Economic Update – The Week Starts with Some Good News

Is that the glimmer of good economic news ahead, or just a mirage? Time will tell, but for the moment it’s good to know that the pending home sales index rose 3.2 percent in March when compared with February, and 1.1 percent when compared with the same month a year ago, according to the National Association of Realtors. Not only that, the U.S Department of Commerce reported that construction outlays rose 0.3 percent in March compared with February, an uptick no one was expecting. The largest gain was in nonresidential construction, which scored a 2.7 percent increase. Public works was up 1.1 percent, probably reflecting the beginning influx of federal stimulus money. Residential construction continues to decline, down 4.2 percent in March, though even that has a silver lining–there’s still a lot of housing inventory to burn off, after all. Late last week, the Federal Reserve said that the Term Asset-Backed Securities Loan Facility, now $200 billion in size but possibly to balloon a lot larger, will be opened starting next month to CMBS issued in 2009. “The inclusion of CMBS as eligible collateral for TALF loans will help prevent defaults on economically viable commercial properties, increase the capacity of current holders of maturing mortgages to make additional loans, and facilitate the sale of distressed properties,” the Fed noted in a statement. Also from June, TALF loans with maturities of five years will be available for CMBS, up from the current three-year maturity, a change that the commercial real estate industry has been lobbying for. “The five-year term is critical to the success of TALF, given the dynamics of commercial real estate mortgage loan structures and the capital costs of investing in these CMBS assets,” noted Real Estate Roundtable president & CEO Jeffrey DeBoer in his own statement. All well and good, but will TALF be expanded to cover older (and/or weaker) CMBS? Eventually, but the Fed hasn’t specified yet when that’s going to happen.Do all these items and more (such as increased manufacturing in China) add up to good economic news? Investors thought so on Monday, driving the equity indices up to levels not seen since the beginning of 2009, back when Wall Street was sliding down a giant razor blade into a vat of rubbing alcohol. The Dow Jones Industrial Average jumped 214.33 points, or 2.61 percent. The S&P 500 did even better, gaining 3.39 percent, while the Nasdaq was up 2.58 percent.