The last few weeks were quite a roller coaster ride for the US economy. Yes, the housing sector is getting a bit weaker, but the economy will weather this storm and other hiccups, continuing to grow steadily, if less spectacularly, than last year.
GDP: The initial number for Q4 of 1.1% annualized growth was revised to a friendlier 1.6%. Estimates for Q1 2006 go as high as 4.5% with the rest of the year settling at 3.3% growth.
Housing: Definitely some serious warning signs here. January saw an emphatic upswing in housing starts, however, late February the Association of Realtors said that sales in preowned homes dropped in January, proving earlier forecasts of a slight gain were wrong. Then the Commerce Department reported that sales of new homes had also fallen (the fifth month in a row). The inventory of unsold homes has increased 43% in the past year. How long can the building boom last?
Durable Goods Orders (expensive manufactured goods): - 10.2% in January compared to + 2.5% in December 2005
Car Sales: 17.6 million units in January
Producers Prices: + 5.7% in January compared to 3.9% a year ago
Consumer Price Index: + 0.7% in January compared to - 0.1% in December 2005
Core Index (excluding food and energy): + 0.2% in January vs. + 0.1% in December 2005
Special Concern: As reported before, the strong economic performance in the US has been driven by inflated housing prices, giving consumers a false sense of security for spending. The other contributing factor is the unerring tendency of the US consumer to spend more that he earns. In January the personal savings rate was - (minus!) 0.7% of disposable income. US consumers spent $63.3 million more than they took in. Compare that to the famously high saving rates in Germany and Japan. But who is the engine of worldwide economic growth?