Geopolitical Diary: In the U.S., the Recession Turns A Corner?

After experiencing the worst repeated month-on-month declines since the 1982 recession, U.S. housing starts jumped dramatically in February — up 22 percent at an annualized rate to 583,000 units, according to U.S. Commerce Department data released Tuesday. The current recession is a truly global phenomenon that has enervated economies the world over. It started in the U.S. housing sector, when subprime mortgages triggered speculative lending and buying, creating a massive bubble. When that bubble popped, the wave of pain quickly spread to other sectors in other countries. All of the economic inconsistencies that had been building up since the last recession were uncapped at once. But Tuesday’s announcement from the Commerce Department could mark a turning point in the recession. Pundits were unwilling to get too excited about the data, largely because most of the housing starts increase is due to an 82 percent uptick in townhouse and condo builds — relatively small constructions in absolute terms that tend to skew the figures higher. But the housing starts figure is a real one nonetheless. New work on traditional, single-family homes also climbed — albeit by a more modest 1.1 percent — and much more importantly, permits for future work increased by 3 percent. It is difficult to overstate the importance of this data. The U.S. housing market was Ground Zero not just for the subprime crisis, but for the financial crisis as well. There are not many people out there who can purchase a house without a mortgage loan, and there are even fewer subcontractors who can afford to work on an unpurchased house without some sort of financing. So when banks seized up in the final months of 2008, every part of the housing market seized up with them: Purchasing, inspections, realty, building and surveying all ground to a halt. Until now, apparently. Now, the sector most damaged by the recession is showing signs of life. Lending, the lifeblood of any modern economy, is bubbling in the very sector where one would expect to see the least activity. What has surprised us is the remarkable lack of excitement the housing starts figures have generated. Tuesday’s statistical release directly contradicts what has become the conventional wisdom — that the sky is falling — yet we have heard only murmurs from Wall Street. The markets had a good day, with the S&P 500 closing up an impressive 3.2 percent, but the housing data received neither credence nor credit. Both events — the turning of the housing stats and the fact that the news barely made a splash in the financial press –- are examples of classic recovery behavior. And we are not at all surprised that both developments happened in the United States. While the American subprime crisis certainly triggered the global recession, the core of the U.S. economy is in much better shape than the economies of Europe or Asia, all of which face much greater inconsistencies. We are hardly saying the recession is over. But a recommencement of lending is required for any positive progress, and that's exactly what seems to be happening now.