U.S. Economy: Growth Rebounds Without Inflation Surge

Discussion in 'Wall St. News' started by S2007S, Jan 18, 2007.

  1. S2007S


    They talk about this slowdown as if it was a major slowdown, yet I didnt even notice it. Did you?

    "The U.S. economy is rebounding from last year's slowdown."


    U.S. Economy: Growth Rebounds Without Inflation Surge (Update2)

    By Shobhana Chandra and Bob Willis

    Jan. 18 (Bloomberg) -- The U.S. economy is rebounding from last year's slowdown without stoking inflation, government reports on housing, consumer prices and jobs showed today.

    Home starts unexpectedly climbed 4.5 percent last month from November, the Commerce Department said in Washington. Consumer prices excluding food and energy rose 0.2 percent, the Labor Department reported, matching forecasts by economists. Separate figures showed jobless claims fell to an 11-month low and the Federal Reserve Bank of Philadelphia said manufacturing in the region resumed its expansion.

    The reports suggest the Federal Reserve, which last year predicted a pickup in growth just as some economists warned of a recession, will neither increase nor reduce interest rates in coming months. Yields on Treasury notes held close to the highest in three months after the numbers.

    ``The Fed can honestly say that things are about right,'' said Roger Kubarych, chief U.S. economist at Unicredit HVB in New York and a former Fed economist. ``They are in the sweet spot of the economy.''

    Building permits jumped 5.5 percent, the most in four years, to a 1.596 million pace, the Commerce Department said. Home sales improved in three of the four months through November as builders cut prices and offered incentives such as plasma televisions and better appliances. Today's figures, which were also helped by warm weather, reinforce others that suggest the worst of the construction slump is over.

    Steady Rates

    ``The housing headwind, while still blowing, doesn't have the kind of force it had months ago,'' said Michael Gregory, senior economist at BMO Capital Markets in Toronto. ``The U.S. economy is out of the recession-risk watch. It's looking awfully hard to justify any cut in rates in the foreseeable future by the Fed. We could be here a while.''

    The residential real-estate downturn ``is increasingly going into the rear-view mirror,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland.

    Even with last month's gain in housing starts, residential construction dropped 13 percent for all of last year, the biggest yearly decline since 1991, to 1.801 million.

    The increase in core consumer prices last month followed no change in November. Including higher costs for gasoline and natural gas, the consumer price index rose 0.5 percent, the Labor Department said.

    Prices rose 2.5 percent from December 2005, compared with a 2 percent year-over-year gain the prior month. Core prices rose 2.6 percent during the 12 months ended in December, matching the 12-month increase in November. In September, the year-over-year increase of 2.9 percent was the biggest since 1996.

    Pinalto Encouraged

    ``The most recent price statistics have been encouraging, but not convincing,'' Cleveland Fed President Sandra Pianalto said in a speech in Dayton, Ohio today. ``There is still a risk that the underlying inflation trend will not continue to improve, in which case, the FOMC will need to respond with the appropriate policy actions.''

    Policy makers left their benchmark lending rate at 5.25 percent for a fourth straight meeting in December.

    `I do want inflation to move down, but I believe policy may now be well-positioned to foster exactly such an outcome,'' San Francisco Fed President Janet Yellen said yesterday. ``While I am inclined to see labor-market tightness as transitory, I do take it as a serious risk.''

    Construction of single-family homes fell 4.1 percent last month to a 1.23 million rate, today's report showed. Work on multifamily homes, such as townhouses and apartment buildings, surged 42 percent to an annual rate of 412,000.

    Regional Differences

    The increase in starts was led by a 26 percent jump in the Northeast. Construction in the West rose 12 percent and increased 1.8 percent in the Midwest. Starts dropped 2 percent in the South.

    ``Underlying inflation is moderating, despite the headline figure, and the economy at the same time is showing greater resilience,'' said Stephen Gallagher, chief U.S. economist at Societe Generale SA in New York. ``It looks like a soft landing, and the question is does the soft landing give the Fed any room to move. I would say at this point, it makes it more difficult for the Fed to move in 2007.''

    Unseasonable warm weather may have contributed to the strength in starts last month, economist said. Last month was the warmest December since 1957, according to the National Climatic Data Center in Asheville, North Carolina. The government boosts the December figures in order to compare it with other months because it assumes harsher winter weather stalled some projects.

    Reaching `Stabilization'

    ``The housing market has reached stabilization, but I would not be surprised to see some weaker numbers going forward,'' said Phillip Neuhart, an economist at Wachovia Corp. in Charlotte, North Carolina. Favorable weather allowed some builders to get an early start on projects, ``pushing the headline number up.''

    Low borrowing costs are helping homebuyers. The average U.S. rate for a 30-year fixed mortgage probably will be 6.2 percent in the first and second quarters of 2007, little changed from current levels, according to McLean, Virginia-based Freddie Mac, the second-largest mortgage buyer. The rate averaged 6.41 percent in 2006.

    Builders' profits are declining as they cut prices, increase incentives and decide against fulfilling land-purchase contracts.

    D.R. Horton Inc., the largest U.S. homebuilder by revenue, this month said this week that orders fell 23 percent in the quarter that ended Dec. 31, and Lennar Corp. reported its first quarterly loss in at least a decade after it wrote down property investments.

    Centex Corp. had a fiscal third-quarter loss as it booked $450 million to write down the value of land, the company said in a Jan. 16 statement of preliminary earnings.

    ``We are navigating through one of the most challenging housing environments in the past 25 years,'' said Tim Eller, chairman and chief executive of Centex.

    To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net ; Bob Willis in Washington at bwillis@bloomberg.net
  2. When was the last time the Mayor of NYC put out bad news about the stock market using his private mouth piece? :D
  3. blast19


    When he was running for mayor and needed negatives to gain on. :D