Economy Watch: Congress Acts as Deadline Nears, but GDP Still Anemic
- Aug 01, 2011
Congress was unusually busy over the weekend, for obvious reasons. On Friday House Speaker John Boehner scraped together the votes of enough members of his own party to pass “the Boehner debt plan” 218-210 (no Democrat voted yes, not even the blue dogs, and 22 hobbit Republicans voted no). About two hours later, the Senate voted 59 to 41 to table the bill, which is parliamentary parlance for putting it in the memory hole, never to be seen again. All of the Senate’s Democrats, both of its Independents, and six Republicans voted for the tabling.
But a looming deadline for a politically costly, self-inflicted economic catastrophe seemed to focus the minds of Capitol Hill politicos, and so by the end of the weekend the outline of an 11th-hour deal seemed to be in place, as announced by President Obama Sunday evening. Under the terms of the not-quite-finalized deal, the debt ceiling would go up until after the 2012 election, spending would be cut by $900 million over 10 years, and a committee of lawmakers would be tasked to find another $1.5 trillion to take out of the budget. Both houses of Congress still have to vote on the plan, however.
Other long-term deficit questions, such as how to reform the tax code, contain Medicare costs, and cut the defense budget, have been left for another time (which will be soon). Also, the shoe hasn’t dropped on whether any rating agencies will downgrade U.S. debt or not
GDP revised way down, consumers in a funk
The economic shocker on Friday wasn’t the fact that Congress was still dithering about the debt ceiling, since that was not a surprise. Instead, the real jolt was the report from the Bureau of Economic Analysis that said that U.S. gross domestic product grew at a meager annualized rate of 1.3 percent during the second quarter of 2011, and that first quarter’s growth had been revised to a minuscule 0.4 percent annualized rate.
Consumers didn’t need the official GDP revision to feel down in the mouth during July. The Reuter’s/University of Michigan’s Consumer Sentiment Index fell to a final July reading of 63.7, compared with 63.8 at mid-month and 71.5 for final June.
The current-conditions component of the index didn’t actually do that badly, with a final July reading of 75.8 compared with 76.3 at mid-month and 82 for a final reading in June. The expectations component of the index really turned sour, however, which doesn’t bode well for the economy in the coming months, since a fair amount of economic sluggishness is self-fulfilling. Expectations ended July at 56, according to the University of Michigan, up slightly from 55.8 at mid-month but down considerably from 64.8 in June.
Homeownership rate continues to shrink
According to the U.S. Census Bureau on Friday, national residential vacancy rates during the first quarter 2011 were 9.7 percent for rental housing and 2.6 percent for homeowner housing. The rental vacancy rate was 0.9 percentage points lower than during the first quarter of 2010, but 0.3 percentage points higher than last quarter of last year. The homeowner vacancy rate was about the same as during the first quarter 2010, and only 0.1 percentage points lower than the rate during 4Q10.
Homeownership rates stood at 66.4 percent of American households during the first quarter of 2011, reports the bureau. The U.S. rate of homeownership has been in a steady decline since the mid-2000s, when it reached highs of 69 percent or more (most recently in the third quarter of 2006, at exactly 69 percent). The current rate is roughly at a late-1990s level; back in the 1980s, homeownership hovered between 63 percent and 64 percent.
Wall Street passed the day nervously on Friday, roller-coastering for most of the time until the Dow Jones Industrial Average ended down 96.87 points, or 0.79 percent. The S&P 500 lost 0.65 percent, and the Nasdaq declined 0.36 percent. If the debt ceiling deal is the real deal, expect a Monday bounce.