Economist's Commentary: October 16, 2008

Quick Take on the Economy: October 16, 2008

By George Ratiu, Research Economist

Mortgages rates have been rising notably this week.
The government guarantee of certain bank bonds is pulling investors into this area and out of Fannie/Freddie bonds.

The number of people filing for unemployment checks for the first time fell by 16,000 last week, but remains elevated at 461,000. Hurricane Ike in Texas is estimated to be responsible for about 12,000 claims from the total.
The total receiving checks, including continuing claimants, is now 3.71 million. This is in contrast to a year ago, when this figure was 2.55 million.
The high number of first-time filers and continuing recipients points to contraction in economic activity.

Industrial Production decreased 2.8 percent in September, a large drop driven by hurricanes Gustav and Ike. Other economic factors contributing to the decline were mining and business equipment outputs, which decreased by 7.8 percent and 7.0 percent, respectively.
On a yearly basis, production declined by 4.5 percent. We are in a recession.
Industrial Production for Consumer Goods decreased 1.4 percent from August to September.

An indicator of sales and expectations for future home building, the Housing Market Index dropped to a value of 14 for the month, down from the revised September value of 17. The index is down 30 percent compared with a year ago.
The individual components of the index recorded declines in values. “Single-family sales: Present” posted a value of 14 for October, compared with 17 in September. “Single-family sales: Next 6 Months” recorded an October value of 19, nine points lower than the September value of 28. “Traffic of Prospective Buyers” component had a value of 12, lower than last month’s 14.
An index value of 50 represents markets in balance, where responses from builders are even between positive and poor opinions about the market conditions. Values higher than 50, point to more optimism about the market, whereas values below 50 represent more pessimistic opinions about market conditions.

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in September, on a seasonally adjusted basis. However, the September level was 4.9 percent higher than a year ago.
This level increase is much higher than the 2% - 3% inflation rate that the Fed finds comfortable.

The economy continues to contract, as evidenced by job losses, lower industrial production and increased claims for unemployment insurance.
Builders reflect difficult market conditions, with a housing market clearly below historical averages.
Builders need to further hold back to trim overall housing inventory.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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