US economic overview - April 7, 2006

After last year's strong performance, economists are looking for signs of a downturn. There are many conflicting numbers. Any time there is a clear sign of a softening (the housing market) along comes an indication that shows that the US economy is still humming along very nicely (job growth). Federal Reserve Chairman B. Bernanke has presided over the first interest rate hike under his management. The overnight lending rate was raised another 0.25 percent to 4.75 percent March 29. The core inflation rate in February came in at an annual rate of 2.4 percent, which might be a bit too high to make the Feds comfortable. Consumer Spending: After a red hot January (+0.8%), US consumer spending` cooled off in February (+0.1%). Still, first quarter 2006 is expected to be strong overall. Personal Income: Grew 0.3% in February compared to 0.7% in January Corporate Profits: Final numbers show a very strong increase of 13.8% in Q4 2005 compared to a loss of –4.3% for Q3, 2005. Producer Price Index: Fell 1.4% in February, largely because of a drop in gasoline prices (-11%) Unemployment: Rose a bit to 4.8% in February, however, US employers added 243'000 new jobs in February Special Concern: New Home Sales sank 10.5% in February, the biggest decline since April 1997. Unsold homes rose another 4%, representing a 6.3 month supply -- the highest number in 10 years. The median price for a new home fell to $230,400, almost 3% lower than a year ago. It is the first year-to-year decline since December 2003. But the pre-owned housing market remains strong. It grew 5.2% in February, and the median price for a used home rose to $209'000, up 10.6% on a year-to-year basis. Will the housing market collapse? One expert called the housing picture "awful -- but far from being a convincing collapse." The strong job market will probably stave off a full-fledged collapse.