General: The housing market continues to fall; more banks disclose huge write-offs in their mortgage-backed securities; and the car industry, despite avoiding a major strike, remains in the doldrums. You might think that these factors would be more than enough to cause a depression (both mentally and economically), but don't tell Wall Street.
At the beginning of October, the Dow Jones Index broke through the 14,000 mark for the second time this year and is firmly planted in record territory. The Federal Reserve's higher-than-expected interest rate cut of 0.5 percent has reinvigorated the stock market, if not the overall economy just yet.
GDP: +1.9% in Q2; +3.8% in Q2 over Q1. The Personal Consumption Expenditure Index (PCE) grew by 1.4% in Q2 compared to 3.7% in Q1.
Consumer Prices: +2.0% in Aug.
Industrial Production: +1.7% in Aug.
Producer Prices: -1.4% in August from July; + 2.2% for the past twelve months
Unemployment: 4.6% in July
Purchasing Manager Index (PMI): 52.0 in August, down from 53.8 in July. Significantly, the direction for new orders is "growing," and for inventories it is "contracting."
Consumer Confidence: This index fell precipitously for the second month in a row. It now stands at 99.8, down from 105.6 in August.
Trade Balance: -$818.7 billion as of July for the past 12 months
Housing: Housing starts in August declined 2.6% compared to July, and are 19.1% below August 2006. Housing permits in August were off 5.9% compared to July and 24.5% below August 2006. Existing home sales in August fell 4.3% compared to July and 12.8% compared to August 2006. And to top it all, the National Association of Realtors' index for pending sales of previously owned homes decreased at a seasonally adjusted annual rate of 6.5% to 85.5 in August from July's 91.4, the industry group said. The August index was at its lowest point since tracking began in January 2001.
Steel Production: 8.5 million metric tons in August, almost unchanged from last year. Year-to-date, 65.25 million metric tons were produced, a reduction of 3.5% compared to last year.
Automotive Production: 1,008,811 units were produced in August, or 3.3% less than last year. In the first eight months of 2007, 7,351,708 units were produced, a decline of 4.8% over last year.
After the United Auto Workers (UAW) called for a strike at GM, a tentative agreement was reached within 48 hours. The heart of the settlement was the establishment of a trust fund to be administered by the union, which will take on $51.0 billion in health care liabilities for GM's existing employees and over 280,000 of its retired workers. GM will fund this trust with $35 billion and will not have to show these legacy costs on their balance sheet any longer. Since the trust is expected to gain on their investments, GM will not have to fund the entire $51.0 billion liability.
After another round of job cutting (by the end of 2008, 30,000 jobs will be axed), GM reportedly gave the union a vague promise to maintain the job level. Next, the union will try to get similar arrangements with Chrysler and Ford; however, this could prove to be tricky. Ford does not have the money to underwrite a trust fund for legacy costs, and union members at Chrysler have already indicated that they will not agree to the terms of the GM contract.
In the meantime, the sales figures remain sluggish. In the first eight months of 2007, GM's sales fell 7.4%; Ford's, 12.8%; and Chrysler's, 2.7%.