Economic Report December 21, 2006 An Economic Winter Ahead

December 21, 2006

I have posted several articles on this page for your educational purposes. The U.S. Economy and our governments raising debt to, now over $4 trillion dollars, endangers all American citizen's financial future. Please contact your local representitive. Inflation has not slowed. Unemployment is increasing, no matter what they say. Today's stock market action was a reflection of that.

Economic Growth Slows to 2 Percent Pace
Thursday December 21, 10:53 am ET
By Jeannine Aversa, AP Economics Writer

Economic Growth Slows to 2 Percent Pace in Late Summer Held Back by Housing Slump

WASHINGTON (AP) -- Economic growth slowed to a 2 percent pace in the late summer, more sluggish than previously thought, as the real-estate bust weighed on overall business activity.
The new reading on gross domestic product for the July-to-September quarter marked a slight downgrade from the 2.2 percent annual rate estimated a month ago, the Commerce Department reported Thursday.

The economy has been losing momentum all this year. The main culprit behind the third quarter's slowdown was the deepening housing slump.

Investment in home building was slashed at a 18.7 percent rate -- even more than previously estimated -- and the largest cut in 15 years. That shaved 1.2 percentage points off third-quarter growth, the most in nearly 25 years.

Economists were expecting the government's old GDP estimate of 2.2 percent growth for the third quarter to hold.

GDP measures the value of all goods and services produced within the United States and is the best barometer of the country's economic health.

In other economic news, the number of newly laid-off workers signing up for unemployment benefits rose by 9,000 to 315,000 last week, the Labor Department reported. That was in line with economists' projections.

The Conference Board, meanwhile, reported that a gauge of future economic activity advanced 0.1 percent in November, suggesting that the economy will continue to expand in the coming months. That showing also was in line with analysts' expectations.

On Wall Street, stocks mixed with the Dow Jones industrials down slightly and the Nasdaq up a bit.
The new GDP figure underscores just how much speed the economy has lost this year as the crumbling housing market, the toll of the Federal Reserve's two-year credit tightening campaign and once-surging energy prices have crimped economic activity.

In the first three months of this year, the economy grew at a hot 5.6 percent pace, the strongest spurt in 2 1/2 years. However, in the second quarter, growth slowed to a 2.6 percent pace as galloping energy prices and the impact of higher borrowing costs turned consumers and businesses cautious.

Many economists believe the economy stayed lethargic in the current October-to-December period. Forecasts range from a pace of around 1.7 percent to 2.5 percent.

Even with expectations that economic activity will continue to be subpar in the months ahead, most analysts don't expect the economy to fall into recession.

Republicans and Democrats have differing views on the extent to which Americans have benefited from the economic expansion over the last five years.

A top priority for the Democrat-controlled Congress, which convenes in January, will be raising the federal minimum wage from $5.15 an hour to $7.25 an hour. It hasn't gone up in nearly 10 years.

Americans' gave President Bush lower marks for his economic stewardship. The president's approval rating on the economy sank to 38 percent in December, down from 43 percent in November, according to an AP-Ipsos poll.

In the third quarter, consumers boosted their spending at a 2.8 percent pace. That was a tad less than previously estimated and was a factor in the third quarter GDP figure being marked down from last month's estimate. Still, consumers in the third quarter were spending at a slightly better pace than they did in the second quarter.

Business spending on equipment and software, meanwhile, rose at an annual rate of 7.7 percent, stronger than previously thought. Investment in new plants and buildings increased at a brisk pace of 15.7 percent in the third quarter, less than estimated a month ago.

Companies' profits gained ground in the third quarter. One measure showed after-tax profits rising by 4.2 percent. Although that was slightly less than previously estimated, it nevertheless marked a big improvement from the meager 0.3 percent increased logged in the prior quarter.

With corporate profits growing, companies have stayed in a good hiring groove even as overall economic growth has slowed. The nation's unemployment rate stands at 4.5 percent, considered low by historical standards.

As the economy has slowed so has inflation.

An inflation gauge tied to the GDP report showed that core prices -- excluding food and energy -- rose at a rate of 2.2 percent in the third quarter, unchanged from a previous estimate. That was better than the 2.7 percent pace in the second quarter. Energy prices, which had soared in the summer, have since calmed down.

