Construction Industry Forecasts

Coming out of its Federal Open Market Committee meeting yesterday, the Federal Reserve in the United States committed to keeping its policy-setting interest rate, the federal funds rate, at its current record-low level “for an extended period.”

The federal funds rate has already ranged between 0.00% and 0.25% for more than a year, since December 16, 2008.  It was as high as 5.25% from mid-2006 through mid-2007.

According to the fed, while there is evidence of strengthening growth in the economy and improving employment prospects, consumer spending is still being restrained by a high jobless rate, meager income improvement, diminished housing wealth (i.e. low home prices) and tight credit.

Nor is inflation viewed as a sufficient threat at this time to warrant a more hawkish stand on rates. While the latest change in the U.S. all-items Consumer Price Index was +2.3%, the advance in the “core” rate was only +1.1%. The “core” series removes highly volatile energy and food components.

There was one dissenting opinion with regard to the lack of action on interest rates. Kansas City Federal Bank President, Thomas Hoenig, was reluctant to indicate that interest rates will be kept as low as they for a considerable and unspecified time still to come.

He is concerned about a build-up of future imbalances and an increased risk to longer-term macroeconomic and financial stability.

Central bankers are charged with considering not only the present state of the economy, but also what the economy will look like in a year or two from now. It is important for them to make decisions that won’t look out of place in retrospect.

Today’s weekly report from the Department of Labor, Employment and Training Administration, on initial jobless claims confirms how difficult it has been for the U.S. economy to break out of recession’s grip.

The initial jobless claims figure of 448,000 for the week ending April 24 was down by only 11,000 versus the previous week.

While the latest level was the lowest in four weeks, it was higher than the 439,000 figure recorded for February 6, 2010.

A second month of solid job gains is likely to be reported for April following on March’s +162,000 figure, but there is still a long way to go to recover all of the 8.2 million jobs lost in the U.S. since January 2008.

Alex Carrick