Uncle Sam’s Housing market is slowing so fast, that the slump in homebuilding knocked 1.1% off annualized economic growth.in the US in the third quarter of this year.
In all, the US could manage an annual growth rate of just 1.6 percent, compared to 2.6 percent in the previous quarter and a storming 5.6 percent at the beginning of the year.
And yet, despite the fall in growth and the decline in the US housing market, consumption is still moving full steam ahead, growing by 3.1 percent in the third quarter.
The question then is will consumption start to fall? Most seem to think it will. After all, it seems inconceivable that the US can avoid such a dramatic fall in the property market, and yet see consumers continue to spend away. The UK experience, of course, was for consumer spending to slow dramatically. If this experience is repeated stateside, then that, in combination with the fact GDP is falling anyway, could mean a very poor prognosis.
But, the rate of interest could come to the rescue. Most economists believe that the Fed will be able to reduce the rate of interest next year. The hope is that the falling property market, and the lower price of oil, will lead to a relief in inflationary pressure, enabling the Fed to re-ignite the economy just in time.
The danger lies in the fear that inflation will prove more deeply embedded than is thought, and that the full impact of the rises in oil over the last few years have yet to be felt.
© Investment & Business News 2013