General: As can be seen by the numbers below, the US economy is going through a distinctly soft phase. This cooling down was planned by the Federal Reserve through the many interest hikes prior to the summer of 2006. The stubborn threat of inflation was not planned. An interest hike in the near future cannot be ruled out.
GDP: The final numbers for 2006 showed a growth of 2.6% in Q4 and 3.3% for the year. Q1 of this year was revised to a likely rate of + 2.3% (down from 2.5%); Q2 is expected to see a growth rate of 2.4%. These weaker numbers take into consideration the poor state of the housing and automobile markets as well a resurgent crude oil price.
Consumer Price Index: + 0.4% in February
Personal Consumption Expenditure (PCE): This index, excluding food and energy costs, climbed 0.3% in February compared to January and 2.4% over February 2006. The Federal Reserve keeps a close eye on this index, and its preferred range is 1.0 - 2.0%.
Personal Consumption: Personal consumption and income both rose 0.6% in February, which is a nice surprise, since only 0.3% was expected in both categories.
Personal Savings: - 1.2% in February, the 23rd straight month of negative savings
Industrial Production: +3.4% in February compared to last year, however, the manufacturing index of the Institute of Supply Management fell to 50.9 in March compared to 52.3 in February. Their price index rose to 65.5 in March, up from 59.0 in February.
Durable Goods: + 2.5% in February, lower than the expected 3.5%. January was revised to a contraction of -9.3% from the previous estimate of -8.7%. Orders for commercial planes increased by 88.4%, military planes by 29.2% and motor vehicles and parts by 1.3%. Primary metals orders went down -1.0%; fabricated metals down -2.3% and machinery down -0.4%.
Housing Market: The news is getting worse. Sales of single family homes decreased by 3.9% in January when a 6.7% increase was expected. The average price of a home increased slightly to $331,000. In February, 546,000 homes were for sale, representing an inventory of 8.1 months at present sales rates. This is the highest level since January 1991. However, existing home sales saw a slightly better than expected increase of 3.9% in February. Housing starts for February were 9.0% higher than in January but still 28.5% below last year's rate. Permits for new home buildings fell 2.5% in February over January.
Automotive Market: 907,403 units were assembled in January, which represents a decline of 6.5% to last year. In the first two months of the year, a total of 1,763,910 units were produced or 7.3% less than last year. February sales for the Chrysler Group (-8.3%) and Ford (-14%) fell whereas GM (+3.7%), Toyota Motor (+12.0) and Honda Motor (+3.2%) all showed increased sales. Rumors continue to spread that struggling GM will buy the even more struggling Chrysler division from Daimler.
Unemployment: 4.5% in February
Steel Production: 7,100 million mt in February, a decrease of 8.0% compared to last year; for the first two months of 2007, the production was 14,643 million mt, or 7.4% less than last year.
Paradigm Shift? The US is the country that traditionally considers itself as an exponent of Free Trade. Now, one of the most influential economists and a self declared "free trader from head to toe," adviser to many presidents and presidential candidates, and a former Federal Reserve vice chairman, Alan S. Binder of Princeton University, has given job loss estimates that he expects to result from free trade. In an interview with the Wall Street Journal, Mr. Binder considers no less than 40 million US jobs at risk of being shipped out of the country in the next 10 - 20 years, causing major social upheavals that are expensive to fix. This has ignited a continuing hot debate among economists, and some of the current presidential candidates have already taken on this issue in their campaign. Free Trade is good for you? Latin American countries slashed tariffs in the 1980's and 1990's, but the general economic performance since then has been more disappointing than encouraging. At the same time, more protectionist countries such as China and other Southeast Asian markets are speeding ahead at top speed. This issue will be hotly debated in the US, and we may see Free Trade start to appear in a different light.