Apartment starts bounce back. (Industry Forecast).

Rental housing market conditions remain soft and real firming will not occur until employers boost hiring. Mixed signs are occurring in the economy.

Gross Domestic Product (GDP) growth in first quarter 2003 was revised markedly downward and consumer confidence weakened in June. Positives include a sharp increase in the Index of Leading Economic Indicators and disposable personal income will rise as a result of the recently passed federal tax cuts.

The economic outlook remains more positive for the second half of this year, but only marginally.

Absorption rates of new unfurnished rental apartment homes set record lows in the first quarter of this year for units completed in the third and fourth quarters of last year. Absorption rates for the nine and 12 months after completion stayed at the levels recorded in the fourth quarter, but these levels are under that experienced during strong market periods.

Net effective rent increases in May remained at a 2.4 percent annualized rate for the fourth straight month in the U.S. Bureau of Labor Statistics (BLS) CPI data series.

New apartment construction starts bounced back in May. The 328,000 unit seasonally adjusted annual rate for May was up 35 percent from the 243,000 unit rate for April. It is unlikely that the May rate of apartment starts can be sustained and another adjustment should occur.

The Economy

Economic growth in the first quarter was revised significantly downward to a 1.4 percent annual rate from the pervious estimate of 1.9 percent. This was a disappointment especially since imports were stronger in spite of a weaker dollar. Businesses are still reluctant to rebuild inventories. Improved growth in the economy should occur in the second half of 2003, but its strength is still debatable.

A real plus for the economy was the very marked rise in The Conference Board's Index of Leading Economic Indicators Index for May. It increased 1 percent for a second consecutive increase. Most impressive was that increases occurred in eight of the 10 components of the index.

Consumer confidence waned once again in both the Conference Board and the University of Michigan consumer survey indexes. Both fell in June, but the Conference Board index was down only 0.1 points. The University of Michigan Index dropped 3.4 points, showing that sustained improvement in consumer confidence may lag behind an actual upturn in the economy.

Disposable per capita personal income gains remained modest in May, but the inflation-adjusted rise was a good 3.8 percent at an annual rate. Growth in disposable income no doubt improved in June as tax withholding is reduced as a result of the recently enacted federal tax cuts.

Labor Markets

Labor markets weakened further in April with employers cutting another 17,000 jobs and the unemployment rate rising to a nine-year high of 6.1 percent. Job losses in this economic cycle are greater than the 1.8 million experienced in the early 1990s. Most important is that significant employment gains do not appear to be on the horizon. The current economic recovery is even more jobless than that of the 1990s.

Inflation and Interest Rates

The Federal Reserve Board's Open Market Committee (FOMC) eased monetary policy further at their late June meeting. They reduced the target for the Federal Fund Rate by 25 basis points 1 percent, the lowest level since 1958. The financial markets had hoped for a 50basis-point cut and the stock market reacted negatively to the smaller reduction. The FOMC is faced with having already established very low interest rates. It has little left in its bag of tricks.

Economic Data Available on the Web

Please visit www.naahq.org to view the latest industry data.

Click on "Resources" on the left side of the home page and then click on "Economic Data" to find current and past information about:

* Vacancy Rates

* Housing Starts

* The Rental Housing Market

* Other Economic Indicators