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Reuters/Mike Blake
Dark days are a distant memory for Home Depot.
WEALTH EFFECTS

Some unabashedly positive news about the US economy

By Matt Phillips

Houses and cars.

Houses and cars.

Houses and cars.

In the heavily consumption-driven US economy, you can get a fair sense of how things are going by simply looking at houses and cars.

And things look good. Pushed along by easy credit in the auto-loan market, US car sales notched a record year in 2015. They continue to look strong in 2016, though slightly off the record pace.

Meanwhile, giant US home-improvement retailer Home Depot reported another good quarter this week, citing strength in sales of appliances, tools, building materials, lumber, lighting, and decor. In short, American homeowners are spiffing up the place.

And there’s a very simple reason why, according to Home Depot executives. Levels of equity among homeowners are rising thanks to improving real estate values and declining levels of debt. In other words, the investment value of homeownership seems to be rising.

“There’s a wealth effect that’s occurring with homeowners,” Home Depot CFO Carol Tomé told analysts on the company’s post-earnings conference call. “And this wealth effect, as we’ve talked at length, [is] if you feel like your home is an investment and not an expense, you spend differently in your home, and you can see that in our big-ticket categories.”

For the record, Home Depot’s main rival, Lowe’s, also enjoyed an excellent first quarter, confirming the spending strength of US homeowners. ”We’re seeing continued improvement in the job market, we’re seeing continual improvement in wages, we’re seeing continued improvement in home values,” Lowe’s CEO Robert Niblock told analysts. “It’s driving continued improvement in their intentions for discretionary spending.”

Now, if corporations would take a cue from homeowners and do a bit of investing of their own, the US economy would really have some momentum going for it.