in 2006.
The average interest rate on a 30-year, fixed-rate mortgage was 6.28 percent last week.
The Commerce Department said Tuesday that new-home sales jumped 13 percent in October, to a record annual pace of 1.42 million.
But that contradicted earlier data that show existing-home sales slowing, construction activity easing, falling mortgage applications and declining confidence among homebuilders.
“I basically have a wait-and- see attitude with some healthy suspicion about this report,” said David Seiders, chief economist at the National Association of Home Builders. “Either there is something that all of those other reports are not telling us, or this will get revised.”