New residential construction increases, but construction on single family homes dipped in August.  The Census Bureau reported that new residential construction increased 1.5 percent in August to a rate of 598,000 homes a year.  However, the gain was due to an increase in construction on new multi-unit dwellings, which fluctuate widely from month to month.  Construction on single-family homes fell 3.0 percent in August to a rate of 479,000 homes per year. Before August, construction of new single family home starts increased for five straight months.  New single family housing starts are 34 percent above the historical low reached in January and February of this year, but remain well below the average rate seen from  1959 to 2000.  And while new home sales have risen in recent months, the most recent figure suggests that new home sales still remain depressed and excess inventory remains above historic levels.  (See Chart) Several tools used by the administration and lawmakers to improve conditions in the housing market may end soon.  The Federal Open Market Committee is expected to discuss the future of its program to purchase mortgage-backed securities, which has kept mortgage rates relatively low.  The average interest rate on a 30-year fixed-rate home loan was 5.04 percent for the week ending September 18th, well below its most recent peak of 6.46 percent at the end of October 2008.  The $8,000 first time homebuyer’s tax credit included in the stimulus package is scheduled to expire on November 30, 2009. 

Consumer prices dropped 1.5 percent over the past twelve months.  The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in August.  Over the past year, the index decreased 1.5 percent.  Large changes in the CPI for energy goods, composed in large part by gasoline pump prices, continue to drive the trajectory of headline CPI.   Last month’s increase in overall prices was largely due to a 9.1 percent jump in gasoline prices; however the gasoline index still remains 30 percent below its August 2008 level.  The average price for a gallon of regular grade gasoline was $2.62 in August 2009, compared to $3.78 one year ago. Factoring out more volatile energy and food prices, the “core-CPI” increased 0.1 percent in August, and was 1.4 percent above the previous August’s index—the smallest over-the-year increase since February 2004. Increases last month in price indices for used cars and trucks, airline fares, and lodging away from home were partially offset by a 1.3 percent decline in the index for new cars driven partly by “cash for clunkers” incentives.  The data over the past year demonstrate a trend of moderating consumer price inflation, which is consistent with continued sluggish retail sales.

Fed Chairman: Recession is “very likely over”, but economy will remain weak for some time.  At a forum hosted by the Brookings Institution on September 15, 2009, Federal Reserve Chairman Ben Bernanke reflected on events of the past year and the current state of the economy.  Bernanke said that the recession is “very likely over” and the economy is in a recovery from a “technical perspective.”  But, he cautioned that the recovery will be slow, with moderate positive economic growth in the third quarter of 2009 and through 2010 due to the depth and severity of the recession.  Unemployment will persist and the unemployment rate will remain high until the economy grows as at a pace fast enough to create jobs beyond those needed to employ workers entering the labor force.  The unemployment rate rose to 9.7 percent in August.