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Gas Prices, Retail Sales Offer Economic Bright Spots

Filed by KOSU News in US News.
August 14, 2011

It may seem hard to believe after such a tumultuous week on Wall Street, but economists do see a few bright spots.

For one, Americans with good credit scores can get some of the best housing bargains in decades. Freddie Mac’s latest survey shows the average rate on 30-year, fixed-rate mortgages has dropped to 4.32 percent. That’s down to the half-century lows set during the fourth quarter of last year.

At the same time, home prices are even cheaper than last year. The S&P/Case-Shiller 20-city composite shows that over the past five years, nationwide housing prices are 46.5 percent lower. The combination of low mortgage rates and low real estate prices is making it possible for more people to be able to afford their first homes.

And those who already home owns — at least those with good credit scores — can refinance mortgages to reduce their monthly costs. With cheaper mortgages, consumers can spend more money on retail goods. And in fact, retail sales are strengthening.

Last week, the Commerce Department said retail sales rose 0.5 percent in July, registering the strongest gains since March. IHS Global Insight U.S. economist Chris Christopher said consumers bought more cars. The pace of buying was not blistering, but still, during such an uncertain time, “mild news is good news,” he said.

Also, another report last week showed first-time claims for state unemployment benefits fell by 7,000 during the first week of August, down to 395,000. That was a bit better than economists had been expecting.

Another silver lining involves the weaker dollar. When the U.S. currency is weak, U.S. manufacturers can compete more effectively with competitors in strong-currency countries.

Here’s just one example: For the past year, investors from all over the world have been rushing to buy Swiss francs because that country is fiscally sound. But as a result, the Swiss franc has become a super-strong currency.

That makes real Swiss cheese expensive in other countries, so their sales have dropped dramatically. That’s good news for American dairy farmers, who now have a competitive pricing advantage.

Perhaps the single best hope for the economy can be found in the drop in oil prices. This past spring, oil and gasoline prices shot up. Now with oil in a more reasonable price range – around $85 a barrel instead of $114 hit a few months ago – the economy is re-balancing itself. Cheaper oil is leading to cheaper gasoline for consumer in most regions of the country. So far, gas prices are down about few pennies a gallon, but may go lower this fall. Paying less at the pump could help consumers hang on to more of their money. [Copyright 2011 National Public Radio]

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