US economic overview - October 27, 2006

General: This week the Federal Reserve left the overnight lending rate (5.25%) unchanged for the third time in a row. Though concerned about an uncomfortably high core inflation rate (energy and food prices excluded) of 0.2% in September ,it was the consensus of the board that the still slowing economy will prevent inflation from flaring up. The housing market is very weak and will likely remain so for some time. GDP: The first reading for the third quarter shows an anemic growth of 1.6% annually. The growth rate for Q1 was 5.6%, and for Q2 it was 2.9 percent Consumer Price Index: - 0.5% in September compared to August, and + 2.1% from September 2005 to September 2006 Producer Price Index: - 1.3% in September after increases of 0.1% in both August and July Unemployment: 4.6% in September compared to 4.7% in August Housing: Housing starts saw a surprising increase of 5.9% in September over August. But housing starts are still 18% below where they were September of last year. Building permits for single family homes are down, which does not bode well for the next few months' housing starts. Sales of previously owned homes were down 1.9% compared to August, and 14% compared to September 2005. The median sales price in September was $220,000 down 2.2% from a year ago. New home sales rose 5.3% in September, the second monthly increase in a row, but the national median price dropped to $217,100 from $240,000 a year ago – the steepest fall since December 1970. Inventories of unsold homes are 35% above last year's level. Automotive: The favorite color in Q3 was red. Ford lost a stunning $5.8 billion in that quarter, Daimler's Chrysler unit posted a $1.46 billion loss (offsetting a strong performance by Mercedes), and GM was happy to cut their losses to a mere $115 million. In contrast, the US operations of Honda and Nissan increased their sales and profits in Q3. A total of 915,749 vehicles were produced in September, 16.7% less than the amount produced in September 2005. A total of 8,628,480 vehicles were produced in the first nine months of 2006, a reduction of 5.2% compared to the same period last year. Durable Goods: went up 7.8% in September after a 0.1% decrease in August. But the Institute for Supply Management reported its index of manufacturing activities dropped to 52.9 in September from 54.5 in August Trade Deficit: $68.96 billion in August. With China alone, the deficit was $21.96 billion. Steel Production: 8.04 million mt in September, compared to 8.455 million mt in August and 7.80 million mt in September 2005. According to the American Iron and Steel Institute (AISI), September saw 3.4 million mt of steel products come into the country. China's share was 468,000 mt. In the first nine months of 2006, steel imports went up 45% to an annualized 41.8 million mt. The two items with the largest increase were rebars (+ 50%) and structural pipes and tubing (+ 47%).