A housing recovery driven in part by investors hungry for real estate assets and tighter inventory levels is capturing headlines, but the underlying economy continues to show signs of sluggishness, according to new government data.
Employment numbers and gross domestic product figures for the first quarter show an economy that's relatively stable, but still lacking the gains needed for a long-term robust recovery.
Jobless claims for the week ending May 25 rose by 10,000 filings to 354,000 applications, the Labor Department said Thursday.
Analyzing data from late March until now, analysts with Econoday noted unemployment activity "looks flat."
Meanwhile, the overall economy is growing at a tepid pace. The government’s second-estimate for gross domestic product edged down to 2.4% from an earlier estimate of 2.5%.
"The biggest downward revision was to inventory investment which rose less than earlier estimated," Econoday said. "Modest downward revisions were seen for residential investment and government purchases. The Commerce Department made upward revisions to net exports (imports revised down more than exports revised down), PCEs, and nonresidential fixed investment."
While talk of a real estate recovery continues, Fitch Ratings also studied economic fundamentals this week and noted that rising home prices may be disguising the fact that potential homeowners are not recovering as fast as home prices.
"In many markets, fundamentals are improving as unemployment rates continue declining," Fitch said. Not to mention, low interest rates are making housing more affordable.
"However, especially in cities that never fully unwound the mid-2000s bubble, rapidly increasing price levels are a potential cause for concern," Fitch suggested.
Fitch cites California as one area with rapidly appreciating prices while economic fundamentals such as employment growth remain weak.