Will the tax rebate and a coming mortgage bail-out be the viagra the economy needs?
Or will lower interest rates help businesses stand tall?
Consumer confidence is way down notes this New York Times article.
Foreclosures are way up.
Economic growth is stalled.
The data suggested that the housing slump was far from a recovery and the job market might continue to weaken, ratcheting up pressure on the Federal Reserve, which began a two-day meeting on Tuesday, to take steps to stave off a prolonged slowdown.
The reports were consistent with a recession, economists said, though some optimists have insisted the economy is growing, albeit at a snail’s pace. President Bush remained in the latter camp at a news conference on Tuesday, where he said the economy was facing “a tough time.”
Much of the damage has stemmed from a slump in the housing market, where prices are nearly 15 percent off their high in July 2006.
In the 12 months ended in February, the Case-Shiller home price index, which measures the value of single-family homes in 10 major metropolitan regions, fell 13.6 percent, the biggest decline since records began in 1987. A broader 20-city index dropped 12.7 percent.
The slump in home prices was more severe than the worst point of the recession of the 1990s, the last time values fell so far, so quickly.
As foreclosures rise and mortgage lenders tighten their standards, the market is expected to continue to feel the pressure of large inventories and a dearth of qualified buyers, economists said.
“This is not, alas, a fluke,” Ian Shepherdson, a London-based economist at High Frequency Economics, wrote in a note to clients. “The monthly declines have been accelerating steadily over the past year and this just marks another step on the way.”
The slump has hurt manufacturers, construction firms and other businesses that depend on strength in the housing industry, forcing some companies to lay off workers. It also lies at the root of the current credit crisis on Wall Street, where banks were left holding investments linked to mortgages that defaulted or were downgraded.
The problems are likely to weigh heavily on the nation’s overall economic growth in the first three months of 2008. Many economists think the economy slowed to a crawl in the first quarter; some predict a contraction. The government will release its first-quarter growth estimate on Wednesday; the technical definition of a recession is two consecutive quarters of negative growth.
The fall in home prices has also cut into Americans’ home equity and forced many to grapple with mortgages now worth more than the house itself. The problems have contributed to a deepening gloom, which was reinforced on Tuesday by a grim confidence survey released by the Conference Board.