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Economic Briefs


									Economic Briefs
Week of March 2, 2007
Economic Growth Not So Strong The U.S. economy grew at a much slower pace in the fourth quarter than previously estimated. The gross domestic product, the broad measure of the nation's economic activity, grew at an annual pace of 2.2 percent in the last three months of the year. That's down from the 3.5 percent growth in the government's initial estimate of that period. It was still a little better than the 2 percent growth rate seen in the third quarter. Durable Goods Orders Plunge Orders for durable goods sank a much sharper-than-expected 7.8 percent in January as nondefense goods orders saw their biggest monthly decline ever. Excluding volatile transportation orders, which are heavily skewed by aircraft, durable goods orders fell by 3.1 percent in January, their steepest drop since July 2005. That followed a downwardly revised gain of 2.8 percent in December. Overall nondefense orders fell by a record 7.8 percent in January, while closely watched orders for nondefense capital goods, seen as a proxy for business spending, fell by a record 19.9 percent. Excluding aircraft, nondefense capital goods spending fell 6.0 percent, the largest drop since January 2004, when orders fell 8.1 percent. Manufacturing Rebounds The nation's manufacturing is growing again, according to the latest survey of executives in that sector by the Institute of Supply Management. The ISM manufacturing index came in at 52.3, up from the 49.3 rating in January. A reading above 50 indicates growth in the sector, while a reading below 50 points to contraction. It was the best reading in the report since September. Construction Spending In U.S. Decreased 0.8% In January Construction spending in the U.S. fell by the most in three months in January, pulled lower by the biggest decline in homebuilding since July. Spending on residential and non-residential projects dropped 0.8 percent after a revised 0.6 percent increase in December.

Ford, Chrysler Sales Tumble Sales tumbled at Ford and DaimlerChrysler in February, further eroding the troubled automakers' share of the U.S. market. Ford, which is likely to give up its long-held No. 2 spot in U.S. sales to rival Toyota Motor this year, said sales sank 13 percent, due to a discontinuation of two models sold mainly to rental car companies and weak sales of its best-selling pickup. DaimlerChrysler said U.S. sales slid 8 percent. It's Mercedes-Benz luxury car unit saw its U.S. sales essentially flat in the month. General Motors, the nation's No. 1 automaker, has also warned of weak February sales, and the traditional Big Three - GM, Ford and Chrysler - could see their combined sales account for less than half the U.S. market for the first time in February.

Consumer Confidence Up To A 5 1/2 Year High 2710 U.S. consumers' confidence rose in February to a five and a half year high on the back of a more favorable view of the labor market. The Conference Board said its index of consumer sentiment edged up to 112.5 in February from a slightly downwardly revised 110.2 in January. Consumers' assessment of current conditions was more favorable than in January. The business research group's present situation index rose to 139.0 in February from a revised 133.9 in January. The expectations index rose to 94.8 in February from a revised 94.4. Consumers had a positive view of the labor market, although those surveyed who said jobs were "plentiful" fell to 27.7 percent from 29.6 percent in January. Those who said jobs were "hard to get" slumped to 17.5 percent from 29.6 percent. Consumer Sentiment Slips To Five-Month Low 10 U.S. consumer sentiment fell further than previously estimated in February, hitting a five-month low as concerns over incomes and jobs in a slowing economy weighed on confidence. The Reuters/University of Michigan Surveys of Consumers said the final February reading of its consumer sentiment index slid to 91.3 from 96.9 at the end of January, which was the highest reading on the index in two years. The survey's gauge of current economic conditions fell to 106.7 in February from 111.3 in January, while its final measure on consumer expectations slipped to 81.5 from 87.6. The survey's one-year inflation index held steady at 3.0 percent in February, but its five-year inflation index slipped to 2.9 percent from 3.0 percent. Income, Spending Up; So Are Prices Consumers' income and spending rose more than expected in January, according to a government report that also showed an unwanted rise in a closely watched inflation measure. Personal income was up 1 percent in the month, according to the Commerce Department report, compared to the 0.5 percent rise in December. But spending by consumers, which accounts for more than two-thirds of the nation's economy, rose by only 0.5 percent, slower than the 0.7 percent gain in December during the holiday shopping period, according to the report. The report also shows that prices paid by consumers for goods other than food and energy, a closely watched inflation measure known as the core PCE deflator, came in at an annual increase of 2.3 percent, compared to the 2.2 percent rise in December. The savings rate in the report, which compares consumer spending to after-tax income, was negative once again, as it has been since April 2005. The rate was -1.2 percent, which means the typical American is spending $101.20 for every $100 of income after taxes. But that was a slight improvement from the -1.4 percent rate in December.

Home Price Slump Continues The median price of an existing home sold in January was down 3.1 percent from a year earlier, according to the National Association of Realtors. It marked the sixth straight month that prices have shown that year-over-year drop, a relatively rare condition for home prices before the current slide. Before the Realtor's price readings showed a year-over-year drop for August sales, it had gone more than 11 years without that kind of drop. The median price, the price at which half the homes sell for more and half sell for less, is now down 8.5 percent from the record high reached in July 2006. And the three biggest year-over-year declines on record have now been recorded in the last four months, with January's decline just behind the 4.4 percent drop in October and a 3.4 percent fall in November.

