Smith Faculty Opinion Article
April 16, 2009
Thursday's Housing Starts Data and the Economic Outlook
Thursday, the Commerce Department releases key data for new home construction—housing
starts and permits issued for March. After rising in February to 583,000, housing
starts are expected to slip back to 550,000, and those February levels were hardly
anything to cheer about. Building permits are expected to remain at recessionary
Even with the $8,000 tax credit for new home buyers, the pace of customer visits
remains slow, and the glut of unsold homes exceeds a 12 month supply. A figure less
than half that would be considered healthy.
This week’s economic data casts fresh doubts on the Administration’s claims that
the economy is near bottom and Larry Summers’ conclusion that the pace of contraction
is slowing. Retail sales and industrial production tanked in March. Those are two
hard indicators of economic activity, as opposed to soft sentiment indexes and Wall
Street musings. Those indicate the economy continued to contract sharply in March.
GDP will continue to fall and unemployment rise into the third quarter.
Our crack team of economic prognosticators and tarot card readers are likely
no better than the pack but no worse either. We are forecasting the economy will
bottom in the third quarter and accomplish a tepid recovery beginning in the fourth.
The expansion that follows will recoup about half the six million jobs—that will
hardly be cause for elation. In fact, it may look more like the luncheon that follows
President Obama, advised by Goldman Sachs orbiters Lawrence Summers and Timothy
Geithner, sees sunshine in rising banking profits but overall the real economy remains
sick, because the Administration’s policies fail to address the dysfunctions in
the money center banks, which require the Federal Reserve do their job of lending,
the artificial shortage of domestic energy, and devastating effects of subsidized
imports on manufacturing.
Until the Administration breaks free of Wall Street think—“banks are fundamentally
sound and just in need of some extra Fed cash, and the trade deficit and foreign
borrowing pose no fundamental threat”—voters that elected Obama to accomplish both
change and prosperity will remain disappointed.
Peter Morici is a professor at the University
of Maryland School of Business and former Chief Economist at the U.S. International