US economic recovery is sluggish, but no double dip - Freddie Mac

12 November 2010 19:04  [Source: ICIS news]

WASHINGTON (ICIS)--The US economic recovery remains sluggish, but there are positive signs of growth and fears of a double-dip recession appear unwarranted, economists at a major US mortgage market agency said on Friday.

The Federal Home Loan Mortgage Corporation (FHLMC), better known as Freddie Mac, said that modest improvements in US private sector employment, manufacturing and consumer spending indicate that the recovery continues to expand although at a snail’s pace.

“There has been a spate of good news in recent weeks that suggests that fears earlier in the year about a ‘double-dip’ recession were overblown,” said the office of chief economist at FHLMC in its monthly outlook report.

The corporation, a government-sponsored enterprise, was created by Congress in 1970 to serve as a secondary market for mortgage loans, a function designed to free up more capital for home loans.

Freddie Mac and its sister agency, Fannie Mae, played a central role in the US housing crisis that began in 2006 by remarketing sub-prime mortgage loans in investment bundles sold to investors worldwide.

Freddie Mac’s chief economist noted that momentum had returned to the US jobs market, with private sector job growth showing a gain of 159,000 positions in October, the second-largest advance since March 2007 and the 10th consecutive month of improvement.

However, the agency conceded that the increase of 159,000 jobs in October was barely enough to meet new employment demand generated by population growth, and that workplace expansions would have to grow much faster to reduce the still-high unemployment rate of 9.6%.

The US economy must add about 150,000 jobs each month to accommodate new workers entering the employment market for the first time. To make any significant reductions in the unemployment level, the economy must generate more than 200,000 new jobs each month, preferably 250,000 or more.

But Freddie Mac also noted more expansion in the US manufacturing sector, with the Institute for Supply Management (ISM) reporting renewed production growth in October after a third-quarter slowdown.

In addition, consumer spending grew at a 2.6% annual pace in the third quarter, and the agency’s economists pointed out that household outlays had picked up speed for the past three quarters. This suggested that consumers were gaining a bit more confidence about their own situations, despite continuing high unemployment.

On the downside, Freddie Mac noted that the crucial US housing sector “is still struggling to regain its footing”.

“The delays, costs and unforeseen collateral damage from the foreclosure documentation troubles could postpone a housing recovery,” the economists said.

The housing sector, especially new home construction, is a major downstream consuming industry for a wide variety of chemicals, resins and derivative products.

“The sluggish nature of the recovery means the unemployment rate likely will remain at or above 9% through much or all of next year, with a decline in unemployment only gradually providing relief to the housing market,” the economists said.

“The October employment report showed signs that an upturn in hiring may be underway, though, and mortgage rates at record lows are still helping the housing market recovery,” the analysis added.

“For an economy thirsty for good news, these ‘half-full, half-empty’ signs indicate the recovery continues to move forward,” Freddie Mac said.

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