The president of the Federal Reserve Bank of San Francisco said Wednesday the mortgage crisis and financial services turmoil are likely to be a "major drag" on the national economy into 2009.
Janet Yellen told a conference of local business leaders that because of those issues, she expects little or no growth in the national U.S. economy for the first half of 2008.'
Yellen's comments followed a report showing that construction of new homes nationwide plunged in March to the lowest level in 17 years.
Housing construction dropped by 11.9 percent to a seasonally adjusted annual rate of 947,000 units, a much bigger decline than economists had been forecasting, the Commerce Department reported Wednesday
Southern California home values plummeted 24 percent during March, leaving prices at an almost four-year low, according to a report Tuesday by DataQuick Information Services.
Also weighing on the economy is the possibility that businesses will cut back on spending as they brace for a deeper downturn, Yellen said in her sobering forecast.
There are signs that things could improve in the second half of the year, but Yellen said that is difficult to predict because of economic uncertainty in the U.S.
"These are particularly uncertain times," she said at the Bay Area Council's annual conference.
One bright spot for the economy has been investment in high-tech equipment and software, sectors that appear poised for growth in the months ahead, she said. Strong foreign trade may also be buoyant, she said.
But one area that could harm the technology sector is demand for personal computers, an area that Yellen said has exhibited signs of softening.
