Distressed sales account for large part of February home sales.  New and existing single-family home sales rose in February as buyers were able to take advantage of significant price discounts.  The Census Bureau reported that new home sales increased 4.7 percent with strong sales figures in the South and West offsetting declines in the Northeast and Midwest.  However, the median sales price for new homes fell 2.9 percent to just above $200,000 reflecting the composition of deeply-discounted home sales in the overall figures.  The inventory of unsold new homes continued to fall, but the months’ supply of new homes – the amount of time it would take to sell off the inventory of unsold homes at the current sales rate – was at 12.2 months, slightly below the all-time high of 12.9 months reached in January.  Similarly, distressed sales made up 40 to 45 percent of existing home sales in February, which increased 4.4 percent according to the National Association of Realtors.  Nevertheless, the inventory of unsold existing single-family homes also increased in February, likely indicating a significant group of people who are now looking to sell after previously taking their house off the market.  Given the presence of pent up housing inventory and the historically low sales levels, it’s clear that there are still significant challenges facing the housing market. (See Chart)

Consumer spending falls 0.2 percent in February.  The Bureau of Economic Analysis reported that inflation-adjusted consumer spending declined 0.2 percent in February after increasing 0.7 percent in January.  Most of the decline was due to a 1.5 percent decrease in spending on durable goods, itself largely a function of lower spending on motor vehicles and parts.  The level of real consumer spending has dropped off considerably since mid-2008 and is now 1.4 percent below last February’s spending level.  Conversely, the personal savings rate (as a share of disposable personal income) is now at 4.2 percent, up from 0.3 percent twelve months ago.  The high savings rate may reflect households looking to insulate themselves against economic uncertainty, but the drop-off in spending hinders a recovery as businesses must cope with lower sales and a bleaker retail outlook.

Final revision of 4th Quarter GDP shows another 0.1 percent decline.  In its third and final revision to Fourth Quarter 2008 Gross Domestic Product (GDP), the Bureau of Economic Analysis reported that real output fell 6.3 percent at a seasonally adjusted annual rate, a 0.1 percent greater decline than previously reported.  The downward revision reflected a larger drawdown in manufacturing inventories, lower levels of investment in commercial and health structures, and revisions to trade data.  Looking back at calendar year 2008, real GDP increased 1.1 percent compared to 2.0 percent in 2007.  The primary factors causing the slowdown in GDP growth were a deceleration in consumer spending, lower investment in equipment and software, and lower growth in exports and state and local government spending.