Reviving Economy Points to a Stable 2004
On December 10, the Bureau of Economic Analysis (BEA) released a comprehensive, or  “benchmark,” revision to the U.S. national income and product accounts. This rewrite of economic history involved only minor changes to the level and growth of overall GDP, but enhanced the position of housing in the economy since the early 1980s. The benchmark revision extended through the second quarter of this year, and GDP growth for the third quarter still stands at a robust 8.2% annual rate after the “final” routine revision released on December 23. The fourth quarter appears to be coming together about as expected in broad macroeconomic terms, with GDP growth slightly above 4%, with modest growth in payroll employment and a slight decline in the unemployment rate, and with core inflation still hovering dangerously close to zero.

The Federal Reserve held monetary policy steady at the December 9 meeting of the Federal Open market Committee (FOMC) and issued a statement that downgraded both labor market and inflation/ deflation issues while continuing to promise stable policy for “a considerable period.” We continue to believe that the one-percent federal funds rate target will be maintained until late 2004. The Fed’s messages, along with recent lackluster news on the labor market as well as newfound weakness on the inflation front, have put some downward pressure on the interest rate structure as well as on the value of the dollar on the foreign exchange markets. The weaker dollar definitely is a plus for our export markets and the interest rate developments clearly are a plus for housing.

The dramatic capture of Saddam Hussein on December 13 bestowed a political windfall on President Bush but seemed to have little immediate impact in financial markets. Some benefits are bound to accrue to the economy, however, only because a nagging uncertainty has been removed from the scene. The wholesale prices of plywood and OSB board have been falling sharply in recent weeks, following world-class price explosions earlier in the year. These prices should decline somewhat further and those declines will be seen at the retail level before long. The costs of most other types of building materials were well contained in 2003 and should be reasonably well-behaved in 2004. [ return to top ]