Signs of a Slowdown Are Emerging

A number of indicators now point to a slowdown for our previously red-hot economy. And a brand-new report from the Federal Reserve talks of “scattered signs of cooling.”

As we report in this Trends and Statistics issue (coverage of which continues on page 24), various economic factors are taking a downward tilt. Although we note that April housing starts were still solidly positive at 3% over March and 7% over April 1999, building permits slipped down 1% compared to March and down 1% compared to April of last year. Fewer permits will lead to fewer starts down the road.

More significantly, new home sales took a dive of 5.8% in April. Compared to the recent boom, this was like a jump off a cliff. And it will certainly put the pressure on to cut back on housing starts.

The manufactured housing market is already in a strong decline. Shipments in March were down 23% vs. March 99. Cumulative shipments through March were a negative 21.6%.

And after three strong months, unitary shipments took a 4% dip in April compared to April 99. Overall, shipments this year are still 14% higher than last year, but the May numbers will be closely watched.

In the Federal Reserve’s latest report on the economy, called the “beige book,” it stated, “All but Minneapolis said scattered signs of cooling are in evidence or the pace of growth is slowing.” The Fed also noted “indications of worsening price inflation” in some regions.

Price May Not Be Right

Rising labor costs are seen as a trigger for higher prices and higher inflation. Economist David F. Seiders of the National Association of Home Builders (NAHB) states that labor costs are putting downward pressure on business margins and upward pressure on prices.

Dramatically higher fuel prices could push up product prices even more. One estimate is that gas prices could boost the Consumer Price Index by three-tenths of a percentage point.

Inflation concerns will catch the attention of Alan Greenspan, chairman of the Fed, who would likely respond with further interest rate hikes to curb its growth. And this could bring about a full-fledged slowdown, pushing mortgage rates ever higher and causing new home buyers to turn away.

More monthly data will tell whether these signs are really a downward trend. Check the following articles for more details and stay tuned.

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