Last week: Why is the U.S. economy growing so slowly? The economy is slow because demand is weak against a backdrop of fundamental rebalancing or readjusting. Slow wage and job growth put a lid on consumption growth, despite heavy discounting. In turn, weakness in the consumer market signals to business that there is no rush to commit funds – nearly a trillion dollars by some measures – to new capital spending. This is not to say that consumers or business executives are idle. Consumers are busy paying down debt and building up savings. Business is planning for the kind of markets the economy is transitioning to, eventually. And all of this is occurring with little new help from monetary or fiscal policy. The result is a slow economy. And as The Conference Board Leading Economic Index® for the U.S. pointed to last week, it will be a while before there is any significant change.

THE SITUATION ABROAD

The global economy has some hot spots, like China and Brazil, but is generally lukewarm. World trade increased by 1.5 percent in August after declining by 1 percent in July. Trade and finance are the links in the system — allowing sources of strength to offset weaknesses elsewhere, in turn allowing the whole system to develop forward momentum. Right now, the opposite seems to be setting in. The Leading Economic Indexes across the globe (though generally for developed economies) are pointing to continued but relatively slow (but not slowing) growth. This is the kind of environment that has the potential to exacerbate tensions in terms of currency disputes and trade imbalances. And those leading indicators suggest none of it will be going away over at least the next few months.

FACT OF THE WEEK I

104,099. There are over 300 million Americans but a little more than 100,000 are 100 years of age or older in 2010. What is astounding is that there were only 38,300 centenarians in 1990. A tripling in the much older population is simply amazing. It makes one wonder how many will be of that advanced age 20 years from now.

FACT OF THE WEEK II

150.9 million. That is how many Americans reported wage income in 2009. Four years earlier, 151.6 million reported wages. Not only did fewer report wages, but the average wage was $243 lower in 2009 than in 2005.

QUESTION OF THE WEEK

When can we expect the real estate market to begin recovery?

The housing market has been bumping along the bottom for some time. Home building and buying has remained in a relatively tight pattern for much of 2010, with mortgage rates at all-time lows and applications for mortgages in a holding pattern.

Low borrowing rates and a significant multi-year decline in prices have boosted affordability. But the biggest positive in this market is the demographic trend. Those who might have normally bought a home over the past few years are still renting or living with relatives. There is one big negative factor that is essentially keeping renters and potential buyers from moving into new homes – the very weak state of the labor market. Households without jobs and those worried about losing jobs are not in a position to sign a mortgage agreement, nor are banks in a position to lend to them.

That’s not the whole story. Commercial real estate has also been very weak, with few signs of strengthening. The big difference between these two halves of the real estate market is that the residential side tends to move before the overall economy moves. The commercial side cannot perform that way, in part because many properties are tied to long-term leases. Businesses are also more likely to increase their investment in equipment and in their workforce before deciding to invest in structures.

The good news is that neither side of real estate is still in decline. Further, both will start to improve once the overall economic environment brightens. It helps that interest rates are at historical lows. It doesn’t help, however, that financial companies (whether lending to residential or commercial borrowers) are still in the process of writing off loans that won’t ever be paid back. In other words, the second important factor is an end to foreclosures. And that probably means that it could take another year before the real estate market develops any momentum.