The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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October 30, 2006

Bottoming Out? Part 4

From today's Wall Street Journal (page A2 in the print edition):

The maximum impact of falling home construction may have hit the U.S. economy in the third quarter, some economists say. But that doesn't mean the housing market is on the verge of a miracle recovery. Construction is expected to fall further as builders struggle to shed a glut of unsold homes. And many economists expect house and condominium prices to continue falling for at least an additional six months to a year in parts of the nation where speculators went wild.

For now, the consensus among economists is that the housing downturn will remain a drag on the economy but probably won't sink the U.S. into a recession next year.


Offsetting the housing damage are several positives. Gasoline prices and mortgage interest rates have fallen in recent months. The stock-market rally has made some people feel richer, even as those who trust only in real estate feel poorer. And job growth, though unspectacular, continues at a "solid" pace, says Scott Anderson, an economist at Wells Fargo in Minneapolis.

With home prices flat to lower in much of the country, Americans already have less ability to tap their home equity to finance spending. But it is unclear how much effect that will have on consumer spending.


Some of the optimists' arguments are dubious. To bolster its position that the housing market is stabilizing, the National Association of Realtors last week trumpeted a 2.4% decline during September in the number of previously occupied homes offered for sale through multiple-listing services. But the Realtors' news release didn't mention that listings almost always decline in September, when the back-to-school season means fewer people are moving. Over the past 20 years, listings have declined an average of 3.4% in September, says Ivy Zelman, a Cleveland-based housing analyst for Credit Suisse.

In addition, and with a hat tip to University of Chicago XP-77er Ken Sutton, there is this to think about, from Bloomberg:

An unexpected increase in auto production last quarter was a statistical fluke that will be reversed, making current U.S. economic growth even weaker, according to a former Commerce Department economist.

Last quarter's annualized 26 percent increase in motor vehicle production shocked Joe Carson, now director of economic research at AllianceBernstein LP in New York. Without the gain, the economy would have grown at an annual rate of 0.9 percent, not the 1.6 percent the Commerce Department reported today.

The reported increase in output came despite cutbacks announced by General Motors Corp., Ford Motor Co. and others. A drop in the wholesale price of SUVs and light trucks as the automakers cleared leftover 2006 models made production look stronger than it actually was, said Carson. The economic fallout from the auto-industry cutbacks will instead come this quarter, he said.

"Last quarter was weak even with the benefit of this mismatch and the fourth quarter will now also be weak because it's going the other way,'' Carson said.

Even an optimist would have to admit that the fourth quarter begins with a few pretty big challenges.

October 30, 2006 in Data Releases , Housing | Permalink


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I agree, the FED has HUGE challenges ahead. I'll add, NONE are greater than those caused by continued loose mtg. lending practices. I wonder what last month's home sales would have looked like without the no-doc, no down, option arm "funny" loans?
It's interesting the markets don't seemed concerned, they should be.

Posted by: bailey | October 30, 2006 at 10:35 AM

"An unexpected increase in auto production last quarter was a statistical fluke that will be reversed,"
But how could it have been unexpected looking at 2005 q3?
Elementary my dear Watson, the statistician was flukey and Carlos should have chosen his source with more care, more luck, somehing -anything less flukey.

Posted by: calmo | October 30, 2006 at 03:29 PM

What happend in the 3rd Q was auto sales were up and auto production was down. This showed up in the gdp numbers as a sharp drop in nonfarm inventories --
$ 27.4 billion in real terms.

I have not looked at the latest auto I/s sales number but this implies that auto output could rebound next quarter so even is sales are flat this big drop in nonfarm inventories could vanish, generating a significant jump in 4th Q real gdp.

Posted by: spencer | October 30, 2006 at 06:23 PM

Ok spencer, $27.4B down from end of 2005 yes? The drop since 2006 III -$2.7B and for 2006 II +$15.4B
Can I get my noodle around this broken english (seriously, these headings are mislabelled, yes?) The change in non farm inventories since last quarter is a depletion of ~$3B, but since 2 quarters ago when the shelves were really empty, up more than $15B...and over the stock at the end of 2005, 3 quarters ago, some $27.4B emptier.
This is the best my noodle can do, (and I blame the headings in the graph for not being really considerate to not-so-el dente noodles) although let me peak at the rest of the numbers in the line.
The magnitude of previous entries showing quarterly changes in this line have been as high as $60B, so a depletion of even $27B does not look like big potatoes.
But it does look like the data are telling me something different: Inventories down $2.7B from last quarter, up $15B from 2 quarters ago and down $27B from 3 quarters ago.
I needed to graph this out and my take is that it is a bit of a jig saw but does point out that inventories were seriously raided (ok only $33B --half some of the q/q entries) in the first quarter and that at the end of q2 we had replenished about half of that.

After all that I need to say that the auto/inventory detail is not the story for me but that 2nd quarter of deteriorating residential investment. It's not very huffy and puffy, not glamorous and just won't make the headlines...yet.

Posted by: calmo | October 31, 2006 at 11:00 PM


Excellent observations in this bottoming out "series",

The confluence of a falling housing and automotive sector are just starting to be felt.

I backtracked to you on this, hit the link for more.

Posted by: The Nattering Naybob | November 06, 2006 at 11:52 AM

Should You Invest In Foreclosures?

Periodically I hear from readers who want to make $1 million in real estate -- quickly and with no money down. Usually they want to know more about real estate foreclosures -- how to buy them and how to profit from such homes. I've participated in a couple of these deals, and I'm now working on my second million -- I gave up on the first.

Foreclosure properties can be a good place to invest for exponential growth (or loss). There are some deals out there for little or no money down, but potential investors should take precautions because foreclosed properties can involve significant risks. There are various ways to invest in foreclosure properties.

The first and probably most popular is to purchase a property, fix it up and then rent it out, hopefully creating a positive monthly cash flow. The investor then becomes a landlord, with all the responsibility of an investment property owner.
Another way to invest is to seek out foreclosures or "handyman" specials, buy them, invest more money to fix them up and then sell them, taking -- hopefully -- a profit once the house is sold.

Posted by: Wally Smith | December 12, 2006 at 01:03 PM

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