Freddie Mac's reports that increases in sales of new and existing homes over successive months, and favorable reports on home prices during the second quarter reinforces the message that housing markets are stabilizing.

These latest developments signal a shift in the risks to the economy.

A growing threat to the economic outlook now comes not from housing but from the weak labor market, as the housing recovery and consumer spending cannot be sustained without growth of jobs and incomes.

The employment report for August underscored the risks, as the unemployment rate jumped to 9.7 percent, the highest in more than 26 years, and the economy continued to shed jobs for the 20th straight month, with nonfarm payrolls down 216,000.

Nevertheless, the weak labor market does not damp the prospects for a gradual economic recovery over the remainder of this year, followed by a return to trend growth during 2010.

Published: September 15, 2009

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