Another week for the US economy in which statistics, speeches and interviews, all underlined just how tough it is going to be in the world’s biggest economy for the next year or more.
In fact they underlined what Fed chairman Ben Bernanke said at the start of the week (and what the Fed has said in its post-meeting statements) that the US economic recovery is happening, but it’s fragile.
It’s facing significant headwinds, such as high unemployment, depends on Government spending being maintained, and that means interest rates remain low for "an extended period of time".
That phrase has been used in the last few post Fed meeting statements and it is what Mr Bernanke and half a dozen other senior Fed officials have said in the past 10 days of speechifying across the US.
But if there was just one stat that best illustrated the current fragility of the US ‘recovery’ this week it was the October housing starts which revealed a very surprising 10.6% drop from September as builders couldn’t get finance and private buyers withdrew because of doubt about the longevity of a housing tax break.
That break has boosted demand for new and existing houses, and helped turnaround the plunge in prices across the country, leading many economists, politicians and investors to argue that the great American housing rout was over.
It has been extended in 2010 and widened and it needed to be, judging by the sharp fall in starts and the 4% fall in approvals (called permits in the US).
Construction of new homes hit a six month low in October and were 30.6% under the already depressed October, 2008 level.
But they were still up 10.4% from the low point in March-April, which is a tender mercy.
At the same time a surge in the cost of new and used vehicles lifted consumer prices, proving that while the cash for clunkers helped boost demand, it actually allowed car companies and retailers to lift their prices and profit margins, an outcome not discussed by the ideas supporters.
It seems many of the deep discounts on offer before and during the cash for clunkers scheme have gone as stocks of unsold cars were cut and sales growth started returning in October.
The housing and inflation figures came a day after a surprise slowing in industrial output in October, adding to the growing suspicion that the economy may have hit a bump after the move out of recession in the third quarter.
The Commerce Department said housing starts fell 10.6% to an annual rate of 529,000 units, the lowest since April.
It was the biggest decline in 10 months. Starts for single-family homes fell 6.8% last month to an annual rate of 476,000 units, the lowest since May.
Starts for the volatile multifamily segment tumbled 34.6% to a 53,000 annual rate, adding to September’s fall and a direct result of the downturn in commercial real estate that is hurting banks large and small across America.
Even though there are hundreds of thousands of homes and apartments vacant through foreclosures and people walking away, the US still needs a strong program of home unit building.
But due to the banks cutting lending and then being hit with souring commercial real estate loans, this is not happening. If it not stopped, the collapse in this side of the housing market could drag the entire sector back under early next year.
And then a Fed member did something no one has done so far: suggested a time limit for that phrase used by his chairman and the Fed; that interest rates will remain at their current record lows "for an extended period of time”.
St Louis Federal Reserve Bank President James Bullard said in a speech that past experience suggests the Fed may not start to raise interest rates until early 2012.
But he tempered this by saying the emerging concern borrowing costs have stayed “too low for too long” may prompt an earlier rate hike.
“If you look at the last two recessions, in each case the FOMC waited two and a half to three years before we started our tightening campaign,” Bullard said in his speech in St. Louis.
“If we took that as a benchmark that would put us in the first half of 2012.”
Bullard added that in the debate on when to tighten policy, “the idea that you might be creating asset bubbles by keeping rates too low for too long will be an important argument.”
But offsetting this was the fact this recession is far deeper than the previous two, with unemployment at its higher level in 26 years and expected to rise further from the October level of 10.2%.
Bullard said his 2012 outlook assumes the most recent recession ended this summer, and that the FOMC, as in the past, will begin to raise rates about two-and-a-half to three years after a return to growth.
The economy emerged from the slump in the September quarter, so the Fed could start lifting rates in the front half of 2011.
So if rates remain around current levels for the next two to three years, what’s that say about the prospects for the overall economy, given the debt burden, weak banks and the unemployment problem?
And President Obama surprised in a rare interview with Fox News towards the end of his Asian trip, that the US economy could stumble into a "double dip recession" early next ye
