Thursday saw the release of several key reports on the economy: Existing home sales rose 6.8 percent, new jobless claims declined by 24,000, and the producer price index rose by a seasonally adjusted 0.7 percent in March. What's it all mean? Diane Swonk tells us. --Nelson Wang
Welcome Improvement in Home Sales Numbers
We've been waiting for home sales to improve after they collapsed at the beginning of the year and in the wake of the end of the previous first-time home buyer tax credit. These sales have been supported by everything from record-low mortgage rates to extensions to home-buyer tax credits, which are very important. We also saw some firming of prices as well, which is important because you can't get banks to underwrite mortgages until you actually see some firming of the underlying home values. So we're starting to see the situation stabilize and even see some signs of light out there.
That said, we're not through the woods yet. We still have a lot of foreclosed homes coming on the market. And a lot of inventory is still coming online, especially if people see the market firm a bit. So this is a two-step process and you'll see improvements in fits and starts. But it was a relief to see these sales come back.
Jobless claims decreased off of heightened levels the previous couple of weeks related to people going on spring break, but they are still higher than we'd like them to be. So again, it's a sort of good news, bad news story. But the numbers reinforce what we already know and that is that layoffs have abated. We also know a large number of new jobless claims are not coming from the newly unemployed, but from people who have run out of severance and who thought they'd have a job by now. We've yet to see any real traction in hiring, and that's the next step, but today's data is another sign that things are stabilizing.
Inflation Is Under Control
The Producer Price Index numbers were right in line with expectations. The biggest part of the increase actually came from consumer food, pretty much dry and fresh vegetables, which are a very small percentage of what we actually pay for food. A little bit of the increase came in energy prices. We're going to get higher energy prices; anybody who drives by a pump already knows that. That said, we've seen very little spillover from those increases in core inflation. In fact, all measures of core consumer inflation continue to show inflation decelerating rather than accelerating.
So even as we see commodity prices move up and raw food prices move up, we're not seeing that mean much for consumer purchases. The bottom line is that the inflation data continues to affirm the Fed's position that it needs to keep monetary policy accommodative, because we're just not seeing a pickup in inflation.
The Overall Takeaway
The recovery is well-rooted and we're starting to see it broaden a bit. That's very, very important, but we're far from running on all cylinders. We're going to see some unevenness, particularly as we wait for the job market to really pop. The good news is that we're not losing jobs like we were. So we're better than where we were a year ago but still, it's hard.
Diane Swonk, chief economist at Mesirow Financial, talks to CBS MoneyWatch twice a week about the day's top economic news and developments. Her responses are edited for clarity and length.