Housing Economics - 10/19/2010 (Plain Text Version)

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In this issue:
SINGLE-FAMILY HOUSING STARTS RISE 4.4 PERCENT IN SEPTEMBER
The National Outlook - September 2010
Housing Market Statistics
Characteristics of Single-Family Homes Started in 2009

The National Outlook - September 2010

Highlights

The Business Cycle Dating Committee of the National Bureau of Economic Research announced that the Great Recession came to an end in June 2009. The 18-month recession was the longest and deepest since the Great Depression of the 1930’s.
The economy hit a “soft patch” in the second and third quarters of this year, with GDP growth slipping well below trend and the unemployment rate close to the cyclical high of last year. Our forecast is for a sluggish recovery in early 2011 (we’ve trimmed our estimates for the end of 2010 and beginning of 2011), followed by above-trend growth in GDP (around 3.4%) late next year and in 2012, and a steady reduction in the unemployment rate.
The recent slowdown has shown up clearly in the labor market. Private payroll employment has been rising since the end of 2009, but the average monthly gain through August is only 95 thousand. The civilian unemployment rate, at 9.6% in August, is down by only half a percentage point from the cyclical high last October.
Our forecast for weak but improving GDP growth implies accumulating gains in payroll employment and a gradually declining unemployment rate. We expect the unemployment rate to hang around 9.6% through the end of the year, but to move steadily down to 8.4% by the final quarter of 2012, still uncomfortably above the “natural” rate of roughly 5%.
The Great Recession and slow recovery have kept downward pressure on key measures inflation in the U.S. economy, as well as unit labor costs and long-term inflation expectations. These factors have already created a disinflationary environment, and outright deflation, while improbable, is now on the radar screen.
The Federal Reserve held monetary policy steady at the September 21 FOMC meeting, maintaining the 0.0 to 0.25% target range for the federal funds rate, committing to exceptionally low levels of the funds rate for an extended period, and to reinvesting principal payments from housing agency debt and MBS in longer-term Treasury securities, maintaining the overall size of its balance sheet.
The FOMC expressed deepening concern about a rate of inflation below that consistent with price stability, acknowledging the possibility of a second round of quantitative easing (QEII). This option remains a possibility, exercised in response to unexpected weakness in economic activity, rather than an eventuality.

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