The state of the economy

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An excellent briefing on where things stand from John Williams of the San Francisco Fed. (Thanks, once again, to Mark Thoma at Economist's View.)

* The housing slump has deepened further. Sales of existing homes fell 8 percent in September and are down 19 percent over the past 12 months. New-home sales rebounded in September, but are still down 23 percent over the past year. Inventories of new and existing homes for sale are at high levels, putting downward pressure on house prices and building.

* House prices in ten metropolitan areas fell on average about 5 percent in the 12 months through August, according to the Case-Shiller Index. Futures contracts on this index imply investors expect house prices in these cities to decline about 8 percent over the next 12 months.

* With demand soft and supply plentiful, housing starts plummeted 10 percent in September, bringing the year-over-year decline to over 30 percent. Housing permits likewise are in a deep descent, falling 7 percent in September and down 26 percent over the past year.

* Despite the bad news in the housing market and the turmoil in financial markets, consumers continued to spend in September. More recent data, however, suggest consumers may be tightening their grips on their pocketbooks. Sales of motor vehicles ticked down in October. Readings of consumer confidence and sentiment have moved down considerably over the past few months. Moreover, the recent surge in energy prices should damp consumption in coming months.


Be sure to open the charts (pdf) and look at the housing data. Scary. (Especially if the peak in prices marks your entry into the market--as in my case, to the month. Bear that in mind when I next dare to make a prediction.)

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