Economic Week in Review - February 15, 2008

Trade deficit shrinks, retail sales up
Economic news has been gloomy lately, but this week there were some encouraging signs. Reports showed better-than-expected retail sales and a reduced U.S. trade deficit. Still, in Senate testimony, the Federal Reserve chairman described the economy as "sluggish," and he also left the door open to additional cuts in the federal funds rate. On Wednesday, President George W. Bush signed into law a $168 billion package aimed at stimulating the economy through tax rebates. For the week, the S&P 500 Index rose 1.4% to 1,350 (for a year-to-date total return of –7.8%). The yield of the 10-year U.S. Treasury note rose 12 basis points to 3.76%.

U.S. trade deficit improves
The U.S. trade deficit narrowed 7.0%, to $58.8 billion, in December (from $63.1 billion in November). Analysts had expected a trade deficit of $61.6 billion. Exports rose by $2.2 billion, while imports declined by the same amount. The weakness of the dollar relative to other currencies was credited with helping to cut the trade deficit. For the year, the trade deficit declined by $46.9 billion, or 6.0%.

Retail sales rebound
Retail sales climbed 0.3% in January, recovering from a 0.4% drop in December. Analysts had expected a 0.3% decline. Gas stations had the strongest growth, with sales up 2.0%. Sales of automobiles and parts were up 0.6%. Excluding gasoline and autos, however, sales were unchanged.

Stimulus package enacted, rebates to come
President Bush signed an economic stimulus package that provides tax rebates to millions of households. Many single filers will receive $600, while many married couples will get $1,200. The rebate amounts, however, begin to phase out for individuals with incomes over $75,000 and for married couples with incomes over $150,000. The IRS will start mailing rebate checks in May.

Fed chairman: Further rate cuts possible
In testimony to the Senate Banking Committee on Thursday, Federal Reserve Chairman Ben S. Bernanke said, "Downside risks to growth remain, including the possibilities that the housing market or labor market may deteriorate to an extent beyond that currently anticipated." The Fed is open to further reductions in the federal funds rate "as needed to support growth," he said. Mr. Bernanke also said he expects "a somewhat stronger pace of growth starting later this year" as the effects of the stimulus package and Fed rate cuts take hold. Since September, the Fed has reduced the federal funds rate, which greatly influences the cost of borrowing for consumers and businesses, by 2.25 percentage points.

Business inventories head higher
December's business inventories grew 0.6%, boosted by increases in the manufacturing and wholesale sectors. Retail inventories nudged down 0.1%, fueled by a 1.6% slide in auto inventories. Excluding autos, retail inventories were up 0.7%.

Industrial production ekes out a gain
Industrial production in January inched up 0.1%. Manufacturing sector output was unchanged, while utility output climbed 2.2%. Capacity utilization in the industrial sector was 81.5% compared with the historical average of 81.0%.

The economic week ahead
Next week's reports will include a reading on the outlook for the economy with the release Thursday of The Conference Board's index of leading economic indicators. Also due are the latest reading on the Consumer Price Index (Wednesday), a report on new residential construction (Wednesday), and the minutes from the January meeting of the Federal Open Markets Committee (Wednesday).

Economic Week in Review - January 11, 2008

Trade deficit widens, Fed open to more rate cuts
The U.S. trade deficit widened in November, hitting its highest level in more than a year amid then-record oil prices. In other economic news, the chairman of the Federal Reserve said the Fed is prepared to make additional interest rate cuts to stimulate growth. For the week, the S&P 500 Index fell 0.8% to 1,401. The yield of the 10-year U.S. Treasury note fell 6 basis points to 3.82%.

U.S. trade deficit hit 14-month high
The U.S. trade deficit—the gap between the total value of imports and exports—grew 9% to $63.1 billion in November from $57.8 billion in October. It was the biggest trade gap recorded since September 2006, according to Commerce Department data. Analysts attributed the wider deficit, in part, to higher import prices for oil. Overall, imports rose by $6 billion, while exports were up $600 million. Compared with a year ago, the trade deficit is up $4.7 billion, or 8%.

