It’s Not Over ‘Til It’s Over

US Banker  |  September, 2009

By Joseph Rosta

Print Email Reprints Feedback

The U.S. chapter of the Great Recession may have reached its technical end, as Federal Reserve chairman Ben Bernanke has cautiously suggested, but that doesn’t mean that a normal expansion has begun. The Federal Open Market Committee gave a fairly firm nod to stability in its September 23 meeting, pointing to increased activity in the housing sector, a better inventory picture, and improvement in the financial sector. But “economic activity is likely to remain weak for a time,” so the Fed’s lending rates remain nominal and its innovative measures remain intact, even if they’re scaled back.

As if on cue, economic data turned a bit nasty last week. Durable goods, down 2.4 percent in August; existing home sales, down 2.7 percent; new home sales were below analysts’ expectations; the ELFA Monthly Leasing and Finance Index (which measures activity in the $650-billion equipment finance business), down 35.1 percent August year-over-year; and the Fed’s 2009 Shared National Credits review showed a “significant deterioration in credit quality of leveraged finance credits.” And today the Conference Board reported that consumer confidence weakened in September.

The housing market looks increasingly shaky as the Nov. 30 expiration date of the $8,000 first-homebuyer tax credit nears. Political winds are blowing in several directions on the possible extension and/or expansion of the tax credit, and the Fed has stretched its purchase of agency mortgage-backed securities as part of an effort to keep mortgage lending rates low through next March.

CreditSights’ August 25th Housing Monitor worries that the fragile housing sector would not withstand the elimination of the tax credit. “We are also concerned that those that are unemployed and receiving benefits will eventually lose these government entitlements and remain jobless, raising our concerns over further mortgage delinquencies and foreclosures.” It may well be that the highly anticipated unwinding of government programs will have to be unwound.