Construction Activity Plummets

[Sep 29, 2007.]

The Commerce Department reports that construction activity plummeted in July—the largest decline in six months.

The problems in the housing market occurred as the amount of money spent on houses dropped for the 17th month in a row. Construction spending decreased 0.4% in July. That's the worst rate since a decline of 0.6% in January.

Forecasters had predicted a less precipitous drop in July—a clear indication that the housing market is in an even worse condition than many economists had thought.

Meanwhile, housing activity dropped by 1.4%. That's more than twice June's decline. As a result, the housing situation is now the worst it's been in some 16 years. In fact, the crisis could deepen in the months ahead because of the troubles in the mortgage industry. Delinquencies are on the rise, especially among holders of subprime mortgages.

In the midst of the crisis, some builders are offering extra incentives in an attempt to build business. The housing market is not expected to recover until well into next year.

The specter of recession is also looming large. The housing market is one of the engines which drive the U.S. economy; therefore, when the housing industry is barely getting by, other sectors of the economy can also suffer significantly. The housing crunch has already created turbulence in financial markets, with investors skittish about securities that have been backed by mortgage debt.

The chairman of the Federal Reserve, Ben Bernanke, has said the Fed is willing to "act as needed to limit the adverse effects on the broader economy." Forecasters predict the Fed will reduce rates at its September 18th meeting.

Meanwhile, on another economic front, manufacturing activity increased at a slow rate in August. In fact, the rate increase was slower than that of July, leading to additional worries of recession. Fortunately, however, despite a great deal of negative economic news, the U.S. economy appears to be holding its own at this point.

Julie Ann Amos
September 29th 2007

Recent News

• Impact of Credit Crisis Appears Limited
  While the nation's credit crisis has had a devastating effect on the housing sector, its effects on other segments of the economy appear to be limited, according to the Federal Reserve.[29th September 2007]


• Ex-Fed Chief Concedes Mistakes in Forecasting
  The one-time head of the Federal Reserve admits that he didn't see the subprime crisis coming. [29th September 2007]


• Investor Confidence Wanes Amid Housing Troubles
  The chairman of the House Financial Services Committee says investor confidence is slipping in the wake of what has been described as the worst housing crisis in 16 years.[28th September 2007]


• Consumer Confidence Shows Signs of Weakening
  Consumer confidence showed signs of weakening in August—an apparent result of the ongoing housing crisis and the turbulent stock market. [28th September 2007]


• Freddie Mac Earnings Plunge in 2nd Quarter
  Freddie Mac, which ranks number 2 in the nation in terms of buying home mortgages, saw its earnings plummet 45% in the 2nd quarter.[28th September 2007]


• 30-Year Mortgage Rates Head Downward
  Homeowners received some encouraging news this week, thanks to an item from the mortgage company known as Freddie Mac. [28th September 2007]