HOUSING
Staying put
Since Sept. 11, the economy has been beset by the crumbling of the twin pillars of business investment and consumer confidence. But two other pillars–auto sales and construction–have stood firm.
Detroit has seen a boom in its business thanks to low-cost financing, especially the zero-percent loans that pushed 2001 models off the floor. Car and light-truck sales zoomed by about 30 percent in October.
The story is not quite the same for the construction industry. However, thanks to the lowest mortgage rates in three decades, traffic at model homes remains robust, and closings are proceeding at a powerful pace.
That brings us to Monday’s report on October housing starts. Economist Sung Won Sohn expects a decline of about 4 percent, to an annual rate of 1.51 million units from 1.57 million in September.
“Construction remains at a historically healthy level, but the decline of confidence and a slowing economy are having an impact,” said Sohn, of Wells Fargo & Co. in Minneapolis.
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For now, low interest rates are empowering numerous buyers, Sohn said, while good fall weather is boosting activity.
He said there is a trend for builders to favor affordable projects, limiting the number of opulent homes under construction.
“On a basis of total expenditures, that means construction may be slowing a bit more than the housing starts number would reflect,” Sohn said.
The housing market also is affected by fewer people going from one part of the country to another, he said, because of a cautious attitude toward accepting a new job.
“In tough times, people don’t move as much, and they also look at existing homes, instead of building something new,” he said. “Meanwhile, there is a lot of remodeling under way.”
TRADE GAP
A narrowing
The trade deficit has lost its ability to scare most Americans, who realize that unless many of the world’s goods are sold in this country, they will go begging. Recent months have shown that a decline in U.S. imports is bad news, not a favorable harbinger, for manufacturers overseas.
Expect Tuesday’s report on the trade shortfall for September to show a decline to about $26 billion from $27.1 billion a month earlier.
Also Tuesday, the October leading economic indicators, which are billed as foreshadowing the vitality of activity six months from now, should show a rebound. Analysts at Bank of America Securities in St. Louis are expecting it to rise 0.1 percent, following a steep 0.5 percent drop a month earlier.
FEDERAL RESERVE
Taking a breather?
With 10 interest rate cuts already out of the way this year, some economists believe it is time for the Federal Reserve to take a rest from its labors. The central bank’s short-term lending barometer is at a flat 2 percent, and going much lower would make many people nervous.
At this point, economists are evenly divided over what the Fed might do when it meets Dec. 11.
Because of a sudden spike in long-term interest rates, many analysts believe the central bank is likely to put things on hold.
EQUITIES
Rally gains footing
The stock market basked in euphoria last week as the Taliban was driven from much of Afghanistan, including the capital of Kabul, and allied forces closed in on terrorist strongholds. The question, however, is whether a year-end rally on Wall Street can be maintained.
Chicago investment manager Marshall Front is optimistic about the prospects, noting that “we have a very unusual convergence, as both oil and bond prices are collapsing.”
Front, of Front Barnett Associates, said investors are beginning to perceive a powerful economic recovery beginning to take shape.
“A long series of interest rate cuts, rapid home refinancings and a fiscal stimulus package taking shape in Washington promise a much stronger economic backdrop next year,” he said.
“Investors sense that the Fed has done enough to assure a solid recovery.”
Meanwhile, this will be a short week for the markets, with trading shut down on Thursday for Thanksgiving Day. Some trading will follow a shortened schedule on Friday.
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