Explaining Southern California's economy

Your U.S. economy is sending mixed signals

Retailers Report Stronger Than Expected Earnings For Janurary

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Shoppers and pedestrians in New York City. Consumer confidence declined to Nov. 2011 levels in August, according to the Conference Board.

It's starting to look like housing prices in the U.S. are forming a bottom. The latest Case-Shiller index, which lags by several months much of the other data on housing cranked out by various sources, is showing an ascending price trend across the country. Month after month, prices have moved up (although not always improving on the previous month's positive movement). 

Importantly, this is price we're talking about, not sales. Sales are important — they provide a sense of how much demand is in the market — but unless you look at sales data over a number of months, you can get distracted by noise. Rising prices, on the other hand, signal that homes are gaining value as an asset. This is what anyone who's planning to buy or hoping to get out of being underwater on a mortgage wants to hear.

So, Case-Shiller is looking good. But consumer confidence is fading — it's at its lowest level since last November, according to data for August that was released today by the Conference Board.

Which economy are we living in? One in which the housing market is recovering? Or one in which consumers — who make up 70 percent of economic activity in the U.S. — are losing faith?

The answer is both. Underlying the weak August for consumer confidence is the sluggishly improving job market — unemployment in the U.S. is stuck above 8 percent and likely won't drop below that level this year — and tepid GDP growth of only about 2 percent. 

However, low interest rates (a function of the Federal Reserve trying to bolster economic activity) are making homebuying appealing, and in many parts of the country, there isn't enough supply to meet demand. This is a big problem in California. The result is rising prices, based on the simple law of supply and demand — as well as the extra juice that low rates are providing.

The lesson here is that economy isn't monolothic. It's a bunch of micro-parts that add up to a macro-whole. That's why economic news can be good and bad at the same time. And with America's economic fundamentals still in rough shape, contradictory indicators will be story for months to come.

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.

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