Fed Admits US economy will get worse in 2009

[itsmeeeeeee]

New reports due on jobs, wholesale prices

By JEANNINE AVERSA, AP Economics Writer

WASHINGTON – The Federal Reserve warned Wednesday that the nation's crippled economy is even worse than thought and predicted it would deteriorate throughout 2009, with no sign that the housing market will stabilize.

The Fed's bleak estimates indicated that unemployment could climb as high as 8.8 percent this year and that the economy would contract for a full calendar year for the first time since 1991.

The central bank's latest projections came hours after a separate report showed that new home construction and applications for future projects both fell to record lows last month.

Still, some economists saw a silver lining in the otherwise dismal housing report: Scaled-back building should reduce the number of unsold homes and contribute to an eventual housing recovery.

The reports raise the stakes for the plan President Barack Obama announced Wednesday to curb foreclosures and ease the broader U.S. housing slump that sent the economy into recession.

The Fed's latest forecast says the unemployment rate will climb to between 8.5 and 8.8 percent this year. The old prediction, issued in mid-November, estimated that the jobless rate would rise to between 7.1 and 7.6 percent.

Many private economists believe the current 7.6 percent jobless rate — the highest in more than 16 years — will hit at least 9 percent by early next year even with the $787 billion stimulus package signed into law Tuesday by Obama.

The Fed also believes the economy will contract this year between 0.5 and 1.3 percent. The old forecast said the economy could shrink by 0.2 percent or expand by 1.1 percent.

The last time the economy registered a contraction for a full year was in 1991, by 0.2 percent. If the Fed's new predictions prove correct, it would mark the weakest showing since a 1.9 percent drop in 1982, when the country had suffered through a severe recession.

The grim outlook represents the growing toll of the worst housing, credit and financial crises since the 1930s. All of those negative forces have plunged the nation into a recession, now in its second year.

"Given the strength of the forces currently weighing on the economy," Fed officials "generally expected that the recovery would be unusually gradual and prolonged," according to documents on the Fed's updated economic outlook.

In another sign of the troubled economy, production at the nation's factories, mines and utilities fell 1.8 percent last month, more than economists expected. That figure, the third monthly drop in a row, was dragged down by a 23 percent drop in production at auto plants and their suppliers.

Meanwhile, construction of new homes and apartments plummeted 16.8 percent in January from the previous month, the Commerce Department said, falling to a seasonally adjusted annual rate of 466,000 units, a record low. Analysts expected a pace of 530,000 housing units.

Building permits, a measure of future activity, also sank to a record low pace of 521,000 units in January, a 4.8 percent drop from the prior month.

"Conditions in the market for new homes have not been this bad since the 1930s, and they continue to worsen," said Patrick Newport, an economist at IHS Global Insight in Lexington, Mass. He predicted that housing starts would remain depressed for months to come.

But other economists saw some glimmers of hope in the report. The sharp cuts in new home building should help reduce inventories of unsold homes, which reached record levels last year, and stabilize home prices, which have been battered by a flood of foreclosed homes on the market.

Abiel Reinhart, an economist at JPMorgan Chase & Co., said that reduced homebuilding lowers economic growth in the short run, "but it does help get inventories down to more reasonable levels."

Builders have cut the number of new homes on the market for almost two years, Newport said, but sales have fallen even more quickly. As a result, the Commerce Department said last month that it would take 12.9 months to sell all the new homes on the market, the longest on record.

That could drop closer to five to six months by the end of this year, Reinhart said, levels that are consistent with a more stable market.

The housing sector also got a boost Wednesday from the Obama administration, which unveiled a $75 billion effort to prevent up to 9 million Americans from losing their homes.

The plan also will double the size of the lifeline the government is providing Fannie Mae and Freddie Mac to $200 billion each as a way of reassuring financial markets of the viability of both mortgage finance giants.

David Crowe, chief economist for the National Association of Home Builders, said the administration's foreclosure program plus help for first-time home buyers included in the stimulus measure would have an impact.

"I do think we will see a bottom in 2009 and by the end of this year we will start to see the beginning of a recovery," he said. "But it will be a slow recovery because of the significant overhang of empty houses for sale."

The Fed was more pessimistic when it released a set of new economic projections and the minutes of its Jan. 17-19 meeting.

Members of the Fed's open market committee "saw no indication that the housing sector was beginning to stabilize," the minutes said.

While falling home prices and historically low mortgage rates have made homes more affordable, the Fed said, "concerns that house prices may fall further appeared to be holding back potential buyers."

Despite the lower unemployment and overall economic projections from the Fed, Joshua Shapiro, chief U.S. economist at MRF Inc., said the growth estimates for this year and next remain "much too optimistic."

The Fed forecast calls for the jobless rate to dip to between 8 and 8.3 percent next year, and to between 7.5 and 6.7 percent in 2011. The normal range for unemployment is around 5 percent.

Employment is usually the last piece of the economy to heal once the country is out of recession and in recovery mode. Businesses are usually reluctant to ramp up hiring until they feel confident that any recovery has staying power.

Under the Fed's new projections, the economy should grow between 2.5 and 3.3 percent next year and by as much as 5 percent in 2011, which would be considered robust.

