Weekend Economic Wrap-Up

By January 21, 2007Economy

Business is UpHousing and manufacturing rebound while inflation remains in check — Over the past week, economic data released by various government sources suggest that the economic slowdown which has taken place over the past several quarters may be thankfully coming to an end.

First. Last Wednesday, the Federal Reserve released its report on industrial production, which showed that in December, overall industrial (manufacturing, mining and utilities) output rose a solid 0.4 percent in December after 3 consecutive monthly declines. The upturn was driven by an 0.7 percent rise in manufacturing production (which accounts for three-quarters of industrial output). The upturn in manufacturing output was due to solid gains in computer and electronics, motor vehicles, aircraft, machinery and primary metal production.

Despite the fact that manufacturing output fell in the 4th quarter, overall for 2006, manufacturing output rose by 3.5 percent, which is faster than the 3.1 percent rise in overall GDP. This marks the 3rd consecutive year that manufacturing outpaced overall GDP.

Second. Last Thursday, the Commerce Department reported that both housing starts (up 4.5%) and building permits (up 5.5%) rose in December. This marks the first time since last January that both indicators of construction activity posted gains during the same month. For housing starts, the December rise was the 3rd increase in the past 4 months. For building permits, it was the first upturn since January. While one month does not make a trend, the fact that both of these leading indicators of housing activity rose in December is a hopeful sign that the housing slump may be beginning to moderate.

Third. Inflation remains contained. Last Wednesday, the Labor Department reported that core (which excludes the volatile food and energy components) producer prices edged up just 0.2% in December and over the whole year, producer prices in general rose just 1.1 percent. Add to this the fact that on Friday, the Labor Department reported that core consumer prices rose just 0.2 percent in December and for the year increased just 2.5 percent — the slowest pace in 3 years — it appears that the inflation concerns are no-longer a significant concern. This could pave the way for the Federal Reserve to lower interest rate sometime in the first half of the year, which would give the economy a boost in the second half of the year.

Next Friday, the Commerce Department will report on new orders for durable manufactured goods. This will provide some insight into the pace of the manufacturing expansion in the first quarter of 2007. Stay tuned….