We don’t know if Treasury Secretary Henry Paulson sees the Commerce Department’s data before its official release but Paulsen’s comments on the likelihood of continued weakness in the housing sector yesterday may have taken some of the sting out this morning’s news of a 10.2% drop in housing starts for September. The figures pushed housing starts to its lowest level in 14 years according to reports. Building permits also declined, dropping 7.3% from the revised August number and 25.9% from September 2006 numbers. Paulsen said in a speech at Georgetown University that the weak housing sector poses the greatest current risk to the economy.
Of course Paulsen didn’t need any additional evidence of the weak housing picture as recent numbers have been consistently dreary. And despite this morning’s number, equities rallied on the open with the Dow Jones Industrial Average pushing above 14,000. The rally was short lived however, as the Dow began a slow decline after the opening surge that did not stop until the release of the Beige Book for September.
The Federal Reserve Bank’s Beige Book report, released at 1:00 pm CST this afternoon showed that the economy has slowed in the last six weeks but continues to grow. The report noted that retail sales growth has “softened” and manufacturing growth has “dampened.” The report indicates a general weakening across the board mostly attributable to the housing sector. The report appears to have stemmed the tide of downward pressure on equities. The Dow had lost approximately 230 points from it early morning surge until the Beige Book release, which coincided with today’s low.
The report indicated a weakening economy with no significant threat of greater inflation, which could justify a further interest rate cut by the Federal Open Markets Committee at the next Fed meeting. That may explain the markets’ reaction to the report.
