Thursday, October 12, 2006

Fed Finds Cooling in Housing Market

Who prospers from articles like this below? -Steve H.


The economy continued to grow in the early fall despite a "widespread cooling" in the once-hot housing market, the Federal Reserve reported Thursday.
The Fed's latest survey of business conditions around the country found the economy expanding with growth being described as "moderate or mixed."

However, the report found there was a distinct slowdown in housing with the majority of the Fed's 12 regions reporting lower asking prices for homes, a softening in sales and rising inventories of unsold homes.

The Fed said that reports from around the country "indicated widespread cooling" in housing markets with financial institutions finding that mortgage lending activity had tapered off. That decline in lending was being offset to some extent by an increase in lending for commercial projects in several districts, the Fed said.

The latest snapshot of the economy, based on reports from the Fed's regional banks, will be used when central bankers next meet on Oct. 24-25 to consider what to do with interest rates.

It is widely expected that the Fed will for a third straight meeting leave rates unchanged, preferring to wait and see if the economic slowdown brought on by previous rate hikes will be enough to keep inflation under control.

Minutes released on Wednesday of the Fed's deliberations in September found that Fed officials remained concerned about inflation. Those worries were seen as a signal that the Fed will not soon start cutting interest rates, something that financial markets had grown hopeful might occur given the spreading economic slowdown.

Last week, Federal Reserve Chairman Ben Bernanke said that housing was going through a "substantial correction" that he estimated would trim economic growth by a full percentage point in the second half of the year.

The economy grew by just 2.6 percent in the second quarter, less than half the pace of the first three months of the year, as it was battered by soaring gasoline prices, rising interest rates and the cooling housing market.

Many economists believe growth has slowed even further in the last half of the year. But recent declines in gasoline and other energy prices are expected to help bolster consumer spending in the final three months of the year and keep the economy from tumbling into a full-blown recession.

In the latest "beige book," named for the color of its cover, two Fed districts _ Dallas and Philadelphia _ reported that growth cooled further in the period from mid-September to early October. But other districts reported that growth had firmed in recent weeks.

A number of districts found consumer spending _ critical because it accounts for two-thirds of total economic activity _ was rising at a more rapid pace even though several districts continued to note sluggish auto and home sales.

Philadelphia, Atlanta and Minneapolis reported solid back-to-school sales, New York said that sales of upscale items had picked up while clothing sales were stronger in Boston, Cleveland and the San Francisco districts.

The Fed said that manufacturing activity was holding up well with eight of the 12 districts reporting an increase in factory output. Tourism was described as strong, especially in the New York and Kansas City areas.

Farm conditions improved, the Fed reported, as rainfall brought relief to drought-stricken parts of the country.

The Fed described labor markets as "taut" especially for certain skilled workers but said that wage growth remained "generally modest." Overall inflation was also reported under control with energy prices moderating and "few signs of increased price pressures in recent weeks."

Increases in raw materials prices were noted by Philadelphia, Richmond and Atlanta while Minneapolis said that the price of building materials had increased. New York reported that prices for hotel rooms and theater tickets were up sharply from a year ago.


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