NAHB Economic Forecast
2002 is going down in the economic history books as a mixed bag. On the plus side, the U.S. economy  recovered from its shallow recession in 2001, and this helped to stabilize the global economy. But the recovery process was uneven, and both the U.S. and global economies were losing momentum as 2002 drew to a close.  Real GDP grew by about 2.4% in 2002 —  not a bad bounce-back from the recession year — but a number of factors took the fun out of the first year of recovery. 

Growth in GDP was based entirely on growth in labor productivity, rather than an increase in hours worked. As a result, the unemployment rate gravitated upward during the year, hitting 6% by November. Moreover, both GDP growth and the labor market weakened in the fourth quarter, and it now appears that economic growth slipped to its slowest pace since the recovery began (about 1%). Problems in corporate equity and bond markets and severe cutbacks in corporate investment and hiring have kept the U.S. economy in a weakened condition, but have not entirely thwarted the recovery process, which so far has been carried by the consumer, housing and the government sectors.

Our forecast envisions only a modest weakening of these supports as the growth engine gradually turns toward the nonresidential business sector. There already is some evidence of better spending on capital equipment and software. Falling interest rates definitely have been the key support to  the economy during the past two years, and interest rates are critical to the outlook as well.

As expected, the Federal Reserve held short-term rates steady at the Dec. 10 FOMC meeting, keeping the federal funds rate at a historically low 1.25%, and steady monetary policy is the best bet for at least the first half of 2003. Long-term rates actually shifted down at the end of 2002, pushing the 10-year Treasury bond yield under 4%.  Although this will be tough to maintain, upward pressure in 2003 should not be serious.

New fiscal stimulus may also be added to the equation before long, as both the Administration and the Democratic leadership  unveiled proposals during the first full week of January. NAHB’s forecasts will be adjusted when the dimensions of a likely package become clear. [ return to top ]