Continued strength in consumer and business spending is counterbalancing a deepening slump in the housing market, according to several economic reports released Wednesday.
In Colorado and neighboring states, a Federal Reserve survey of regional economic conditions showed moderate economic growth and stronger-than-expected retail sales – but also weakening housing prices.
The U.S. economy grew at an inflation-adjusted annual rate of 2.2 percent in the third quarter, a significant improvement from preliminary estimates of 1.6 percent growth made a month ago.
Economists had expected Wednesday’s revisions to gross domestic product would show 1.8 percent growth, according to a consensus estimate from Bloomberg.
Business investments rose at a 10 percent pace while consumer spending remained strong, increasing 2.9 percent.
“Consumers continued to hold up the economy, but with housing and auto sales dropping, it remains to be seen how much longer consumer spending can stave off recession,” said Peter Morici, an economist with the University of Maryland.
The GDP report showed that housing investment fell 18 percent in the quarter, the biggest decline in 15 years. Real GDP growth would have been around 3.4 percent without the housing slowdown.
Two separate reports on existing- and new-home sales also showed continued declines in either the number of sales or median prices.
New-home sales dropped 3.2 percent in October from September and are down 25.4 percent from October 2005, according to a Commerce Department report Wednesday.
Median new-home prices rebounded slightly, 1.9 percent, after suffering their largest recorded monthly decline in September.
The inventory of new homes for sale also fell slightly.
A report on existing-home sales Tuesday from the National Association of Realtors showed the reverse – a slight increase in homes sold and a 3.5 percent decline in the median resale price.
Looking at October and early November, most regions continued to report moderate growth, including Colorado and surrounding states, according to the Federal Reserve’s beige book.
Except for autos and furniture, retailers in the Fed’s 10th District, which includes Colorado, reported stronger-than-expected sales.
Labor markets are getting tighter, with a majority of employers contacted reporting a shortage of skilled and specialized workers, the Fed said.
The Federal Reserve and bond markets remain at loggerheads on the direction of the economy, said Lou Barnes, a Fed watcher and mortgage banker in Boulder.
Bond investors are pricing in a reduction in short-term interest rates by the Fed early next year.
Interest rates on 30-year mortgages, which approached 7 percent in the summer, are closer to 6 percent.
But Fed officials continue to argue that inflation remains a threat and that rate cuts are not warranted, Barnes said.
“What we have learned in Colorado is that the economic damage from flat housing prices takes time to develop,” he said.
Staff writer Aldo Svaldi can be reached at 303-954-1410 or asvaldi@denverpost.com.
