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More Evidence of Spillover from US Housing Market to Consumer Sector

Economics / US Housing Jul 21, 2007 - 01:40 AM GMT

By: Paul_L_Kasriel

Economics We have been forecasting that the housing recession would have a negative knock-on effect on discretionary consumer spending. Six successive months of declining light motor vehicle sales is corroborating evidence of this. If J. D. Power has got its numbers correct, July is on course to mark the seventh consecutive month in which car and truck sales decline.

This organization said that U.S. auto (and presumably, truck) sales were down 20.4 % from year ago in the first half of July. This sales decline comes with a 28% jump in cash rebates by auto makers. What is more discretionary than a Harley Hog? Harley -Davidson reported that its U.S. sales in the latest quarter were down 5.5% from year-ago.

Another discretionary consumer item is a pleasure boat. To that, Brunswick Corporation, the world's largest maker of recreational boats, today cuts its 2007 profit and boat sales forecast. Inexorably, the tentacles of the housing recession are strangling the U.S. economy. Despite mounting evidence to the contrary, the Fed keeps saying that the housing recession is quarantined.

Does it really believe this or is it so terrified about what might happen to the dollar if it were to cut rates to prevent a recession that it keeps up this Orwellian newspeak that there does not appear to be much negative spillover from housing to the rest of the economy.


By Paul L. Kasriel
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Copyright © 2007 Paul Kasriel
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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J Ganim
23 Jul 07, 21:26
US Housing Recession

I agree. I would say we are in for a declining real estate market for the next 10 years, much like what Japan went thru in the late 80s and early 1990s, except our (US) debt positions are much much worse .. could this be the start of a "big mac recession" for the US ???

The automakers certainly will not lift the US enough and the real estate market was at least 50% of the GDP the last 7 years, so that means the US economy has been artificially pumped and dumped by Greenspan every time interest rates were edged down.

With real [growth of] GDP now less than 1.5%, inflation will eat the rest away and higher prices overall will take a bite out of consumer spending and make the next six mos even worse than the first ... ouch !

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