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2008 Economic Outlook Dims
Prospects for the U.S. economy have darkened in recent weeks. Construction spending slowed sharply, existing home sales hit a 9-year low and the Federal Reserve revised its estimate of U.S. growth downward for the year.
Fed Lowers Growth Forecast
Last week the Fed said it expects the U.S. economy to grow 1.3%-2% this year, a half-point lower than its October forecast of 1.8%-2.5%. At the same time it forecast a bigger rise in unemployment to 5.2%-5.3% and a higher rate of inflation. It now sees core inflation at 2%-2.2% for 2008. In October the Fed forecast inflation at 1.7%-1.9%.
The Fed pointed to a still-deepening housing slump, tighter credit, turmoil in financial markets and higher oil prices as the causes of its more pessimistic forecast.
"Economic activity has decelerated sharply in recent months," the Fed stated in its Jan. 29-30 meeting.
Existing Home Sales Continue Falling
January existing home sales fell to their lowest level in nearly a decade, according to the National Association of Realtors (NAR). Sales of single-family homes and condos dropped by 0.4% last month to a seasonally adjusted annual rate of 4.89 million units. For the period, the median price of a home slipped 4.6% from January 2007, to just over $200,000. This was the fifth consecutive monthly decline in the average home price.
On a brighter note, a number of forecasters now say they expect the housing market to bottom out later this year, and begin a rebound at year's end. For more information, visit: www.realtor.org.
Nonresidential Construction Weaker, but Growing
Despite declining numbers through the first half of the year, housing starts for 2008 will total about the same as in 2007, predicts Jim Haughey, chief economist of Reed Construction Data. In 2009, year-over-year starts will grow by at least 20%, Haughey forecasts, "but will still finish the year about 40% below the peak level in early 2006," he wrote.
Reed Construction Data expects nonresidential construction spending to increase slightly this year, by some 0.6%-0.7% a month. Overall, the rate of growth will be about half of the 2007 pace, but a third higher than the growth rate Reed forecasts for 2009. For more information, visit: www.reedconstructiondata.com.
Architectural Billing Falls Sharply
Following three months of increased demand for design services, the Architecture Billings Index (ABI) of the American Institute of Architects (AIA) dipped sharply in January. The AIA reported a January ABI rating of 50.7, down from the 55.0 mark in December. Any score above 50 indicates an increase in billings. The index is considered a leading indicator of construction spending nine to twelve months later.
The results fueled concern that nonresidential markets could experience a sustained downturn.
"Given the concerns about condition of the overall economy, coupled with a suffering housing market, it is not surprising to see a falloff in demand for architectural services." said Kermit Baker, AIA chief economist. "This is likely to affect firms that specialize in commercial and industrial projects the most because businesses are expressing growing anxiety over a potential recession and are cutting back on plans for expansion."
However the January index of inquiries for new projects gained versus December, rising more than a point to 59.5.
The index score of 50.7 barely managed to keep alive the longest run of positive scores in the survey's history, which began in 1995. The index has been in positive territory for 35 months. For more information, visit: www.aia.org.