The consumer numbers look fairly strong, although at least some of that strength is likely to fade in coming months if housing continues to weaken. The mortgage applications data suggest home prices are already weakening. |
The contained job gains will make it easier for the Fed to convince investors that it will not rush to tighten. We still expect tightening to start only next August. |
The implication is that raw winter weather may have depressed starts last month, particularly late in the month. Even so, starts remained above the 2003 average [of] 1.85 million [units]. |
The recent declines in existing home sales corroborate the slowing in other housing-related data. |
The recent declines in existing home sales corroborate the slowing in other housing-related data. We expect additional slowing in the housing market, including prices, in 2006. In turn, the cooling will probably result in a moderation in overall growth. |
This puts upside risks in our forecast for 4.5-percent [annualized] fourth-quarter growth. |
Through the volatility, the trend in claims is gradually downward again, consistent with the labor market slowly starting to regain momentum after a setback in late 2002. |
Today's FOMC statement did not add any new specificity or much elaboration, and the initial reaction in the bond market has been limited. |
We are seeing a 'soft landing' rather than a 'hard landing' in consumer spending for a couple of reasons. First, although job growth is slowing, wages are still rising, with average hourly earnings up 0.4% in October. Second, despite recent stock market turmoil, consumer spirits are holding up reasonably well. |
We believe that the Fed will require both consistent solid hiring and a rise in inflation before it begins to lift rates. |
We now estimate that total real consumption rose at a 6.5-percent annual rate in the third quarter as a whole, above the 5.5 percent we assumed when we raised our estimate for total real GDP growth to 5.5 percent from 4.5 percent. |
What we do know is that the system manages to work -- we've been dealing with import penetration in this country for over three decades. Over that period of time, the unemployment rate has had its ups and downs, but there's been no trend increase in unemployment. |
With consumption accounting for about 70 percent of GDP, the extra strength should add about 0.7 point to total GDP growth. |
You typically see a rebound in the labor force when the economy starts to recover. But because businesses are operating so much more efficiently, there's a limit to the number of jobs available. Unemployment could still go up a few ticks. |