Thursday, January 3, 2008

Single-Family Home Building Declines

Spending on private residential construction dropped 2.5% in November, its biggest decline in 5 years. This was the 21st consecutive drop in home construction, which illustrates a slowing trend for private home building. Non-residential building, however, showed an increase of 2.1%, which offset the drop in residential construction. Total construction spending increased by 0.1% in November. Meanwhile, the Institute of Supply Management’s manufacturing index dropped from 50.8 to 47.7. Any number below 50 indicates contraction in manufacturing. Stalling home building and manufacturing will most likely lead to slower economic growth and affect the overall GDP. These results are closely related to the higher cost of credit and the problems in the housing sector, both of which result in lower consumer spending. What we get next is either (or maybe even both) of the following: another rate cut or recession.

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