Economic News Points to Slower Housing Recovery

Washington -- The unsettling economic news of recent weeks is unlikely to result in a double-dip recession, but it portends an anemic recovery taking some of the wind out of already feeble growth in housing activity and creating more uncertainty over all-important prospects for jobs and the restoration of consumer confidence, according to participants in an NAHB webinar on Aug. 16 (members-only link).

Political skirmishing over deficit reduction, which is likely to be intense this fall and winter and continue up through next year’s elections, will only add to concerns over the state of a fragile U.S. economy, they said.

A convergence of worrisome developments has set back the outlook for housing and the economy, noted NAHB Chief Economist David Crowe, starting with significantly weaker than expected growth in the gross domestic product during the first half of this year.

The Bureau of Economic Analysis on July 29 lowered its earlier estimate of 1.8% growth in the first quarter to a “very poor” 0.4%, Crowe said, and announced an initial estimate of 1.3% growth in the second quarter, which is also likely to be reduced in later estimates.

“The bottom line is that we’ve had some new news about the growth of the economy showing it is even slower than we thought,” he said. “The message is that things aren’t going as well as we thought they were.”

The employment picture has been especially unnerving for consumers, he said, with a “very bad and unexpected” dip in job growth below the 100,000 level in both May and June. While July rebounded to 145,000 new jobs, that is still considerably below the 200,000 to 250,000 monthly level “we have to have to nibble away at unemployment,” he said.

Crowe added that  the exports that have been a “golden” part of the U.S. economy, boosted by a weak dollar and strong growth overseas, have now started to soften in response to a slowdown in the GDP growth of such major trading partners as Canada, China and Brazil.

Debt Ceiling Fight

This discouraging batch of information arrived just as “we were having a terrific fight in Washington over the debt ceiling,” he said.

The increase in the debt ceiling approved by the Congress is sufficient to carry the federal government past the presidential election, he said, but the deficit cutting in the agreement won’t help the current situation because “cutbacks in government spending mean less money revolving and moving in the U.S. economy.”

While $1 trillion in cuts have been imposed over 10 years, the deficit reductions have been concentrated in the out-years, he said, with a relatively small trim of $21 billion in spending next year.

However, the economy faces sharper fiscal constraints if the 12-member “super-committee” delegated to find another $1.5 trillion in cuts over the coming 10 years fails to complete its mission.

In that case, automatic cuts of $1.2 trillion would go into effect, and those would be spread out evenly over the period, reducing GDP growth by another 0.5%, he estimated.

(If the committee comes up with a smaller amount of cuts than required, that amount would be subtracted from the $1.2 trillion in automatic cuts.)

Crowe was less concerned about the decision by Standard & Poor's to lower the triple-A credit rating of the U.S. for long-term borrowing to AA+.

The U.S. has maintained the top rating with the two other major bond rating houses — Moody’s and Fitch — and in the aftermath of the S&P downgrade, U.S. borrowing rates actually went down instead of up. “The world did not pay much attention to it,” he said.

The S&P decision was “heavily about politics and policy,” said Crowe, and not so much about the actual dollar amounts in the package. The concern of S&P, he said, is that “the Congress and Administration can’t get along and can’t continue the process of cutting the deficit.”

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