STRICTLY BUSINESS: HOUSING AFFORDABILITY INDEX AT HIGHEST IN TWO YEARS

The factors affecting housing affordability combined for the best showing in two years during the first quarter of 2001, according to the National Association of Realtors (NAR).

NAR's composite Housing Affordability Index soared to 142.9, up from 133.4 during the fourth quarter of 2000 and 12 points higher than the same period a year ago. The first-quarter index is the highest reading since the first quarter of 1999, when it registered 143.3.

What the number means is that half the nation's households had at least 142.9 percent of income needed to buy a house. The first-quarter median family income was $52,055, and the median price of a home was $139,000.

The median price is up in some areas, down in others, but rising income and lower mortgage interests have more than offset higher home prices.

"These conditions are pushing home sales close to historic highs and are a major contributing factor in keeping the overall economy out of recession," Dr. David Lereah, NAR's chief economist.

Good economic news

William Poole, president and CEO of the Federal Reserve Bank of St. Louis, points to a popular rule of thumb on a definition of recession.

That rule is "two consecutive quarters of negative real GDP growth." The National Bureau of Research (NBER), puts it this way: "A significant decline in activity spread across the economy, lasting more than a few months."

These definitions won't sway the person who has recently been laid off, but Poole pointed to some good news on the economic scene.

Housing starts and permits are performing at or above fourth-quarter 2000 levels, and nonfarm payrolls actually rose by 343,000 during the first quarter.

Your 401(K) may have plummeted; energy prices, from home-heating to gasoline for your car, have soared; companies small and large are cutting expenses, which usually means layoffs; consumer spending is flat; and manufacturing has slowed.

But recession fears may be overstated, says Poole, who provides a "president's message" for the Fed's Beige Book report every two months.

"The pace of district economy activity has continued to slow," according to the latest edition of the Federal Reserve's Beige Book, a publication which highlights economic developments across the nation.

The Fed's Eighth District Beige Book is issued eight times a year and covers the economic activities in eastern Missouri, Southern Illinois, western Kentucky, western Tennessee, southern Indiana, all of Arkansas and northern Mississippi.

The Beige Book report is not a comprehensive report, but is a collection of anecdotal information compiled from various business and community leaders throughout the district.

Housing sales in early April have picked up in most parts of the district, which real estate agents generally attribute to low mortgage rates and large inventories of homes. Existing home sales have remained stable throughout the Eighth District, while new home sales have increased.

Residential construction has been mirroring sales recently, with monthly building permit levels up in almost all district metropolitan areas in February. At the same time, commercial contractors report that the recent flow of new projects has been steady, a trend they are optimistic will continue.

Construction picks up

New home construction has picked up in Cape Girardeau after a slow start, with a half-dozen new permits in both, ranging from low cost to more than $300,000.

A total of 20 permits have been issued at the local permit office in the amount of $2.7 million, for an average of $135,000 each. The Chicago district has been better than expected in new housing, with price appreciation remaining strong and housing shortages persisting. St. Louis district agents are seeing excess inventories of housing begin to shrink. Home sales are strong in Hawaii, while they are slowing in Washington.

Home sales, both new and existing, are up in Florida markets, where sales and construction are up from a year ago and prices continue to increase.

The U.S. economy overall continues to be sluggish, dragged down by lackluster retail sales and weak manufacturing, said the Federal Reserve report.

The survey, based on information supplied by the Fed's 12 regional banks, will be used by Fed policy-makers at their meeting on May 15 to set interest rates.

Four rate cuts this year

Seeking to stave off recession, the central bank has slashed interest rates four times this year, totaling 2 percentage points, in an effort to revive economic growth. Many economists believe another rate cut will come at the May meeting.

Excessive rain and wide temperature fluctuations have delayed spring planting and new crop emergence in some areas, but lack of rain has some farmers in Southeast Missouri worried. Corn is about 100 percent planted, cotton is 75 percent planted and early soybeans are about 25 percent.

Car dealers report that sales have been down about 5 percent the past two months. Many cite low consumer confidence and high gasoline prices as causes. Higher-priced vehicles, such as luxury cars and SUVs, are posting the slowest sales, while lower-priced and used vehicles are moving faster.

Contacts report that over the past six weeks the manufacturing sector has continued to post slow employment growth and shrinking profit margins, although demand in the retail trade and service sectors has been picking up as of late. Layoffs are occurring in many industries, including steel, timber, electronics and plastics. Falling demand has led furniture manufacturers in Mississippi and Tennessee to lay off nearly 400 workers and a toy manufacturer at Murray, Ky., is closing a plant with almost 1,000 workers. Many high-tech firms, most notably in Memphis, continue to trim their workforces.

Meanwhile, employment growth in the retail trade and services sectors remains strong.

High energy costs remain a major concern for many industries. Hit especially hard have been small trucking companies and freight haulers, which are experiencing substantial profit losses because of high diesel prices. Labor shortage concerns are waning, as most contacts note that workers have been readily available in the last few months.