It’s only been a few weeks since optimism about the economy bloomed anew. But it’s not too early to rethink what was previously rethought. This is the golden age of revise, revisit, rework and rewrite in the realm of economic forecasting.
The latest batch of numbers lends fresh incentive to ask if the on-again-off-again growth story for the economy is off again. Let’s start with this morning’s news that January’s new housing starts fell 14% from December to a nine-year low. Next, the Federal Reserve yesterday announced that industrial production fell 0.5% last month from December. Zeroing in on the weakness, the accompanying press release noted that “output in the manufacturing sector declined 0.7 percent in January; about one-half of the decrease was a result of a drop of 6 percent in motor vehicles and parts.”
Adding to the fresh bout of gloom is yesterday’s update on the latest weekly jobless claims, which jumped to the highest since last November in the week through February 10.
Is it time to, then, for a new flip-flop to embrace the recession theory anew? “There was a general sense that housing had stabilized,” Amitabh Arora, head of U.S. interest-rate strategy at Lehman Brothers Inc., told Bloomberg News today. “This will cause some reassessment of that view.”

If we go back a few months, the gloom was much thicker about 2007’s prospects. A fair degree of that gloom lifted when December’s housing starts rebounded mildly from November, sending the message that the housing slump had passed.
With the benefit of another month’s data, it’s now looks like December’s bounce back was due in fair measure to an unusually mild wealth for December, or so David Resler, chief economist at Nomura Securities in New York advised this morning in a note to clients. “The weather may have been a factor in the January drop too,” he wrote, “especially in the West, which accounted for more than one-half of the drop and where an unusual combination of wet (in the North), cold (in California), and dry (also S. Cal.) may have impaired builders.”
Housing permits are less vulnerable to weather, Resler continued, but the trend there is down as well for January: single-family-home permits descended to levels last month not seen since 1997.
Resler and others believe that housing will continue to remain a force of contraction on the economy. Of course, few have been arguing otherwise. Rather, the argument that brought some sunshine was that housing wouldn’t implode after all. Yes, weakness was clear, but maybe the lion’s share of that weakness had passed.
If housing has indeed bottomed out, the economy would probably stay afloat in 2007. It’s worth noting that the economy expanded by 3.4% in real terms last year, up from 3.2% in 2005. Considering that housing suffered a potent, but so far not-devastating drop in 2006 makes last year’s 3.4% GDP jump all the more impressive. If you expect housing’s correction to slow (or deliver a bit of growth?) this year, and if the economy’s other cylinders (consumer, corporate) continue to roll along, the apocalypse may still be a ways off.
Hey, anything’s possible, but hope’s not dead yet. And if the U.S. economy ends up disappointing anyway, there’s always Paris, or Europe, to be more precise.