HOUSING
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Shaky bedrock?
Americans’ faith in the so-called new economy, driven by an endlessly expanding Internet and dominated by computer technology, has been badly shaken.
Following horrific terrorist attacks, and amid a downward spiral for companies that produce the chips and software that made the new economy possible, a search is on for bedrock.
So far, the firmest foundation has been real estate, as Americans sink their money into bricks and stones set firmly on terra firma. But could the construction sector, too, be growing shaky?
Economist Sung Won Sohn is looking for Wednesday’s report of September housing starts to show a 4 percent dip, to an annual rate of 1.47 million units, from 1.53 million in August. That would follow a 7 percent decline a month earlier.
“The effects of recession are being felt in home construction, perhaps because many builders didn’t feel like going ahead with new homes in the wake of the Sept. 11 terrorist attacks,” said Sohn, of Wells Fargo & Co. in Minneapolis.
Sohn said the recessionary drop in construction is likely to continue for several months, “even though mortgage rates have fallen to a 30-year low.”
On a brighter note, he said “refinancing activity is very strong. And while the economy has slipped, it has done so from a very high plateau.”
THE FED
Greenspan at bat
His crown slightly askew, Alan Greenspan, until recently touted as having nearly monarchic powers, will answer to members of Congress on Wednesday, when he provides testimony about the economy.
The chairman of the Federal Reserve still is feeling the heat from critics, including those on Capitol Hill, who blame him in part for the current downturn.
One question facing Greenspan: Following a lengthy series of rate reductions, which have cut the short-term target to 2.5 percent, is the Fed finished?
Chicago banker Kenneth Skopec sees a chance the central bank will reduce the rate another quarter point when policymakers meet Nov. 6.
“However, at this point, rates can’t go much lower,” said Skopec, of Mid City Financial Corp. Of greater importance, he said, is that Congress must act quickly to boost the economy with a stimulus package.
“The holidays are approaching, and we need to find a way to unleash demand for a vast backlog of goods and services,” Skopec said.
CONSUMER PRICES
Riding higher
For years, America’s yawning trade deficit with other nations prompted tremendous concern. But lately, some overseas producers of manufactured goods regard those days with nostalgia, wishing the U.S. would again buy the lion’s share of what they produce.
Watch for Friday’s report of the trade shortfall for August to show little change from the $28.8 billion a month earlier.
Also due out Friday: the September consumer price index. Analysts expect a jump of 0.3 percent, following a tiny 0.1 percent advance a month earlier. Part of the blame will go to automakers, who boosted prices before touting zero-percent financing on slow-moving iron.
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EQUITIES
Brighter horizon
The stock market has been advancing steadily for most of the last three weeks, and it appears the worst damage is over, says Chicago investment manager William Hummer.
“With all the economic stimulus under way, we should see a steadily improving economic outlook over the next six months,” said Hummer, of Wayne Hummer & Co.