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If The Economic News Is Good, Then Why Are Many Uneasy?

Source: LA Times

The economy seems to be humming along nicely. GDP rose by 4.8%, up from last quarter [LA Times] [1] so whats the problem?

Source: WSJ

Wages did not show the same improvement [WSJ] [2], which was not anticipated by economists. Unemployment has fallen and with that, there is usually the expectation that workers are in a better position to negotiate their wages . Despite the robust economic growth, a separate Labor Department report showed that compensation costs for employers rose only 0.6% in the first quarter — the slowest quarterly gain in nearly seven years — following a 0.8% gain in the fourth quarter.

Yet unemployment filings showed a modest increase [Ch Trib] [3] still suggesting employment is gaining.

Mortgage volume is dropping sharply as mortgage rates continue to rise [Detroit News] [4] – almost a half percent for fixed rates since the beginning of the year.

At the same time, an improving labor market and long-term interest rates that are still close to historic lows will limit the slowdown in housing, economists said. “As long as (those) two very important pillars of the housing market remain in place, housing will do fine,” Bob Walters, chief economist at Livonia, Mich.-based Quicken Loans Inc., said. Job growth “is providing a foundation for the housing market.”

A softening housing market and rising energy costs [Boston Globe] [5] While the consumer has been driving the economy for years, businesses are now kicking in full throttle. This is what I think the Fed has been hoping for. The economic baton would be passed from consumer to business.

However, if housing prices cool too quickly, consumers could reign in spending. In addition, energy costs could trigger inflation, causing the Fed to raise rates again. Lower consumer spending, coupled with higher borrowing costs [6] could stall the economy. A stalled economy spells further weakness in the housing market.

See what I mean?