NEW YORK -- A modest drop in November housing remains mired in slow growth and gave the Federal Reserve Board additional support for a decision to ease credit, economists said.
"Housing, like auto sales, has lost forward momentum due to weak income, job loss, and concern about future economic events," said Joe Carson, chief economist at Chemical Banking Corp. in New York.
He said bad weather could have stalled construction in the Midwest, but "the decline on the West Coast was fundamental."
Slack Time for Permits
Construction of new homes fell 2.1% to a seasonally adjusted annual rate of 1.07 million after a revised 7.1% rise in October. Permits to build new homes also fell to 988,000 from a revised 1.03 million units in October.
Unseasonably cold weather was cited as slowing construction in the Midwest and the East.
"Even abstracting from that, the economy has been stagnant for three years," said Neal Soss, chief economist at First Boston Corp. "The data point in the same direction as every other bit of news we've been getting in recent months."
Stephen Slifer, economist at American Express Co.'s Lehman Government Securities, noted that the persistent slump in housing shows the brief recovery in the spring merely reflected demand that had been suppressed during the Gulf War.
"The recession never really ended," he said, citing a continued lag in consumer and business confidence. "Eventually, lower interest rates will get it going."
Economists agreed the data gave the Fed one more reason to ease credit as the Federal Open Market Committee met on Tuesday.
The Fed had already lowered the federal funds rate nine times this year to 4.5%, the same level as the discount rate.
"We have not seen the benefit of recent declines in rates yet," Mr. Carson said. "With inflation down to 3%, I can easily see the fed funds rate going down to 4% or 3%. We need [30-year fixed] mortgage rates down to 8% or lower." The mortgage rate currently averages about 8.5%.