General: Fears of an imminent recession have receded since the unexpectedly high growth rate for Q3 was disclosed. Trying to prevent an economic slowdown and, simultaneously, attempting to jump-start the moribund housing sector, the Federal Reserve's latest interest rate cut applied to the overnight lending rate as well as to the federal discount rate. The former will have a direct impact on the prime rate; the latter will give commercial banks loans at cheaper rates. The rate cut will likely further depress the value of the US dollar. Consequently, the ongoing export boom will be extended, but import prices will be pushed up another notch. Another concern is the skyrocketing oil price. So far, the US economy has coped efficiently with the ever-rising oil price, but with a $100 per barrel price looming on the horizon, this scenario could change.
GDP: + 3.9% annual rate in Q3 -- a delightful surprise since analysts expected a lower rate because of the continuing crises in the housing market. The US may have dodged a recession, but the outlook for Q4 is not optimistic. Because of rising inventory levels, a number of economists expect no more than a 1.1% growth rate for Q4. The International Monetary Fund (IMF) now expects the US to grow just 1.9% in 2007 and in 2008.
Consumer Prices: + 0.3% in September and + 2.8% for the past twelve months; the personal consumption expenditure index (PCE) rose a mere 1.7% in Q3 after a worrisome 4.3% hike in Q2. The PCE index excluding food and energy accelerated by 1.8% in Q3 compared to 1.4% in Q2. The Federal Reserve felt comfortable enough with these numbers and lowered the benchmark interest rate by another 0.25% to a rate of 4.5% on October 31.
Industrial Production: + 0.1% in September over August and + 1.9% compared to last year. Construction spending increased an unexpected 0.3% in September to an adjusted annual rate of $ 1.163 trillion.
Unemployment: 4.7% in September
Trade Balance: - $810.7 billion as of August for the past twelve months
Housing: The overall home resale pace in September declined to an annual rate of 5.04 million, the lowest number since 1999. Building permits dropped 7.3% in September over August and 25.9% compared to September 2006. Housing starts in September dropped 10.2% compared to August and a steep 30.8% compared to September 2006. Add to these dismal numbers the unrelenting stream of mega write-downs by banks and other financial institutions because of failing mortgages, and the conclusion can only be that there still is no light at the end of the tunnel.
Automotive Industry: 824,781 units were produced in September, or 10.2% less than last year. In the first nine months of the year, a total of 8,178,483 units were produced, or 5.4% less than last year. Especially hard hit were medium and heavy trucks with a drop of 38.1% from last year. On the brighter side, the rank and file of the United Auto Workers union ratified an agreement Chrysler which is closely modeled after the previously approved agreements with GM and Ford.
Steel Production: 8.17 million metric tons in September, or 3.0% less than last year. In the first nine months of the year, 73.26 million metric tons were produced, or 3.6% less than last year.