Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights the FOMC comments, and productivity.

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  • Several measurements of productivity were released this morning by the Bureau of Labor Statistics. Not surprisingly, productivity fell in the 2nd quarter and the 1st quarter’s figures were revised downward. This downward trend reflects the sharp downward revision in GDP (total production) in recent months.
  • Real output fell, which given relatively fixed labor costs, drove up the unit costs of labor. As a result, real compensation was driven downward.
  • This afternoon the Federal Open Market Committee (FOMC), the group that decides whether the Fed should intervene in the economy, discussed its current stance on the economy. It decided to maintain the Federal funds rate, the rate at which banks can borrow from the Fed, at 0% to 0.25%. Furthermore, the FOMC recognized the deterioration in the economy and stated that it would monitor the economy and “employ…tools as appropriate” to promote a stronger economic recovery and stable prices. In a move important for housing, the FOMC made it clear that it would continue to reinvest the principle payments from its holding of asset purchased (mortgage backed securities and longer-term Treasury bonds) under QE2. While there was no mention of a third round of “quantitative easy”, though this may be one of the tools the FOMC referred to. The Fed has used asset purchases to drive down mortgage and bond rates thereby stimulating the economy.
  • Sluggish production has weighed on businesses’ plans to hire and raise pay both of which have shown up in recent employment releases. Soft demand for goods could result in more layoffs and stagnant income growth until consumer confidence and spending is restored. Today’s comments from the FOMC are important as they dispel the rumor that the Fed is out of tools to have an impact, they reiterate the Fed’s program of supporting low mortgage rates, and they make clear that the Fed is watching and ready to intervene. In short, the Fed is ready, willing and able to act, a message that should help bolster market and consumer confidence.
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