Wednesday, March 26, 2008

New Home Sales Fall, Factory Orders Drop: Financial News - Yahoo! Finance

New Home Sales Fall, Factory Orders Drop: Financial News - Yahoo! Finance: "WASHINGTON (AP) -- Sales of new homes fell in February for the fourth straight month, pushing activity down to a 13-year low as the steep slump in housing continued. The Commerce Department reported Wednesday that new home sales dropped 1.8 percent last month to a seasonally adjusted annual rate of 590,000 units, the slowest sales pace since February 1995. The decline was slightly worse than expected.he median price of a home sold last month dropped to $244,100, down 2.7 percent from the level of a year ago. The prolonged slump in housing has dragged down overall economic activity. Many analysts believe the slump could combine with a multitude of other problems including a severe credit crunch, soaring energy prices and plunging consumer confidence, to push the country into a full-blown recession."
Slowest sales pace since February 1995--that is grim. The prosecution was presenting its case in the OJ Simpson case then. And the economy was growing so fast the Fed was trying to slow it down. The Fed had been raising interest rates from February 1994 to February 1995 to slow it down. Here's a summary from Prof. J. Robert Gillette:
"In 1995 the United States economy moved well into its fifth year of economic expansion since the last recession ending March 1991 and experienced the much publicized "soft landing." The Federal Reserve (Fed) engineered this "soft landing" with a series of interest rate hikes from February 1994 to February 1995. The "soft landing" refers to the slowing down of an overheating economy on the verge of driving up inflation, to an economy growing near its full-employment growth rate with low inflation. The delicate balance of slowing the economy without also causing a recession (a "hard landing") appeared in jeopardy in the second quarter of 1995 when the economy stumbled, and many wondered whether the Fed had over-tightened monetary policy."

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