There are more signs of economic slowdown in the U.S. economy as auto sales and construction spending both weakened in the latest reporting period. But VOA's Barry Wood reports business economists meeting in Washington say a weak housing market is the principal challenge facing the U.S. economy.
Auto sales by U.S. car makers fell more than expected in February while overall manufacturing registered its biggest decline in nearly five years. Construction spending in January was down nearly two percent, worse than had been expected.
Economic problems are compounding: oil prices are at a record high, the dollar is weakening, food prices are rising and the housing market continues to weaken. In the latest three month period the economy grew at a meager six-tenths of one percent annual rate.
Treasury Secretary Hank Paulson told business economists gathering in Washington that housing poses the greatest risk. The treasury secretary had asked banks to help distressed borrowers and avoid increases in interest rates, but so far with little effect. Paulson said the economy will avoid a recession -- six months of economic decline - but the business economists are not so sure.
Housing expert Richard Peach of the Federal Reserve Bank of New York says home prices are likely to decline further, posing additional problems for the economy as a whole.
"There are substantial downside risks that the flow of credit will be impeded for a very long time. And that it is going to take some combination of lower nominal interest rates and lower home prices to clear out this inventory," he said.
Mark Zandi of Moody's investment services told the meeting that the economy is already in recession. He said lower interest rates have not yet halted the decline in housing. He believes that home prices that fell 10 percent in 2007 will decline a further 10 percent this year. He said the housing slump is being worsened by a credit market that has not functioned properly since sub-prime mortgage problems surfaced nine months ago.
"We need a functioning securities market. And until that market begins to operate with some degree of normalcy this [housing] market is not going to find a bottom," he said.
Zandi said the United States is facing a housing crisis that is worse than the early 1990s slump that was triggered by the collapse of many mortgage lenders.
Other speakers told the conference that rising inflation complicates the task of policy makers as both monetary and fiscal stimulus to boost growth put more money into circulation, thus boosting inflationary pressure.