Judge Taylor and FISA
Income Distribution in Historical-International Perspective

Strait Is the Gate; Narrow is the Path

The WSJ rounds up some usual suspects to talk about the economy:

WSJ.com - First Anecdotes, Now Data: August 24, 2006 11:38 a.m. New-home sales fell for a second consecutive month during July as mounting inventories allowed would-be buyers to wait for better deals. Sales of single-family homes decreased by 4.3% to a seasonally adjusted annual rate of 1.072 million, the Commerce Department said Thursday. The report came a day after a weak existing-home sales data. Here's what economists said about today's new-homes data, and what they mean for the economy and Fed policy.

Data on home sales is finally revealing what all the anecdotal reports have been telling us -- that demand for housing is plunging. The latest report on new-home sales mirrors that of existing-home sales. The decline in sales activity is accelerating for both. It is more critical for new-home sales than existing-home sales because most home owners can simply pull their homes off the market and wait for improving market conditions, builders cannot. Therefore the sharp increase in unsold new homes should cause builders to reduce their new projects and begin to eliminate excess staff. -- Brian Fabbri, BNP Paribas

Despite the weakness in July sales, new-home sales figures on a longer-term view continue to hold in relatively well compared to more anecdotal-type reports pointing to more significant weakness, most notably the National Association of Homebuilders' housing market index, which has plunged to a more than fifteen-year low. This apparent divergence may be partly explained by the fact that new home sales are counted at contract signings and are not subsequently adjusted for sales that are canceled before closing. -- Morgan Stanley Fixed Income Economics

The demand for new housing is well pass its peak and is now on a retreating trend. Nevertheless, the level of new home sales remains quite high. Unfortunately, inventories of unsold new homes are very high, revealing moderate overbuilding. Finally, home price momentum has slowed significantly as home builders are using discounts to motivate new home buyers. -- Steven A. Wood, Insight Economics

Further evidence that the housing market weakened in July. Data on homebuilder sentiment and mortgage applications suggest that the market weakened further in August. The housing data are likely to encourage the Fed to keep rates on hold in September. - Bear Stearns Economics

So housing demand is weakening fast. This means that construction employment will fall, the leveraging-up of the homeowning population will end, and so consumer spending is likely to slow as well. As these sectors of demand stand down, what will stand up? Exports? Corporate investment?

Good luck, Mr. Bernanke. You need it.