Economic Forecast
On May 1, President Bush proclaimed that the major combat operations in Iraq had been completed. It took just six weeks for coalition forces to accomplish that task, a time frame consistent with assumptions built into NAHB’s forecast back in February. Looking back, it’s clear that rising tensions over the Iraq situation and related fears battered world oil markets and weighed heavily on the attitudes of consumers, businesses and investors during February and much of March. As a result, first-quarter growth of real GDP was a paltry 1.6% (annualized). 

On April 30, Federal Reserve Chairman Alan Greenspan testified before Congress. Returning to a theme he emphasized in mid-February, Greenspan stated that the underlying strength of the economy will become evident once the geopolitical uncertainties are lifted off the system. In support, he cited recent improvements in oil and stock markets, profit reports, and consumer confidence. As NAHB had been predicting, the Fed held short-term rates steady (at a 41-year low) at the FOMC meeting on May 6. In conjunction with his testimony, Greenspan fielded a lot of questions about fiscal policy. He reiterated basic points he last made in February -- even though that doesn’t sit well with the Bush administration — that monetary policy should deal with most short-term economic problems, that tax cuts should be aimed at long-term growth, and that any permanent tax cuts should be combined with spending cuts to prevent budget deficits. Those comments may have had an influence in the battle over the tax bill on Capitol Hill, where the Senate's $350 billion tax cut limit won the day in a compromise with the House, which had passed a $550 billion tax cut. NAHB’s forecast has been assuming a $350 billion tax bill for some time (enacted by mid-year with retroactive provisions). The fiscal stimulus, along with the evolution of the Iraq situation and increasingly reasonable assumptions about monetary policy, supports NAHB's forecast for a 4% real GDP growth rate in the second half of 2003. However, the economy and job market are likely to remain rather weak in the second quarter, as the business sector gradually adjusts to a healthier environment.

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