Even with the improvement, though, core inflation is still higher than the Fed would like to see. The Fed, however, predicts that core inflation will move lower in the months ahead as economic growth remains subdued.

Against that backdrop, the central bank has felt comfortable holding interest rates steady, which it has done since August. Before that, the Fed had steadily boosted rates for two years to fend off inflation.

The Fed's goal is to slow the economy enough to thwart inflation, but not so much as to cripple economic activity.

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Oil Prices Fall on Forecast
Thursday December 21, 1:22 pm ET
By J.W. Elphinstone, AP Business Writer

Oil Prices Fall After Mild Weather Forecast, Gulf Coast Operations Come Back on Line

NEW YORK (AP) -- Oil prices fell more than $1 a barrel Thursday on forecasts of mild weather for the Northeast and after shipments returned to normal in the Gulf Coast region.

Light, sweet crude for February delivery fell $1.08 cents to $62.62 a barrel by midday in New York trading on the New York Mercantile Exchange.

February Brent crude at London's ICE Futures exchange slipped 36 cents to $62.87 a barrel.
Oil prices came under pressure after the National Weather Service forecast Thursday that temperatures in the Northeast will remain above normal through the first days of January.

Meanwhile, shipping operations along the Gulf Coast returned to normal after more than a week of disruptions due to dense fog. The delivery problem helped to create a big draw down in last week's oil stocks.

U.S. crude inventories plunged by 6.3 million barrels last week from the previous week, the Department of Energy reported Wednesday, much lower than analysts' expectations of a drop between 1.8 million barrels and 2 million barrels.

On the news, the Nymex crude contract had risen 26 cents Wednesday to settle at $63.72 a barrel, a three-month closing high, but market enthusiasm was tempered by expectations that stocks will rebound.

"We could see a build in stocks next week after those supplies are offloaded," said Tom Bentz, a broker at BNP Paribas Commodity Futures in New York. "So the markets are discounting the inventory report. That's the reason the market didn't hold up."

Unleaded gas inventories posted an increase last week, rising by 1 million barrels but still lower than average. Gas futures were trading at $1.6800 a gallon in New York, up less than a cent.
Inventories of distillate fuels, which include heating oil and diesel fuel, also rose last week by 1.2 million barrels and are at average levels for this time of year.

Heating oil futures dropped by more than a penny to $1.7120 per gallon, while natural gas prices rose by 4.1 cents to $6.809 per 1,000 cubic feet.

"Heating oil and crude stocks are currently above levels seen in recent years, however gasoline inventories are 3 percent below the five-year average," said Vienna's PVM Oil Associates of the divergent picture revealed by Wednesday's data.

Crude has been trading between $60 and $64 a barrel since the end of November.

Prices rose $1.41 a barrel last week, mostly because OPEC agreed to cut production by 500,000 barrels a day starting in February. That cut came after the cartel said in October that it would remove 1.2 million barrels a day of production from the market.

While traders were initially skeptical of OPEC's ability to get members to comply with the October cut, a drop in production from most of the cartel's 11 members has given more weight to the last decision.

Associated Press Writer George Jahn in Vienna, Austria also contributed to this report.

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Stocks Move Lower After Philly Fed Manufacturing Index Turns Negative
Thursday December 21, 2:11 pm ET
By Tim Paradis, AP Business Writer

NEW YORK (AP) -- Stocks pulled back Thursday after economic data pointing to a slowing economy and weakness in regional manufacturing weighed on investor sentiment in light trading ahead of the holiday weekend.

Stocks, which initially showed little movement, fell after the Philadelphia Federal Reserve's December business index, which gauges regional manufacturing activity, came in at a negative 4.3 compared with a positive reading of 5.1 in November.

Earlier in the session, investors tried to shrug off news that the economy grew at a slower pace in the third quarter than had been estimated. Gross domestic product fell to 2 percent in the third quarter amid a cooling real estate market; the Commerce Department estimated a month ago that the reading would be closer to 2.2 percent.