New Home Sales Plunge New home sales saw their steepest plunge in 13 years in January as a rising glut of new houses on the market pushed prices lower. New homes sold at an annual rate of 937,000, down 16.6 percent from the December reading of 1.1 million. The decline in sales hit every region of the country, from a 8.1 percent drop in the Midwest to a 37.4 percent dive in the West. The South, which accounts for more than half of the nation's new home sales, saw January's pace off nearly 10 percent compared to December. The percentage decline was biggest for a single month in 13 years, since the record 23.8 percent decline seen in January 1994. It is also the sixth largest one-month fall on record. Mortgage Defaults Start To Spread The mortgage market has been roiled by a sharp increase in bad loans made to borrowers with weak credit. Now there are signs that the pain is spreading upward. At issue are mortgages made to people who fall in the gray area between "prime" (borrowers considered the best credit risks) and "subprime" (borrowers considered the greatest credit risks). A record $400 billion of these midlevel loans -- which are known in the industry as "Alt-A" mortgages -- were originated last year, up from $85 billion in 2003, according to Inside Mortgage Finance, a trade publication. Alt-A loans accounted for roughly 16% of mortgage originations last year and subprime loans an additional 24%. Data show that the default rate for Alt-A mortgages has doubled in the past 14 months.

Engine Dispute To Cut Truck Sales, Ford Says Even if Ford Motor Co. loses only a day or two of production of 2008 F-Series Super Duty trucks, this month's sales will be hurt. Orders from dealerships for the Louisville-built line have been stronger than expected, and the vehicles that were on lots last month didn't stay longer than six days on average. Ford's Kentucky Truck Plant on Chamberlain Lane worked partial shifts yesterday (March 1) and is scheduled to be down today. The company hopes to be at full production next week now that Navistar International has been ordered to resume shipping diesel engines to the plant. Navistar on Monday announced that it had stopped shipping the engines because of a dispute over Ford payments. The work stoppage did not affect last month's sales, but is expected to impact this month. Ford sued Navistar in January, saying the engine maker failed to pay for its share of recalls on the 6-liter diesel engine sold in Ford trucks from 2002 to 2007. In its lawsuit, Ford said it was withholding funds for the new 6.4-liter engine to recoup those expenses. Late Wednesday, a judge in Michigan issued a restraining order, forcing Navistar to restart engine production and Ford to resume full payments. Book Dealer Says Goodbye A book wholesaler renowned for its giving is moving its operations from Lexington to Illinois. The closing of BWI will lead to the city's largest job loss on record from a single employer in three years. Follett Corp., the parent of BWI, announced that it plans to move the company's headquarters and distribution center to McHenry, Ill. BWI, which had been known as Book Wholesalers Inc., sells books, e-books and audio-visual materials to public libraries. The company has about 300 employees at its site on Mercer Road. The relocation will be conducted in phases and will be complete late this year or early in 2008. Alcoa To Close Reynolds Food Packaging Plant Alcoa Inc. intends to close its Reynolds Food Packaging plastics manufacturing plant in Mount Vernon by the middle of this year. The Pittsburgh-based producer and manager of aluminum and alumina facilities said the closing will affect 115 people. Production will continue through April until certain lines are transferred to other packaging facilities.

Kentucky Near Top In Foreclosure Rate The number of Kentuckians buying homes reached an all-time high last year. But some of those buyers are having trouble keeping up with the payments. One in every 57 residential mortgages across Kentucky -- nearly 2 percent -was in foreclosure last summer, according to the national Mortgage Bankers Association. In Indiana, the rate was nearly 3 percent, putting it second in the nation behind Ohio. Kentucky was fifth, behind Michigan and Katrinaravaged Mississippi. In Louisville, there's been a flurry of foreclosure sales -- Jefferson Circuit Court ordered a record-tying 2,620 sales last year and is on a pace to set an all-time high this year. "We are scheduling 125 parcels every other Tuesday for 2007," said Daniel T. Albers Sr., master commissioner for Jefferson Circuit Court. "If this holds for the year, we will schedule 3,125 parcels this year." The Mortgage Bankers Association blames slow job growth -- just over 1 percent last year in Kentucky, compared with nearly 2 percent nationally -- and rising interest rates for the foreclosure rate spike. But some in the lending business say some responsibility lies with an industry that's been too eager to arrange costly, nontraditional loans for low-income borrowers and those with bad credit histories. Price Of Gas Jumps Prices for regular fuel rose as high as $2.56 at many stations in the Louisville area yesterday (February 27), as prices for wholesale gasoline in New York rose to a six-month high. That followed news of refinery problems and forecasts for big declines in gasoline inventories when federal data is released today. Wholesale gasoline, which tends to run about 60 cents cheaper than retail prices, finished at $1.8161 a gallon, the highest since Aug. 31. Existing Home Sales Rose In January There were more buyers in the Louisville area looking for houses last month, but sellers were entering the market faster. Still, Louisville-area home prices held their own. Louisville Realtors sold 954 homes in January, an increase of about 1.5 percent compared to a year earlier. The median Louisville home value was flat, year over year, at $131,000.

Governor’s Office for Economic Analysis 502-564-3093

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