Will there be a second round of recession in the USA?
http://www.bbc.co.uk/news/business-11086944
“Housing starts” indicate the health of any economy. “Housing starts” simply means the number of new houses built in a calendar year. If not housing starts, then one could even look at “new home sales” as an indicator of the well-being of an economy.
There are various other classical economic indicators to show the health of an economy like good monsoons, agricultural production, automobile and engineering production, development of infrastructure facilities, etc. “Housing starts” and “new home sales” are a rather easy, but non-classical, way to estimate whether an economy is doing well or not.
The article in question – “US new home sales in sharp fall” takes the data of just one month of July 2010 and “annualizes” the rate of “new home sales”. The annualized rate comes to a very low 12.4%. However, annualizing a month’s data for a whole year is wrong as per classical economic theory. This is fallacious logic by the US Commerce Department. How is it possible to say that July “new home sales” is an indicator of new home sales throughout the year? The new home sales market may boom when Christmas comes and employees across the country get promotions and bonuses / perquisites. It is a totally unfounded fear that there will be a second round of recession in the US based on July 2010 new home sales. The US Commerce Department should spread positive messages to the public by looking at all the other aspects / sectors of the economy, rather than spreading panic based on an insufficient data sample for a long range prediction.
Economists in New York based securities companies will instantly change their outlook about the economy if there is one good month unlike July 2010. Such economists who do not take a classical, holistic view of the US economy are not to be believed when it comes to long term economic predictions.
Though unbiased, even the National Association of Realtors may be wrong. If there is a good monsoon, good agricultural and engineering production before Christmas, all these predictions of a second recession could well be rubbished, despite the panick-stricken scramble for the best price for gold Jewellery. Even unemployment and hiring in the private sector could grow with good export orientation.
Annualized rates should always be viewed with a pinch of salt. It may be more prudent to compare growth in the month of July 2010 to growth in the month of July 2009 and July 2008. When such classical economic analysis is done and not short range annualized analysis within a particular year, fears are easily allayed.
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