Further Declines Projected Before Recovery, Official Recession on the Brink
The U.S. economy apparently is in recession and the global economy is on the edge. Economic fundamentals deteriorated badly during the third quarter and downward momentum has extended into the final quarter of the year.

It now appears that gross domestic product (GDP) growth slipped into the red zone during the third quarter, and NAHB is projecting further declines for the following two quarters before positive growth returns next year. Recent and projected economic performance, if realized, almost certainly will qualify as an “official” recession in the U.S. economy. Indeed, the setback now figures to be substantial, compared with the mild recession scenario in our forecast not long ago.

Furthermore, the global economy may very well throw off convincing recessionary signals before long, as activity weakens in other major industrialized economies as well as in key emerging markets. Meanwhile, financial markets have been in a state of panic since late September as lack of trust among parties and counterparties has worsened and as evidence of economic weakness has spread around the globe. These problems have persisted despite coordinated actions by policymakers in the U.S. and other major developed countries. 

The Fed has rolled out a series of liquidity-enhancing innovations, including the new program to buy commercial paper, to improve the functioning of financial markets. Believe it or not, the huge amounts of funds injected into the system by the Fed have not actually represented net additions to overall liquidity or to bank reserves, since funds have been withdrawn from the system by the Fed through other means—primarily through sales of Treasury securities in the open market. But the Fed has also made monetary policy more stimulative by reducing the discount rate and the federal funds rate target by large amounts. 

The most recent move involved half-point cuts on Oct. 8—between scheduled Federal Open Market Committee (FOMC) meetings―in an unprecedented joint action with five other major central banks. The federal funds rate target now is 1.5%. NAHB anticipates another half-point cut at the next FOMC meeting on Oct. 29, and that  the Fed will maintain this highly stimulative monetary policy stance until late next year. [ return to top ]