- The Washington Times - Wednesday, December 18, 2002

The economy is closing out the year much as it began: The housing industry posted another strong construction gain in November, while U.S. factories struggled to show a tiny increase after three months of weakness.
But another report says inflation's no-show may allow the Federal Reserve, whose interest rate cuts have fueled both the housing and auto booms, to cut rates further. Consumer prices rose just 0.1 percent last month as a big drop in energy costs helped offset a sharp rise in medical costs.
The flurry of reports suggested that the economy may be finding its way through what Federal Reserve Chairman Alan Greenspan has termed a soft patch the slowdown that prompted President Bush to replace his Treasury secretary and top economic adviser.
Mr. Bush hopes the firings will assuage Congress and help pass his tax cuts to stimulate the economy.
Construction of homes and apartments rose 2.4 percent in November as the lowest mortgage rates since the mid-1960s continued to bolster the housing industry, on track for its best new-construction year since 1986.
The increase pushed housing construction to a seasonally adjusted annual rate of 1.697 million units in November after construction starts had dipped 8.4 percent in October.
Michael Carliner, senior economist for the National Association of Home Builders, said that in addition to low mortgage rates, home demand has been spurred by rising house prices, making real estate an attractive investment alternative to the falling stock market.
Mortgage rates, which hit a low of 5.94 percent last year, are now about 6 percent. David Huether, chief economist for the National Association of Manufacturers, predicted that while they probably won't fall further, they will rise only gradually in the coming year, with 30-year mortgages likely to be about 6.5 percent at the end of 2003.
"For mortgage rates this is probably as good as it gets. That is one reason we are predicting a slowdown in housing starts for next year, because we don't see rates falling any more," he said. He forecast that housing starts are likely to drop 3 percent next year after posting a nearly 6 percent rise this year.
The 0.1 percent rise in industrial production followed a 0.6 percent decline in October and reflected a big 3.9 percent rise in production at auto plants, which followed three months of production cutbacks. Without the big auto gain, overall manufacturing production would have fallen 0.3 percent, reflecting continued weakness in business spending on new equipment.
Mr. Huether said that this underscored the need for another government stimulus package with tax breaks for businesses to spur lagging capital spending.
"It seems clear that the general uncertainties surrounding the stock market and a possible war in the Middle East are trumping the improvements in the economic fundamentals," Mr. Huether said.

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