NEW YORK (TheStreet) -- The mainstream business media continue to worry about a faltering economy, most notably of late, a fixation on the fear of a poor retail holiday shopping season. This makes one yearn for those good old days of a vibrant economy, like what we had in 2005-06. But wait! Except for the construction of new housing units and some problems measuring aggregate demand, the underlying data indicate that the good old days are back.
The top portion of the accompanying table shows various economic indicators for the three months ending in November, and it shows the average values of those same indicators during the 18 months of the pre-recession boom period ending June 30, 2006. The bottom part of the table is similar, but shows quarterly data.
Manufacturing and Trade
A quick perusal of the table shows that many of the economic indicators show up as strong or stronger than they were during the boom period. The ISM Manufacturing Index, for example, is nearly three points higher than the average of the previous boom. Industrial production is higher and capacity utilization is close. Freight car loadings are significantly higher. And while ISM's Non-Manufacturing Index isn't quite as hot as it was then, it still shows strong expansion. Elsewhere in the table, you can see that auto sales are nearly as frothy today as they were during the boom years.
Part of the reason that the economy is not overheating is housing. It is clear from the table that housing is significantly lagging 2005-06. The latest data, from August, show that current starts are about 43% of the 18-month average in 2005-06. But recognize that 2005-06 was the height of the housing bubble. Because new home construction has been in the doldrums for the past six years, the resurgence evident in the economy has pushed the median price of a new home north of what it was then. In addition, the lack of construction has put the months' supply of new homes at less than three. In the housing bubble, the average level of supply was four months. So, given prices and supply, can a rise in starts be far behind? (Yes, I know, interest rates have risen, but they are still really low by historic standards, and we seem to have a Fed committed to keeping them down.)