In the aftermath of two hurricanes that helped push the price of gasoline beyond $3 a gallon, Americans are taking a seat-of-the-pants approach to fighting back. Namely, they are staying home.
Not only are they driving less and buying fewer new cars, their ability to cut back on trips to the mall is casting a pall over retailers, who fear that the holiday spending season will be a bust.
One area that appears exempt from any buyers’ strike, however, is housing. The love affair between homebuyers and ultralow mortgage rates, which has fed a 10-year construction boom, seems unimpaired.
A fresh test comes Wednesday, with a report on September housing starts. Economist Lynn Reaser is looking for a tiny decline, to an annual rate of 2 million units from 2.01 million a month earlier.
“Although there are some signs of cooling, especially among sellers of high-end homes who have been forced to reduce prices, builders remain relatively optimistic,” said Reaser, of Bank of America’s investment strategies group in Boston.
The fact that long-term mortgage interest rates pushed above 6 percent last week, to their highest level in seven months, suggests that construction is headed toward a soft landing, but no crash, she said:
“Because job growth remains on track, and interest rates are rising only moderately, the outlook for real estate remains positive.”
Perhaps the most closely watched report this week will be Wednesday’s beige book from the Federal Reserve, a region-by-region look at economic activity.
Economist John Silvia says there are signs that “the economy has slowed going into the fourth quarter, not only with weaker retail sales but with a decline in industrial activity.”
Keep a careful eye on what the report says about auto sales and housing construction, says Silvia, of Wachovia Bank in Charlotte, N.C.
No matter what the report says, the central bank will raise short-term rates again when policymakers meet in about two weeks, according to Silvia.
“Members of the Fed have indicated they are quite concerned about inflation, and they will raise rates when they meet Nov. 1,” he said.
That would be the 12th boost in the central bank’s overnight lending rate in about 16 months and would boost it to a flat 4 percent.
The days before Halloween are traditionally the spooky season in the stock market, and, sure enough, equities have fallen by about 3 percent since the start of October. But that’s not too scary a performance, given past pratfalls.
Shoring up Wall Street are third-quarter corporate profits that are showing year-over-year growth of about 16 percent. With numerous earnings reports due out over the next two weeks, there is a chance that investors will see only minimal damage to their portfolios before the start of November, which traditionally sounds the starting gun for a yearend rally.
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