Shapiro is not convinced. The central bank's forecasts are in the "'hope springs eternal camp,'" he said.





at a time when avoiding a DEPRESSION should be EVERYONE'S NUMBER ONE CONCERN, THE GOP HAS DECIDED TO SAY NO TO RECOVERY EFFORTS AND HAS PUT ALL THEIR EFFORTS INTO MAKING SURE THOSE EFFORTS FAIL.

IT'S TIME FOR THE AMERICAN PEOPLE TO RISE UP IN MASS AGAINST THE GOP, IMO.

[Rollerball]

at a time when avoiding a DEPRESSION should be EVERYONE'S NUMBER ONE CONCERN, THE GOP HAS DECIDED TO SAY NO TO RECOVERY EFFORTS AND HAS PUT ALL THEIR EFFORTS INTO MAKING SURE THOSE EFFORTS FAIL.

IT'S TIME FOR THE AMERICAN PEOPLE TO RISE UP IN MASS AGAINST THE GOP, IMO.

It makes me sick to watch these scumbags talk about some of the most helpful things in the stimulus bill with a sneer on their face.
The typical Fox viewer doesn't understand what he's talking about but knows it must be a bad thing because just look at that sneer!

I hear GOP members are boasting about the bill in their home state, even though they voted against it. Why does this not cause a light to go on in their moronic base I will never understand.

[Becfola]

It makes me sick to watch these scumbags talk about some of the most helpful things in the stimulus bill with a sneer on their face.
The typical Fox viewer doesn't understand what he's talking about but knows it must be a bad thing because just look at that sneer!

I hear GOP members are boasting about the bill in their home state, even though they voted against it. Why does this not cause a light to go on in their moronic base I will never understand.

The GOP better get use to it....I guarantee their will be another stimulus bill before the next round of congressional elections.



Let's just all pray or hope that this thing helps save some jobs and create others....even a flattening would be welcome at this point next year.

I'm mystified why Iowa's housing market is holding up...but geezuz, I almost hate to say that and jinx the state. Maybe it's because our market wasn't uber inflated anyway...but it's not cheap here, as some may think.

people are buying and selling houses here....new home construction is down, but we were over-built in DSM....like much of the nation.

[Rollerball]

The GOP better get use to it....I guarantee their will be another stimulus bill before the next round of congressional elections.



Let's just all pray or hope that this thing helps save some jobs and create others....even a flattening would be welcome at this point next year.

I'm mystified why Iowa's housing market is holding up...but geezuz, I almost hate to say that and jinx the state. Maybe it's because our market wasn't uber inflated anyway...but it's not cheap here, as some may think.

people are buying and selling houses here....new home construction is down, but we were over-built in DSM....like much of the nation.

This is not an expert opinion, just my observation, but it seems to me the housing markets that were hit worst were the ones that went apeshit with their prices over the past 5 years.

Stories on how people in California get into bidding wars paying over the asking price. Houses selling in Fla for almost double what they were bought for only 18 months before. This was stupid, the writing was on the wall, there would be no way for an economy to keep up and support that sort of increase in value.

My wife just got back from Fla, she said there's a house on Jupitor Island that was purchased less than two years ago for $8,000,000 and is now on the market for $1,500,000. Ouch.

But in other areas where the prices didn't go wild, they haven't dropped as bad either. We sold a house in Kankakee a few years ago, prices never went through the roof there. So when our real estate agent told us we had two full price bids on the same day we were hoping for a bidding war, but didn't happen. The agent said just take the one with the better credit. Prices never went wild there and haven't dropped much either.

Again, this is just my imagining, based in my observation and probably nothing to do with reality.

[Heretic]

I'm reminded of The Running Man where the government lets all these disasters happen in order to use the devastated real estate for the gameshow. That as the going theme is keep the dissenting voices poor and hungry while enriching loyalists.

One more period of republican control and we'll be living that world.

[Becfola]

[quote=Rollerball;341354]T

his is not an expert opinion, just my observation, but it seems to me the housing markets that were hit worst were the ones that went apeshit with their prices over the past 5 years....

No, I think you're right...that makes sense.

[skajules]

IT'S TIME FOR THE AMERICAN PEOPLE TO RISE UP IN MASS AGAINST THE GOP, IMO.

And en masse, too!

The downward spiral is on, and it isn't going to stop until our government tells the plutocrats that they can't bleed us any more. Otherwise they're going to bleed until there's nothing left to bleed.

And the Democrats have been part and parcel of the problem too. This isn't a matter of Dem v Repub, or Blue v Red, or Lib v Con. It's a matter of richest 2% v everyone else.

[lrrp]

I guess I see more of it considering the job I work, and I remember wondering how some of these folks were gonna make it. South Denver metro has a suburb called Highlands Ranch, that had seen the exponential spread of housing almost overnight.

I was installing service in places that were for the most part, empty or looked like they had been furnished by the Salvation Army on an LSD bender. We have a real problem with bentonite here (a kind of clay soil) and the foundations for these places are falling apart already. The blame for this goes from top to bottom, the county relaxed the standards for the builders, the state looked the other way, and the builders themselves just threw the shit up just as fast as they could.

Those places are underbuilt and overpriced, and it amazes me that someone who is driving a 12 year old beat to hell VW thinks they can finance 350,000 of house and still actually eat. The day won't be far off when the whole place will be looked at as a brand new slum, disintegrating and shoddy, but with a nice paint job and a hefty mortgage in a place where it might just be cheaper to tear the whole mess down and start all over...