Housing Sales & GDP Reports

The headlines were filled with accounts of soaring home sales and strengthening recovery after the homes sales and GDP reports. For a moment, let's not question the integrity of the reported data but rather examine the importance of housing and the balance within GDP.

Spin suggests that a strong housing market is essential for a strong recovery. Residential fixed investment accounts for less than 5% of GDP on average since 1947. It's importance to the recovery is more a function of it's ability to support bad debt and encourage further debt-based consumption through leverage. Personal consumption as a percentage of GDP, however, is already above 71%. This is the highest reading since the consumption bubble started in 2000-2001. Furthermore, cash hoarding banks continue to show reluctance to lend. In other words, growth of GDP will likely have to come from other components.

PCE%GDP:
.

Gross domestic private investment, or investments in assets necessary to expand future GDP, continues to contract at an alarming rate.

GDPI%GDP:


Since trade deficit is structural problem, expect no long-term help without significant (re)investment.

NETX%GDP:


The solution, unfortunately, will be increased government spending and investment. History suggests that this solution will not provide a solid foundation for a sustainable recovery.

GCEI%GDP:


Source: http://finance.yahoo.com/news/November-home-sales-soar-74-apf-1426453664.html?x=0
Source: http://finance.yahoo.com/news/Recovery-likely-strengthening-apf-2679594626.html?x=0