US Housing Recession Deepens And Trade Deficit Grows.

Summary: The data crossing the wires wouldn't bode well for the health of the US economy over the recent past; but the headline of the AIG bailout has worked well...

The data crossing the wires wouldn't bode well for the health of the US economy over the recent past; but the headline of the AIG bailout has worked well to stabalize the markets and boost confidence for the future. Nonetheless, economic conditions are still in dire state according to the Commerce Department's numbers. Though the weak dollar would suggest fewer US import and greater foriegn interest in cheaper American-made goods, other factors seem to be overwelming the broader trade measures. The current account deficit (the most encompassing calculation of trade) grew more than expected to $183.1 billion in the period through June. This was the worst trade figure in a year. Looking into the details of the report, we can see the too main culprits for the deterioration in trade conditions. The goods and services balance ballooned to a $180.6 billion shortfall - the greatest in years - but recent shifts in economic activity and global prices likely render this reading moot. Since the end of the second quarter, we have seen imported oil prices plummet and global growth forecast deteriorate in line with US's outlook. This should help temper trade figures. On the other hand, the net income component of the current account is still up in the air. Through the second quarter, net investment flows cooled from $27.3 billion from $33.2 billion on a steep drop in foreign investment to the US from $459 billion to $26.3 billion - a staggering 142 percent decline. With the recent banking crisis and growth fears permeating national boarders, this trend may worsen with time. Aside from trade, the other reading on US economic activity came in the form of housing trends. As would be expected to the ongoing credit crunch and the drop in consumer confidence and income, construction trends continue to drop. Housing starts through August dropped 6.2 percent to a new 17 year low 895,000 annual pace. At the same time, plans to build read in permits fell 8.9 percent to a 854,937 yearly pace. Altogether this is not unexpected. As credit conditons worsened through the first half of September, mortgage rates will have surged and this figure will likely be curbed for another month. What's more, with unemployment on the rise, wages contracting and the economic outlook fading, construction activity will be doubly depressed. On the other hand, construction activity will not be the leading signal for a housing rebound when such a turn does come. When consumers return to the market for housing, they will first look to cheaper existing homes before they consider more expensive newly finished homes - demand for which will later revive construction activity.

2008 Al Bawaba (Albawaba.com)

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