"This is another sign that the economy seems to be slowing a bit from its red-hot run," says TIME senior financial writer Bernard Baumohl. Housing starts, explains Baumohl, are among the most interest-sensitive components of the economy, and tend to be a particularly prescient overall financial indicator. "When interest rates go up, as they have been," says Baumohl, "the first sectors to register a slowdown are car and housing purchases." In other words, Fed chairman Alan Greenspan's penchant for quarter-point hikes may have finally eased the American public's seemingly insatiable taste for big-ticket items like new real estate. And this, despite its overtones of recession, says Baumohl, can be seen as very good news: The Federal Reserve may be able to lay off its series of interest rate hikes sooner than previously expected. The stock markets certainly think so — the NASDAQ on Tuesday posted its best-ever one-day gain, while the Dow registered a respectable 185-point rise.
Greenspan's Medicine May Finally Be Working
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Can you smell the burning rubber? Savor it — it's the scent of the speeding U.S. economy squealing to a much-needed slowdown. As if to bolster the prevailing psychology of caution, the Commerce Department reported Tuesday that housing starts on multi-unit buildings, a key indicator, were down to a six-year low in March, a decidedly large drop from December's record high. Simply put, the plunge in starts means that fewer builders are breaking ground on apartment and condominium complexes.