The U.S. Economy Is Performing Well Despite the Housing Downswing

Growth of U.S. economic output (real Gross Domestic Product) has slowed to some degree in recent quarters as the housing production component (residential fixed investment) has contracted substantially.

However, the housing contraction has not generated serious spillover effects in other sectors of the economy (including personal consumption expenditures), and strengthening activity in some sectors, including nonresidential construction and foreign trade, has helped offset the negatives from housing.

As a result, the economy has not skated close to recession and the probability of an economic downturn in 2007 is not high.

Economic resilience also is evident in the labor market. The housing downswing certainly caused job losses in residential construction during most of 2006, and further losses are virtually inevitable during the first half of this year. However, overall job growth was well maintained in 2006 and we’re expecting a solid performance in 2007 as well.

The unemployment rate is likely to gravitate upward from recent expansion lows, but remain in a historically low range.