Vital Statistics
21 Aug 2007
US will still grow - but at a slower rate BERL Forecasts June 2007
Jason S Leung-Wai
Preliminary GDP figures estimate year-on-year growth of 2.9% for the March 2007 year, down on the 3.3% growth recorded in the December 2006 year. The seasonally-adjusted annualised rate for the March quarter was 0.6%. Pushing GDP higher were increases in personal consumption, and state and local government spending. Offsetting this were a drop in fixed residential investment, federal government spending and lower net exports. Expectations are that GDP growth in 2007 will be substantially lower than in 2006. In early June, the White House lowered its forecast for GDP growth for 2007 to 2.3% from a previous projection of 2.9%. This was based on the data showing just 0.6% growth in the first quarter mentioned previously.
In terms of employment, 157,000 jobs were added in May, according to preliminary estimates. The unemployment rate was down just a fraction since the last edition of BERL Forecasts, to 4.5% from 4.6%. Meanwhile, productivity was up 1.3% in the March quarter compared with the same quarter a year ago as output rose and working hours remained unchanged.
The housing market continues to ease. Annualised April new home sales, while up 16.2% over March 2007 in seasonally-adjusted terms, were down 10.6% on April 2006 numbers. More positively, sales in the south of the country were up 27.8% in the month on a seasonally-adjusted basis, after four months of declining sales.
However, the sub-prime mortgage industry’s woes continue, along with the stock market investors who bet on their success. Lehman Brothers estimates that securities issued against pools of sub-prime mortgages have shed $19bn. House buyers, sub-prime lenders and stock market investors were hoping continued house price rises would keep them ahead. These hopes have been dashed, with April median sales prices the lowest in seven months.
At the May meeting of the Federal Reserve (Fed), the Federal Funds Rate (FFR) was, once again, held at 5.25%. The Fed expects the slowdown in the housing market to continue, and that inflation, although slightly elevated at present, will stay within reasonable limits. There was some concern at elevated levels of inflation. Recent data indicates that this rose to 2.6% in April 2007 over April 2006 levels. However, unless inflation trends up significantly over the next few weeks, it is very unlikely that the FFR will be raised at the June meeting of the Fed.
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