US economic revival continues

Friday's economic reports, on balance, support the view that the United States economic recovery remains on track.

The Economic Cycle Research Institute reported that its US weekly leading index rose to 133.0 for the week ended 16 April, the highest level in almost two years, from 131.3 the week before. The index's annualised growth rate fell to 12.5 percent from 12.6 percent a week earlier.

Despite the dip in the growth rate of the index, the ECRI's managing director Lakshman Achuthan said that "the economic revival will continue in the months ahead".

The Commerce Department reported that new home sales surged 26.9 percent in March to an annual pace of 411,000, rebounding from the record low of 324,000 in February. While the jump looks impressive, it was mostly attributed to a rush to qualify for the government's tax credit for first-time homebuyers as well as improved weather. The improvement in sales is unlikely to be sustainable beyond the next few months.

Nevertheless, looking through the distortions in monthly sales data created by the tax credit, it does look like the housing market has probably stabilised.

The Commerce Department's report on durable goods orders were mixed. Total orders fell 1.3 percent in March. The decline was mostly due to a 67-percent plunge in demand for commercial aircraft.

The underlying trend in durable goods orders is probably still positive though as orders excluding transportation rose 2.8 percent.

The accompanying chart shows that the outlook for the economy is positive. With new home sales no longer a drag on the economy and durable goods orders showing a positive trend, there is little risk of a return to recession in the near future. Note that the chart assumes that the last recession ended at the end of the second quarter of 2009.