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Thursday, September 21, 2006

Whither The US Economy?

Well, recent news from the US certainly looks like the start of a slowdown. The big news of the wekk was surely the rapid drop in new housing starts. Then there was the fact that this decline, and the steady increase in interest rates has meant that the rate of increase in new credit is now slowing:

The net wealth of U.S. households rose in the second quarter but domestic debt grew at the slowest pace since the first quarter of 2002 as household mortgage and business debt growth moderated, the Federal Reserve said on Tuesday.

Energy prices are falling, but this seems to be largely as a result of an expectation of slower growth, which is why the federal reserve presumeably thought inflation was sufficiently under control to keep interest rates on hold for the time being.

More backing for the slowing inflation view comes from producer price data, since core producer prices have started to fall back:

US wholesale prices edged up 0.1 percent in August, the government said on Tuesday in a further sign of easing inflation pressures. The Labour Department report on the producer price index (PPI) was tamer than the 0.3 percent increase expected by analysts. Over the past 12 months, the PPI is up 3.7 percent, while the core rate is up just 0.9 percent. The August report marked the first time since 2002 that the core PPI has declined for two consecutive months. Additionally, the core index -- excluding food and energy -- fell 0.4 percent, despite expectations for a 0.2 percent rise.

One important part of the core price component was a decline in car and truck prices:

The decline in the core producer price index, which strips out volatile food and energy costs, reflected a 2.6 percent drop in auto prices and a 3.4 percent decline in the price of light trucks and SUVs, the Labor Department said.

Also the Conference Board Composite Index of Leading Economic Indicators declined 0.2 percent in August, following a 0.2 percent decline in July, and a 0.1 percent rise in June.

This weeks new signings for unemployment increased ever so slightly:

The number of newly laid-off workers filing for unemployment benefits rose last week by the largest amount since early August, providing further evidence that economy has slowed. The Labor Department said that 318,000 workers filed claims for jobless benefits, up by 7,000 from the 311,000 benefit applications filed the previous week. It followed two weeks of small declines in claims and was the biggest increase since jobless claims had risen by 10,000 in the week ending Aug. 5.

And now the latest report from the Philadelphia Fed on U.S. Mid-Atlantic factory activity is also showing a decline:

U.S. Mid-Atlantic factory activity retrenched for the first time in over three years in September, the latest sign of a rapidly-slowing economy.The Philadelphia
Federal Reserve Bank said on Thursday its business activity index tumbled to -0.4 this month from 18.5 in August, far below forecasts of around 14.8.

It was the first reading below zero since April 2003, indicating a sharp decline in regional manufacturing.

On another from interest rates on 10 year treasury bonds are also falling:

U.S. Treasuries rose, sending yields on 10-year notes to six-month lows, after a report showing manufacturing growth in the Philadelphia area unexpectedly contracted added to expectations the economy is slowing.

Yields on 10-year notes fell about 8 basis points, or 0.08 percentage points, to 4.65 percent at 1:03 p.m. in New York, according to broker Cantor Fitzgerald LP. It's the biggest drop since July 17.

All in all the picture is one of a slowdown, the big question seems to be how fast and how far rather than whether.

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