NABE Panel: Katrina Elevates Energy Price as Number-One Concern; No National Housing Bubble
September 2005
“NABE members, by a narrow margin, now believe that energy prices are the major short-term threat to the economy,” said David Wyss, Chief Economist, Standard & Poor’s. “There were some notable differences between the responses received before and after Hurricane Katrina, however, particularly on fiscal policy.”
Highlights
- Energy prices edged out terrorism as the biggest short-term problem facing the U.S. economy, according to 30% of respondents, up from only 11% in March. Terrorism was the biggest fear of 20% of respondents, down from 40% last August. Worries about the deficit dropped sharply, reflecting the lower deficit estimates.
- In the longer run, health-care costs and the federal deficit are the primary problems. The rising elderly population and rise in the dependency ratio were the prime long-term worries for 18% of panelists (down from 23%), while 23% focused on health-care costs (up from 22%). The federal deficit was chosen by 21% (up from 17%) as the biggest long-term problem, while 16% worry most about the education system.
- Only 14% of respondents believe there is a national home price bubble, but 79% believe there are major local bubbles. Only 16% thought home prices would decline over the next five years, with 55% expecting continued price gains. The respondents rated the odds of a significant drop in national home prices as only 16%. Despite worries about a housing bubble, 83% of respondents said they would buy a primary residence even at today’s prices, but only 17% would buy an investment property.
- Monetary policy is about right. Although 65% of respondents said current monetary policy is about right, the panel split on where it should go, with 48% wanting further rate hikes and 42% for leaving rates at their current level. There was near-unanimity (90%) that it would tighten, although the pre-Katrina responders were more confident (97%) than the post-Katrina (84%).
- Fiscal policy is too loose, according to 74% of respondents. Although 77% thought it should become more restrictive, only 12% thought deficits would actually drop, while 44% expect deficits to increase. The post-Katrina responses were more slanted toward higher deficits (53% vs. 33%).
- Respondents felt low interest rates were the primary reason for the high prices. On a scale of 1 to 5 (1 most important), interest rates rated 1.4; the next highest (easier credit standards) was a 2.7. Only 29% thought the Fed should raise interest rates to lower home prices, but 68% favored reining in the use of interest-only and low-down-payment mortgages and 67% felt Fannie Mae and Freddie Mac should be restricted.
- Foreign inflows are keeping mortgage rates low . On a scale of 1 to 5 (1 most important), the flow of private money from overseas rated 1.8, while low inflation was 2.3 and Fed policy 2.4.
Survey Summary
Greatest Short-term Risk to US Economy
Greatest Long-term Challenges to US Economy
Strengths in the US Economy
Monetary Policy
Fiscal Policy
Detailed Answer File
Print Version of Report
Embargoed until Sept 16, 2005, 12:01 am
The NABE Economic Policy Survey presents the consensus of a panel of 202 members of the National Association for Business Economics. Conducted semiannually, this survey was taken August 17 – September 7, 2005. We divided responses into pre-Katrina (before August 29) and post-Katrina. May be reprinted in whole or in part with credit given to NABE. View the survey results, including complete tabulations, online at www.nabe.com. This is one of three surveys conducted by NABE. The other two are the NABE Outlook and the NABE Industry Survey. David Wyss of Standard & Poor’s, John Silvia of Wachovia Bank, Kathleen Camilli of Camilli Economics, and Laurie Matthias King of Capital Guardian Trust Company conducted the analysis for this report.
