And here’s what Bernanke said. He’s trying to get an optimistic message out.
I think the general economy will get by, but the housing market will continue to drop continue to hurt in 2007.
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The New York Times
November 28, 2006
Fed Chief Sees Economy Gaining Strength in 2007
By JEREMY W. PETERS
Ben S. Bernanke, the Federal Reserve chairman, said today that the economy is slowing in line with the central bank’s forecast and predicted that growth will return to stronger levels in 2007. But he reiterated concerns that inflation remains “uncomfortably high.”
Speaking at a luncheon in Manhattan, Mr. Bernanke said the drag on the economy from the housing and automobile industries should ease next year, allowing growth to pick up again.
“Overall, the economy is likely to expand at a moderate pace going forward,” he said. “A reasonable projection is that economic growth will be modestly below trend in the near term but that, over the course of the coming year, it will return to a rate that is roughly in line with the growth rate of the economy’s underlying productive capacity.”
He cautioned, however, that the housing correction could still “turn out to be more severe and widespread” than it now appears.
“A deeper correction would directly affect economic activity,” he said.
Indeed, home prices continued to slide in October as the supply of unsold homes grew, new statistics showed today, in the latest data to suggest that the once-booming housing market is continuing to deflate.
The fall in the median price of a previously owned home — down 3.5 percent from a year earlier, to $221,000 — was the sharpest on record.
Falling prices helped provide a slight lift in the volume of sales for the month, which was 0.5 percent higher than in September. But compared with a year ago, sales of previously owned homes remain down by double-digit percentages, the National Association of Realtors said.
The housing data reinforced the message from other economic indicators released today, that the economy is slowing down. But on Wall Street, where traders were still digesting yesterday’s jarring sell-off, trading was mixed.
A widely watched gauge of consumer confidence reported an unexpected decline for November today. And the Commerce Department reported that businesses reined in spending on major purchases last month, a sign that corporate America, too, is starting to pull back.
Orders for durable goods, which include everything from jet engines to computers to refrigerators, declined in October by 8.3 percent, or $19 billion at a seasonally adjusted annual rate, from the month before. The figure stood in sharp contrast to the rise of 8.7 percent posted in September.
The biggest drop in the latest month was in purchases of transportation equipment, specifically civilian aircraft, which contracted by an annualized $10.6 billion. But the slide was also steep for orders of non-defense equipment other than aircraft.
The overall drop in durable goods orders — the biggest in more than six years — was larger than economists had forecast, and it suggested that businesses are beginning to feel and respond to slower economic growth.
“This perhaps suggests that the U.S. economic slowdown is spreading to the corporate sector, adding to worries about the prospects for U.S. growth,” James Knightley, an economist with ING Financial Markets, wrote today in a research note to clients.
The durable-goods statistics accelerated the dollar’s decline against the euro, the British pound and other foreign currencies today. Since late last week, when the euro exceeded $1.30 for the first time in a year and a half, the dollar has fallen broadly in global currency markets.
The dollar retraced some of those losses this morning, as investors reacted to the unexpected uptick in the volume of home sales. The stock market, too, bounced back after the housing report was released. On Monday, stocks suffered their biggest decline since July after a weak November sales forecast from Wal-Mart cast doubt over the prospects for the holiday shopping season.
Indeed, the Conference Board’s index of consumer sentiment dropped in November as Americans appeared to grow increasingly pessimistic about the job market. The Conference Board said today that the index declined to 102.9, from 105.1 in October.
