Wednesday, 21 November 2007

US housing data mixed, Fed sees slower growth

Perhaps the US housing market is stabilising after all. From MarketWatch:

New construction of U.S. houses and apartments rose 3.0% in October to a seasonally adjusted annual rate of 1.23 million in October, following three months of decline, the Commerce Department said.

Then again, perhaps not.

Building permits, a leading indicator of housing construction, fell 6.6% to a seasonally adjusted annual rate of 1.18 million in October from 1.26 million in September. It's the lowest level for permits since July 1993.

In any case, the minutes of the October FOMC meeting indicate that the Fed continues to see slower growth ahead. Again from MarketWatch:

Expanded economic forecasts released for the first time by the Federal Reserve on Tuesday projected slower growth in the U.S. economy next year, a tick-up in the unemployment rate and tame inflation.

Even with the forecast of a slowdown, the rate cut in October was a "close call," according to a summary of the meeting released with the new forecasts.

Close call it might have been, but some economists are seeing more rate cuts ahead.

"It is clear they'd rather not ease again on December 11, but it is equally clear that fine, considered speeches count for naught when the sky is falling," said Ian Shepherdson, chief U.S. economist at High Frequency Economics...

"The rhetoric at that time [in the statement] and the rhetoric in these minutes don't square up to me. These guys are biased to ease," said Paul McCulley, managing director of Pacific Investment Management Company in a television interview.

Recent market action shows that investors have already discounted further rate cuts, though, so perhaps the more important question is how many more cuts there will be.

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