Bernanke Comments, Stocks Decline

123jump.com Staff
14 Feb, 2008
New York City

U.S. stocks reversed its earlier course and fell after cautious comments from the Fed Chairman Bernanke. The comments highlighted the ongoing correction in the housing market and noted that the housing market may decline further. The Chairman estimated that the near term outlook for the economy is sluggish and noted that downside risks to the growth have increased. Unemployment claims at the end of the last week decreased.

[R]12:30PM New York – U.S. stocks declined after comments from the Fed Chairman Bernanke.[/R]

The U.S. stocks declined sharply after the Fed Chairman Bernanke highlighted the risks to the economic downturn linked to the ongoing correction in the housing market and dramatic decline in the health of the U.S. banks.

The Federal Reserve Chairman Ben Bernanke sounded a cautionary note in his testimony to the Senate. Bernanke highlighted the recent strains in the banking sector and turmoil in the mortgage securities markets also noted the recent weakness in dollar, rising food and energy price inflation, and ongoing correction in the housing market.

He noted, “In part as the result of the developments in financial markets, the outlook for the economy has worsened in recent months, and the downside risks to growth have increased. To date, the largest economic effects of the financial turmoil appear to have been on the housing market.

The virtual shutdown of the subprime mortgage market and a widening of spreads on jumbo mortgage loans have further reduced the demand for housing, while foreclosures are adding to the already-elevated inventory of unsold homes. Further cuts in homebuilding and in related activities are likely.”

He also alluded to the lack of flexibility the Fed enjoys in tacking the issue in the short term and noted that, “Monetary policy works with a lag. Therefore, our policy stance must be determined in light of the medium-term forecast for real activity and inflation, as well as the risks to that forecast.”

He estimated that the short term economic growth will be impacted by the current malaise in the securitization markets and a weakness in the construction industry.

He said in his testimony, “At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt.”

The Chairman sounded optimistic tone on the inflation and hoped that inflation will remain under check. He estimated that, “At the same time, overall consumer price inflation should moderate from its recent rates, and the public's longer-term inflation expectations should remain reasonably well anchored.”


Unemployment claims declines

In the week ending Feb. 9, the advance figure for seasonally adjusted initial claims was 348,000, a decrease of 9,000 from the previous week's revised figure of 357,000.

The four-week moving average was 347,250, an increase of 12,000 from the previous week's revised average of 335,250. Alaska registered the highest insured unemployment rate with 4.9% followed by 4.5% in Michigan and 4% in Rhode Island.

Metro Home Prices

In the fourth quarter, 73 out of 150 metropolitan statistical areas show increases in median existing single-family home prices from a year earlier, including 11 areas with double-digit annual gains and another 12 metros showing increases of 6 percent or more; 77 had price declines including 16 with double-digit drops.

Lawrence Yun, NAR chief economist, said disruptions in the mortgage market have played a role. “The continuing crunch in the jumbo loan market that began in August has disproportionately reduced the number of transactions in higher price ranges,” he said.

Yun added, “For buyers who need loans of more than $417,000, mortgage interest rates have been running more than a percentage point higher, and that has been having an obvious impact. Higher ratios of sales for more moderately priced homes are naturally dampening the national median price as well as the data for some of the more expensive markets.”

International trade and services deficit declines in 2007

The Department of Commerce reported total December exports of $144.3 billion and imports of $203.1 billion resulted in a goods and services deficit of $58.8 billion, down from $63.1 billion in November, revised.

December exports were $2.2 billion more than November exports of $142.2 billion. December imports were $2.2 billion less than November imports of $205.3 billion.

For 2007, exports of $1,621.8 billion and imports of $2,333.4 billion resulted in a goods and services deficit of $711.6 billion, $46.9 billion less than the 2006 deficit of $758.5 billion.

For goods, exports were $1,149.3 billion and imports were $1,964.9 billion, resulting in a goods deficit of $815.6 billion, $22.7 billion less than the 2006 deficit of $838.3 billion.

For services, exports were $472.5 billion and imports were $368.5 billion, resulting in a services surplus of $104.0 billion, $24.2 billion more than the 2006 surplus of $79.7 billion.

For the year 2007, goods and services deficit or total traded deficit declined to 5.1% of GDP from 5.7% in 2006.