"I think with the low volume nobody is really around to trade the stuff," said Ryan Larson, senior equity trader at Voyageur Asset Management, a unit of RBC Dain Rauscher. "So I wouldn't put too much credence in this pullback."

In early afternoon trading, the Dow Jones industrial average fell 47.19, 0.38 percent, to 12,416.68.
Broader stock indicators also moved lower. The Standard & Poor's 500 index was down 5.91, or 0.42 percent, at 1,417.62, and the Nasdaq composite index was down 13.24, or 0.55 percent, at 2,414.37.

Bonds rose sharply on the weaker economic data, with the yield on the benchmark 10-year Treasury note falling to 4.56 percent from 4.60 percent late Wednesday. The dollar was lower against other major currencies, while gold prices fell.

Light, sweet crude oil was down $1.02 at $62.70 per barrel on the New York Mercantile Exchange.
Comments from Richmond Federal Reserve President Jeffrey M. Lacker, who has long warned of the threat of inflation to the economy, further dented sentiment Thursday. According to prepared remarks of a speech in Charlotte, N.C., Lacker said: "The risk that core inflation surges again, or does not subside as desired, clearly remains the predominant macroeconomic policy risk."
Larson noted that the comments weren't surprising as Lacker has dissented in the central bank's recent decisions to leave short-term interest rates unchanged.

The Fed left rates unchanged at its last four meetings after raising rates 17 straight times since 2004 in an attempt to cool the economy and curb inflation. Wall Street has been waiting to see whether the central bank can steer the economy toward a soft landing or whether growth will slow too quickly and push the economy into recession.

Though drawing less attention than other economic data out Thursday, a gauge of future economic activity advanced 0.1 percent in November, suggesting the U.S. economy will expand modestly in coming months. The report from the Conference Board, an industry-backed research group, found its Index of Leading Economic Indicators edged up to 138.2 last month following a revised increase of 0.1 percent to 138.1 in October.

David Darst, chief investment strategist at Morgan Stanley's Global Wealth Management Group, contends that investors will study fresh economic data but will try to take stock and look to where markets will be headed next year. "We're going to see mixed trading. I think as we get into the last 10 days of the year, people are trying to weigh and assess what's happened," he said.

Profit reports from drugstore chain Rite Aid Corp. and packaged-food maker ConAgra Foods Inc. offered some support Thursday, underscoring a notion that companies will still squeeze out growth amid a slowing economy.

Rite Aid rose 8 cents to $5.45 after reporting a narrower fiscal third-quarter loss amid stronger pharmacy sales and increased prescription volume. The company reiterated its profit forecast.

ConAgra rose 62 cents, or 2.3 percent, to $27.47 after its fiscal second-quarter profit rose 44 percent. The company, whose brands include Healthy Choice, raised its forecast for the year.
Horizon Health Corp. rose $3.21, or 19.9 percent, to $19.34 after the company, which operates mental health treatment facilities, agreed to be acquired by Psychiatric Solutions Inc. for $321 million plus the assumption of $105 million in debt. Psychiatric Solutions rose $1.31, or 3.6 percent, to $37.39.

Jabil Circuit Inc. fell $2.47, or 9.3 percent, to $24.10 after the company's fiscal first-quarter results disappointed Wall Street despite a 34 percent increase in revenue.

PMC-Sierra Inc., which makes chips used in communications and networking equipment, fell 35 cents, or 5.1 percent, to $6.54 per share, after cutting its fourth-quarter profit forecast.

Financial-services company International Assets Holding Corp. fell $14.28, or 30 percent, to $33.65 after it swung to a fiscal fourth-quarter loss amid volatility in commodity prices.

The Russell 2000 index of smaller companies was down 3.25, or 0.41 percent, at 782.31.
Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 751.9 million shares, compared with 769.2 million traded at the same point Wednesday.

Overseas, Japan's Nikkei stock average closed up 0.22 percent. Britain's FTSE 100 closed down 0.24 percent, Germany's DAX index was down 0.20 percent, and France's CAC-40 was down 0.07 percent.

New York Stock Exchange: http://www.nyse.com/
Nasdaq Stock Market: http://www.nasdaq.com/