Brief Overview of US Economic Data
The year 2005 was a particularly strong one for the US economy. It was nothing short of impressive in real numbers, though experts detected the beginning of a slowdown starting in December. Here is some key data as of December 2005:
GDP: Estimated growth of 4.1 percent for the year, which is a little bit lower than the earlier estimate of 4.3 percent. The annualized GDP growth for December 2005 will likely fall under 3 percent.
Trade Deficit: Fell to $64.21 billion in November 2005 (was $68.13 billion in October 2005 ). Still, the year-to-date figure as of November was $661.78 billion ($617.28 billion in November 2004, YTD), a new record trade deficit for the year.
Unemployment: The unemployment figure fell to 4.9 percent in December. Job growth for the month (108'000 new jobs) was significantly lower than job growth in November 2005, which was revised up sharply to 305'000.
Inflation Rate: The estimate for Q4 2005 remains at 3.8 percent. Consumer prices in December fell by 0.1 percent, the second straight monthly decline. Lower costs for cars and gasoline account for the decline. Prices excluding food and energy rose 0.2 percent.
Industrial Production: Increased 0.6 percent in December for the third straight month, despite cutbacks in the automobile industry.
Rate of capacity utilization: Rose to 80.7 percent in December. This is the highest percentage of sustainable maximum output since November 2000. In principle, this is good news, except that this index is a trigger for the Federal Reserve Board who will use this trend as yet another reason to hike the federal lending rate one more time.
The initial outlook for 2006 is not quite as rosy even though most experts expect the gross domestic product to grow a healthy 3.7 percent for the year (the European Union would love to have such a projection). Here are some items of particular concern:
a. Rising crude oil prices - Crude oil prices have risen 8.6 percent so far in 2006, and are still trending upward, with the ongoing problems in
Iran and
Nigeria.
b. The weak condition of the US automobile industry.
c. The almost inevitable bursting of the housing bubble and a subsequent consumer spending meltdown. As house prices flatten out, further equity withdrawals will be harder to make. Home equity loans were a major component of consumer spending and consumer spending is the largest factor of recent GDP growth.