Five trends you need to know now

Michael J. Pallerino

March 1, 2008

From where he sits, Dennis Lockhart has a clear view of not only what is happening today, but what may be in store for tomorrow. Here's what the president and CEO of the Federal Reserve Bank of Atlanta says are five economic trends to watch in 2008.

The performance of the national economy
Atlanta and Georgia have a similar makeup to the national economy. Thus, I believe the outlook for the city and state will be reflective of the national economy's performance. At this time, my base national outlook sees a weak first half of 2008-but one of modest growth-with gradual improvement beginning in the year's second half and continuing into 2009.

Housing prices
I believe it is important to closely follow the potential effects of declining house prices on household wealth and consumption. Because foreclosures can be devastating to individual homeowners and also feed back into declining house prices, the foreclosure situation is one that policymakers should pay particular attention to in the coming year. Finally, it's important to evaluate the effect of the housing market on mortgage-backed securities that are the epicenter of recent troubles in financial markets.

Commercial real estate
A significant amount of commercial real estate, such as shopping centers, follows residential development. On the other hand, office buildings, warehouses and hotels have different drivers. Overall, commercial real estate development has been rather strong, but development may feel pressure from slowing in housing and personal consumption.

Financial markets
Banking and securities markets and firms have been under stress because of market illiquidity and volatility. In 2008, I'm expecting financial markets to stabilize. Financial markets affect consumers through credit availability and indirectly through credit flows to businesses.

Inflation
Measures of the rate of general price increases have been elevated lately, especially energy and food prices. The Federal Reserve Bank of Atlanta forecasts softening of inflation pressures in 2008. I will be watching price trends closely.