Diane Swonk, Chief Economist
Feb. 17, 2010 – 7:45 a.m. CT
Housing: Trying to Claw Its Way Back
Housing starts rose to a 591,000 annual rate in January after falling apart at the end of the fourth quarter. An extension of the first-time buyer tax credit and a modestly-lower mortgage rate can be attributed to the gain. Builders continue to struggle with the overhang of existing homes on the market, which are cheaper than new homes for buyers to purchase.
Moreover, we are likely to see a correction to those gains in February, as heavy snow blanketed much of the East Coast. The loss in starts in the southeast will be particularly large as they don't have the capacity to deal with the snow. Housing permits also declined which portends a February correction.
Separately, import prices accelerated, mostly in response to higher energy prices, although the core was a bit hotter than expected.
On a more positive note, industrial production continued to pick up in January, supported by strong gains in utilities and crude oil production. Look for a hit in production in the auto sector, however, once the recalls from Toyota kick in.
The Bottom Line: The economy is trying its hardest to remain on its recovery course, but the path is still very rocky. Distortions to real GDP growth, as a result of unusually bad winter weather, will only further muddy the waters. The best bet is that the recovery continues, with lots of help from the federal government, but it will remain too weak for many incumbents to gain re-election. Interestingly, many of those running campaigns criticizing last year's stimulus have been among the first at the trough to bring home checks to their constituents. If you really want Congress to work more effectively, you need to reward those who reach beyond partisan politics to get things done – which seems to be a small population of politicians in both parties.
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