Economic Forecast Paper

Economic Indicators Paper

The Housing Industry

By

Tracey Matthew

Andre' Patterson

Julie Taylor

ECO/360

University of Phoenix

July 26, 2007

Mohyeddin Kassar, Instructor

Economic Indicators

Introduction

As previously outlined in our team's first project regarding the housing industry, there were six economic indicators which impact the housing industry. These indicators are GDP, the inflation rate, the unemployment rate, discount mortgage interest rates, housing starts and retail sales. Included will be a brief definition of each and its current status.

Real GDP

Real GDP, or gross domestic product, is an inflation-adjusted measure that reflects the value of all goods and services produced in a given year. Unlike nominal GDP, real GDP can account for changes in the price level and often provides a more accurate figure (Investopedia, A Forbes Media company, 2007).

According to a report released in December, 2006 Wells Fargo economists are optimistic about the 2007 economic growth. "The Gross Domestic Product (GDP) growth is expected to rebound as soon as next quarter" (2007 News Releases, 1999-2007). Dr. Jim Paulsen, chief investment strategist of Wells Capital Management predicts a 3.5 percent growth rate for 2007 based on expectations that the housing and automobile markets will flatten out.

The Inflation Rate

Inflation can be defined as the overall general upward price movement of goods and services in an economy (BLS, 2007). It is a continual rise in price levels and, subsequently, purchasing power is falling. The Consumer Price Index (CPI) measures inflation as experienced by consumers in their day-to-day living expenses and is separated into two groups or populations of consumers: The CPI for All Urban Consumers (CPI-U) and the CPI for Urban Wage Earners and Clerical Workers (CPI-W).

The current status of inflation as measured by calculating the current CPI-U and is published monthly by the Bureau of Labor Statistics. According to the Consumer Price Index for June 2007, the CPI-U increased 0.2 percent in June, before seasonal adjustment. The June level of 208.352 (1982-84=100) was 2.7 percent higher than in June 2006 (BLS, 2007). Economists reporting for Wells Fargo stated, "What the Fed needs to do today is encourage U.S. consumers and the government to save, not consume" (2007 News Releases, 1999-2007).

Current Inflation Rate

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave

2007 2.08% 2.42% 2.78% 2.57% 2.69% 2.69%

2006 3.99% 3.60% 3.36% 3.55% 4.17% 4.32% 4.15% 3.82% 2.06% 1.31% 1.97% 2.54% 3.24%

2005 2.97% 3.01% 3.15% 3.51% 2.80% 2.53% 3.17% 3.64% 4.69% 4.35% 3.46% 3.42% 3.39%

2004 1.93% 1.69% 1.74% 2.29% 3.05% 3.27% 2.99% 2.65% 2.54% 3.19% 3.52% 3.26% 2.68%

2003 2.60% 2.98% 3.02% 2.22% 2.06% 2.11% 2.11% 2.16% 2.32% 2.04% 1.77% 1.88% 2.27%

2002 1.14% 1.14% 1.48% 1.64% 1.18% 1.07% 1.46% 1.80% 1.51% 2.03% 2.20% 2.38% 1.59%

2001 3.73% 3.53% 2.92% 3.27% 3.62% 3.25% 2.72% 2.72% 2.65% 2.13% 1.90% 1.55% 2.83%

2000 2.74% 3.22% 3.76% 3.07% 3.19% 3.73% 3.66% 3.41% 3.45% 3.45% 3.45% 3.39% 3.38%

Get more Historical Data from InflationData.com

The Unemployment Rate

The unemployment rate is the percentage of people in the economy who are willing and able to work but who are not working (Colander, 2004).

The Bureau of Labor Statistic reports the employment situation in various categories: nonfarm, unemployment (household survey data), total employment and labor force (household survey data) and persons not in the labor force (household survey data). As of June 2007, nonfarm payroll employment increased by 132,000 in June and the unemployment rate was unchanged at 4.5 percent.

The number of unemployed persons was essentially changed in June--6.9 million--and the unemployment rate held at 4.5 percent. The jobless rate has ranged from 4.4 to 4.6 percent since September 2006.

Both total employment labor force (146.1 million) and the civilian labor force (153.1 million) were little changed in June. The employment-population ratio, 63.1 percent, and the labor force participation rate, 66.1 percent, also were about the same in May.

For persons not in the labor force, in June 1.5 million persons were marginally attached to the labor force compared with 1.6 million a year earlier. Among the marginally attached, there were 401,000 discouraged workers in June, down from 481,000 a year earlier. Discouraged workers were not currently looking for work specifically because they believed no jobs were available for them. The remaining 1.1 million persons marginally attached to the labor force in June had not searched for work in the 4 preceding the survey for reasons such as school attendance and family responsibilities (BLS, 2007).

Housing Starts

Housing starts are a measure of the number of residential units on which construction is begun each month. A start in construction is defined as the beginning of excavation of the foundation for the building and is comprised primarily of residential housing. Housing starts in the United States are used as an indicator of the state of the economy. If there is a rise in housing starts it likely means there is more money in the economy (Census Bureau, 2007).

The following is the current status of the housing starts as reported by Nasdaq, Wells Fargo and a Joint Release from the U.S. Census Bureau and the U.S. Department