Wednesday
August 27, 2014

Fed Chair Sounds Cautionary Note On Housing

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Fed Chair Sounds Cautionary Note On Housing

Federal Reserve Chairwoman Janet L. Yellen testified on Wednesday to lawmakers that a slowdown in housing could pose a risk to the economic recovery.

“Readings on housing activity, a sector that has been recovering since 2011, have remained disappointing so far this year and will bear watching,” Yellen said at a hearing of the Joint Economic Committee. “Another risk — domestic in origin — is that the recent flattening out in housing activity could prove more protracted than currently expected, rather than resuming its earlier pace of recovery.”

Weak job and salary growth remain big challenges for housing and the economy, Yellen noted. The government's jobs report in April did show some improvement, with the unemployment rate falling to 6.3 percent — the lowest level since September 2008.

“While conditions in the labor market have improved appreciably, they are still far from satisfactory,” Yellen told lawmakers. “The share of the labor force that has been unemployed for more than six months and the number of individuals who work part-time but would prefer a full-time job are at historically high levels. In addition, most measures of labor compensation have been rising slowly — another signal that a substantial amount of slack remains in the labor market.”

Yellen noted that there was overall stagnant economic growth in the first three months of the year, but attributed some of that weakness to temporary factors like weather. Yellen said she expects the recovery to pick up for the rest of the year.

"With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already underway, putting the overall economy on track for solid growth in the current quarter," Yellen said.

Source: “Yellen Sees Improved Economic Growth, Worries About Housing Slowdown,” The Los Angeles Times (May 7, 2014) and “Housing Now a Headwind for Struggling Economy,” HousingWire (May 7, 2014)

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