Chairman Bernanke: Fed ready to make 'substantive' rate cuts
Citing concerns about a weakening economy, Federal Reserve Chairman Ben S. Bernanke said in a speech Thursday that he's open to further reductions in the federal funds rate, which greatly influences the cost of borrowing for businesses and consumers. Mr. Bernanke said the outlook for 2008 "has worsened and the downside risks to growth have become more pronounced." The Fed chairman said he is especially concerned about what appears to be a further decline in the demand for housing caused in part by continuing troubles in the mortgage markets. "We stand ready to take substantive additional action as needed to support growth and provide adequate insurance against downside risks," he said. The Fed cut rates on three occasions last year for a cumulative reduction of one percentage point in the federal funds rate. Fed policy makers next meet January 29 and 30 to vote on interest rates.

Consumer borrowing rose sharply, exceeding expectations
U.S. consumers ramped up their borrowing in November as consumer credit outstanding rose by $15.5 billion from October's number to $2.5 trillion. The increase—7.4% on an annualized basis—was nearly twice the $8 billion that had been forecast. Revolving debt, primarily credit card borrowing, jumped at an 11.3% annualized rate. Analysts said the housing slump has increasingly forced consumers to rely on credit cards because it's now more difficult to get home equity loans. Nonrevolving credit, primarily auto loans, climbed at a 5.1% annual rate, after declining 3.5% in October.

The economic week ahead
A busy week for economic news will include the latest readings on two closely watched inflation gauges—the Producer Price Index (Tuesday) and the Consumer Price Index (Wednesday). The release on Friday of The Conference Board's index of leading economic indicators will provide a reading on the outlook for the U.S. economy. Also due are reports on retail sales (Tuesday), business inventories (Tuesday), industrial production (Wednesday), and new residential construction (Thursday). Analysts will also await the Wednesday release of the Fed's Beige Book.

Economic Week in Review - Sept. 21, 2007

Investors cheer the Fed's bold move
Investors applauded a major rate-cutting move by the Fed this week, but some of the week's other economic news got a chillier reception. Economic indicators were down a bit, the housing outlook remained gloomy, and there was mixed news on the inflation front. The S&P 500 Index closed the week up 2.8%, at 1,526 (up 9.0% for the year). The yield of the 10-year U.S. Treasury note rose 17 basis points to 4.63%.

Interest rates: The Fed takes action
In a move aimed at easing the credit crunch and shoring up confidence in the nation's near-term economic outlook, the Federal Reserve's Open Market Committee (FOMC) cut both the target federal funds rate and the discount rate by half a percent, to 4.75% and 5.25%, respectively. The committee left the door open to more rate cuts in the months ahead, but acknowledged that it remains concerned about inflation pressures. Stock traders responded enthusiastically to the rate cuts, with both the Dow Jones Industrial Average and the broader S&P 500 Index posting their biggest one-day gains in recent years.

A sharp decline in economic indicators
The Conference Board's index of leading economic indicators fell 0.6% in August, its steepest decline in almost two years. However, a significant upward revision to July's index helped level the longer-term trend. When viewed over an annualized six-month period, the growth rate remained in positive territory, at 1.0%. Analysts said the August slump was due mainly to turbulence in the stock market, declining consumer confidence, and weakness in the construction industry.

Prices dropped in August, but inflation remains a threat
A dip in energy costs helped rein in the growth in prices for consumers and producers during August. The Consumer Price Index (CPI) fell for the first time since last autumn, dropping 0.1%, in line with economists' expectations. Prices for finished goods, as measured by the Producer Price Index (PPI), dropped by a bigger-than-expected 1.4%. When volatile energy and food prices were factored out, however, both gauges were up 0.2% for the month. Over the past year, "core" CPI and PPI were up 2.1% and 2.2%, respectively.

Housing starts hit a 12-year low
There was no letup in bad news for the housing market in August. Residential construction starts fell 2.6%, to 1.33 million units, while permits for new housing—a key measure of expected future demand—fell 5.9%. Both figures represented the worst showing in 12 years for the beleaguered industry. One of the few bright spots was in the market for multifamily housing: Residences with five or more units posted a 16.5% increase in August, while single-family housing starts were down 7.1%.

The economic week ahead
Analysts will have a lot to think about in the final week of the third quarter. On the agenda are reports on gross domestic product (GDP), personal income, sales of new and existing homes, consumer confidence, advance durable-goods orders, and construction spending.

by: Cheryl Anderson
Stewart Title
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http://www.stewartoc.com/