U.S. economic recap – week of October 17, 2005

U.S. economic recap – week of October 17, 2005

Fuel prices continue to drop while several steelmakers see the lingering impact of Hurricane Katrina in their third quarter earnings. The latest data released by the Automobile Association of America show prices for a gallon of unleaded gasoline inched down to $2.69. That is 12 percent lower than when prices hit an all-time record high on Labor Day. Indications are that falling prices can be largely attributed to flagging consumptions as many Americans are beginning to respond to the fuel crunch by curbing their driving habits. Data released by the US Government on Wednesday show that year-on-year demand for petroleum products plummeted 3.2 percent. Broken down, demand for gasoline fell 2.2 percent while demand for petroleum distillates was off four percent. Furthermore, despite the plunge in fuel prices, gasoline is still 34 percent higher than at this point a year ago. The more pressing concern was the price of diesel which continues to rise, gaining $.02 on Friday to $3.22. Diesel prices are now a staggering 45 percent higher than last year and will continue to eat away at company profit margins as they pay more and more in fuel surcharges to ship their products. A rough quarter for steel Early earnings reports released by a handful of steelmakers indicate that the Third Quarter 2005 was anything but kind. Steel Dynamic Inc. (SDI) and California Steel Industries reported notable declines in net sales due in large to higher energy cost and lower steel prices. SDI, however, was buoyed by the announcement this week that it is seeking to merge with Roanoke Electric Steel during the next quarter. Seemingly unaffected was powerhouse Nucor Corp. which reported profits that exceeded Wall Street analyst’s predictions. Nevertheless, the next week or two will be telling time for the US steel industry as more and more companies weigh in with their earnings. For the week ended October 15, domestic steel mills produced 2.008 million net tons. That was a small rise from the previous week of 0.7 percent but still down about 6.6 percent year-on-year, according the American Iron and Steel Institute. Year-to-date production totaled 81.6 mnt while the same period in 2004 produced 86.9 mnt. Regionally, the Northwest Indiana/Chicago area produced 493’000 net tons, a rise of 11’000 nt from the previous week. In the Pittsburgh/Youngstown, Ohio district, 224’000 nt were produced last week compared to 226’000 nt from a week earlier. PPI increases, leading indicators drop It was dour news on inflation front as the Producer Price Index (PPI) which measures the price of finished goods, jumped 1.9 percent in September. That marks the largest one month increase in the PPI in 15 years. Leading the way was the usual assortment of suspects. Energy prices rose 7.1 percent, again the largest single month increase since 1990. Also, food prices, another volatile sector, rose 1.4 percent. Previously, food prices had declined five straight months. Economists heaped the blame squarely on Hurricane Katrina which disrupted vital supply lines and shut down much of the nation’s oil producing capacity. The Index of Leading Indicators posted a 0.7 percent decline in September falling to 136.8. Most economists had previously expected the index to decline 0.5 percent. It is widely believed that a string of three straight declines indicate the economy was losing steam even before Hurricanes Katrina and Rita impacted the Gulf Coast region. Market up, market down Caterpillar Inc. reported that it would miss earnings expectations and that its fourth quarter and full year earnings would be below forecasts. As a result, the Dow Jones Industrial Average slipped 0.4 percent fueled in large by Caterpillar’s nine percent slide. Still, the damage caused by Caterpillar was largely headed off shrinking oil prices soaring tech shares. It was not all bad news, however, as the tech heavy Nasdaq put in a strong showing on Google’s excellent third quarter results. The Nasdaq gained 0.9 percent and the S&P 500 chimed in with a 0.4 percent increase. For the week, the US steel commodity index was up 0.04% to 194.82.