It is the large imbalance than between supply and demand has put pressure on sellers to lower prices, and the previously robust construction sector has had to curtail the production of houses.
The decline in the housing market has subdued economic growth. The fall in house price appreciation has meant that many Americans are feeling less wealthy, and this has meant that growth has slowed for the third quarter of 2006. Growth in the US economy for the first and second quarters was 1.4% and 0.6% respectively; however, for the third quarter the figure for growth fell to 0.4%.
Whilst the housing market has affected consumer perceptions, consumer spending has only faltered slightly, although this may be due to seasonal factors; sales on Thanksgiving weekend rose from the previous years figure, and spending is likely to remain high over Christmas and in to the start of the new year.
Away from the housing market, there are some positive changes in the economy. Other macroeconomic indicators such as economic growth are encouraging. US GDP increased by 3.4% for the third quarter of 2006, according to the IMF. Prices for gasoline have fallen, to around $2.26 a gallon for consumer, and the unemployment figure remains at 4.4%. This is important, as one of the determining factors affecting consumer spending, and the economy, is the employment figures. However, since 2002, approximately one in four new jobs created has been related to the housing industry. The current low in the housing market may affect this, as the construction and others sectors related to the housing industry have suffered, which may lead to job cuts. However, these effects will not be seen straight away; so over the next year, employment figures may see a negative shift.
The international price of crude oil has been steady at around $58 to $62 a barrel since October; this is down from the record high of $78.40 a barrel seen in mid-July. However, oil remains a cause for concern in most economies. There are many geo-political issues that are likely to further affect oil output. Iran’s stance on its nuclear program and the West’s cooling relationship with Russia are two such concerns likely to affect oil prices.
According to the IMF, the year-on-year inflation in the US came to 3.2% (November 2006). The Federal Reserve has left interest rates unchanged at 5.25% for the last three meetings, counting on slower economic growth to help contain inflation.
The US economy remains in an uncertain position as the year draws to a close, and it will be interesting to see what the New Year brings. |
