The newest figures from the Commerce Department showed that the Gross Domestic Product (GDP) grew at a pace of 3.2 percent during the first quarter of 2010, slightly below economists’ expectations.
Although this number is a decline from the fourth quarter of 2009, when the GDP grew by 5.6 percent, it is still positive and shows that the economy is gaining speed. This marks the third consecutive quarter of economic growth.
Consumer spending grew at 3.6 percent this quarter, the best quarter since 2007. In contrast, consumer spending in the fourth quarter of 2009 increased only 1.6 percent. Consumer spending is one of the keys to economic recovery, as it comprises about 70 percent of the GDP.
Unemployment is still high at 9.7 percent, and will likely restrain further growth in consumer spending, as fears about unemployment are still prevalent. Manufacturing has been the catalyst for the recovery thus far, although gains in the manufacturing sector have yet to result in substantial hiring. Despite this, it does appear that some manufacturers are on the verge of hiring again.
According to the last statement by the Federal Reserve, “subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period”. This is good news for mortgage rates, as they are unlikely to increase from Federal Reserve actions in the near future. Most analysts agree that market conditions will cause an increase in mortgage rates before the end of the year, short-term volatility notwithstanding.
Lastly, improvement in the housing market is still held back by unemployment and a large inventory of distressed homes. Home building is a major source of employment in the United States, so improvements in the labor market, home construction, and the housing market are inextricably linked together.
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