Payroll Employment: The U.S. economy lost a striking 533,000 jobs in November, the largest one-month drop since December 1974, according to the Bureau of Labor Statistics.  In addition, the job losses for September and October were revised to show larger declines than previously reported, with September now at 403,000 (versus the earlier 284,000) and October now at 320,000 (versus the earlier 240,000).  Since the start of the recession in December 2007, the U.S. economy has lost 1.9 million jobs, with two-thirds of that amount coming in the most recent three months.  The November employment statistics showed the unemployment rate rising to 6.7%, the highest reading in fifteen years.  November’s weak employment picture was present across the major industry sectors, including these job losses – retail, down 91,000; manufacturing, down 85,000; and construction, down 82,000.  Since reaching a peak in September 2006, construction employment has fallen by 780,000.

Monetary Policy: The Federal Reserve cut its target for the federal funds rate to historic lows, between zero and a quarter percentage point, on December 16. The policy statement indicated that the weak economy is “likely to warrant exceptionally low levels of the federal funds rate for some time” and that the Fed will use “all available tools to promote the resumption of sustainable economic growth.” These tools include the program announced in late November to buy as much as $600 billion of debt issued by Fannie Mae and Freddie Mac. The statement also indicated that in early 2009 the Fed will implement the “Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses.”

Consumer Prices: Consumer prices continued to fall in November, according to the Bureau of Labor Statistics. The consumer price index dropped 1.7% from the prior month, reflecting a steep 17% plunge in energy prices. Since peaking in July, energy prices are down 32%, with gasoline prices falling 47% during this time. On a year-over-year basis, the consumer price index in November grew just 1.1%, compared to the most recent high of 5.6% in July. The “core rate” (excluding food and energy prices) has also receded, with November up 2.0% year-over-year, compared to 2.5% in July and August. Given the mounting weakness for the U.S. economy, combined with the global slowdown, it’s expected that the year-over-year change in the consumer price index will stay low in coming months.

Construction Indicators

Home Sales: New and existing home sales showed further weakness in November. New home sales, as reported by the U.S. Census Bureau, retreated 2.9% to 407,000 (annual rate), marking the ninth decline out of the first eleven months of 2008. Compared to the same month a year ago, new home sales in November were down a steep 35%. The months’ supply reading for new home sales was 11.5 months, remaining above the 11-month mark where it has resided since August. The decline for existing home sales provided another indication that the housing market is still in the process of reaching bottom. As reported by the National Association of Realtors, existing home sales fell 8.6% to 4.49 million (annual rate) in November, after hovering close to 5.0 million for most of 2008. Compared to the same month a year ago, existing home sales were down 11%. The months’ supply for existing homes in November, at 11.2 months, was similar to the level for new homes.

The median prices of both new and existing homes showed sharp declines in November. The median sales price of a new home sold in November was $220,400, down 12% from a year ago. The median sales price of an existing home was $181,300, down 13% from a year ago.

Mortgage Rates: The cost of a mortgage slipped further in the closing weeks of 2008. As reported by Freddie Mac, the 30-year fixed mortgage rate retreated to 5.14% during the week of December 22, the lowest reading since the mortgage finance agency began its weekly mortgage market survey back in 1971. (This followed 5.19% for the previous week, and the earlier low of 5.21% in June 2003). The recent drop in mortgage rates was spurred in November by the Federal Reserve’s announcement that it would buy up to $600 billion in mortgages held by Freddie Mac, Fannie Mae, and others. The Mortgage Bankers Association reported that its index of mortgage loan applications for the week ending December 19 soared 50% from the previous week, and was up 125% compared to the same week a year ago. Most of the increase came from homeowners looking to refinance existing mortgages.

Materials Prices: The prices of building materials continue to retreat, after moving upward during the first eight months of 2008. According to the Bureau of Labor Statistics, the composite producer price index for construction materials fell 2% in November, and is down 4% since the most recent peak in August. By specific material type, the most pronounced declines since August were for materials that showed the largest runup in prices during the early months of 2008. These include the following, with their decline for November relative to August – iron and steel scrap, down 72%; iron and steel products, down 29%; asphalt, down 27%; copper wire, down 24%; and aluminum mill shapes, down 9%.

Material types that showed little if any price runup during the first eight months of 2008 have stayed relatively stable during the August-November period. The price index for lumber and wood products was down 2% for November relative to August. Showing no change during this time were the producer prices indexes for cement, plastic construction products, and architectural coatings. Showing just a 1% gain during this time were the producer price indexes for gypsum products, glass, and insulation materials.