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Commerce Dept. Revises GDP Upward MoneyNews
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Predicting the post-gross domestic product numbers every quarter is getting to be, well, predictable. Once again those figures are being revised upward, as the Commerce Department reports the GDP number from the fourth quarter grew at a 1.6% clip. That's up from the original estimate of 1.1%. The Commerce Department also said that inflation is lower than previously thought, but likely not enough to give Federal Reserve Chairman Ben Bernanke reason to postpone or even avoid raising interest rates at the next Fed meeting on March 27.
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A major inventory buildup was the main reason the GDP number was recalculated upward, although as MoneyNews pointed out yesterday, the rest of the economy suffered from higher energy prices and the costs associated with hurricane repair during the fourth quarter. "Economists say the fourth-quarter slump was just a temporary bump in the road, due largely to the sharp drop-off in auto sales and the ripple effects of Hurricane Katrina," says CBS Marketwatch. "For the first quarter, economists are predicting growth of 4.6%." Quarter-to-quarter growth from the fourth quarter of 2004 to that of 2005 was 3.2%. That's the slowest growth rate in nine quarters. For 2005 overall, GDP growth reached 3.5%. "Core inflation - which excludes food and energy costs - increased at a 2.1% annual rate in the quarter, down from 2.2% in the earlier estimate," says CBS Marketwatch. "The report is likely to have little impact on the Fed's deliberations in four weeks about whether to boost overnight lending rates for the 15th straight meeting." And there was good news on the personal income front, as well. For the third quarter, incomes increased 0.6% vs. the original estimate of 0.4%. For the fourth quarter, incomes increased 2.3%, with wages up 1.2%. Editor's Note:
2. Record Number of Unsold Homes Everywhere you look, there are signs that the U.S. housing market is slowing down. The latest indicator is the record number of unsold homes, which dropped by 5% to a seasonally adjusted rate of 1.233 million units in January, according to the U.S. Commerce Department. Housing backlogs haven't been that high since January 2005. "The decline in new home sales in January makes it clear that there is some real softening in the housing market," Joel Naroff, chief economist at Naroff Economic Advisors, tells the Associated Press. The AP also says that the 5% decline was "bigger than expected, dashing hopes that the milder-than-normal January would help to bolster demand." New homes are drawing less interest, with 528,000 units left unsold in January. That is a nine-year high. Even so, median housing prices are still on the rise. The Commerce Department reports that average home prices rose 4% in January, to $238,100. That's down from $243,900 last October. David Seiders, chief economist at the National Association of Home Builders, tells the AP that builders are tossing in free amenities to attract more new homebuyers. A recent survey shows that the number of freebies offered to buyers has risen 41%. Seiders also says that housing prices will level off to 6% growth in 2006, down from 12% in 2005. Editor's Note:
3. U.S. Oil 'Addiction' Problematic Minnesota's Pioneer Press tackles the tough issue of U.S. energy independence this week, quoting expert after expert as saying that the only way to solve our energy problems is to wean ourselves off of Middle East oil. Pioneer Press bureau chief Kevin Hall writes that President Bush has touched off a national debate on oil, energy and how to create new ways to achieve energy independence. "The answer is pretty simple. We will never get to energy independence while we are using oil as the major fuel," Severin Borenstein, director of the University of California Energy Institute in Berkeley, tells Hall. Like many analysts, Borenstein advocates stricter conservation, higher fuel-economy standards, alternative fuels made from common crops and next-generation batteries for hybrid cars that could get more than 100 miles per gallon. But should those initiatives be put in place, they still don't match up financially with the low cost of oil. Even with prices at $60 a barrel, oil is still relatively cheap, Hall writes. "If America went cold turkey, it would mean switching to higher-priced or heavily subsidized alternative fuels, which Americans and the government have resisted since Ronald Reagan won the presidential election in 1980," he says. President Bush has called for cutting Middle East oil imports 75% by the year 2025. But that wasn't entirely accurate. "A day later, his energy secretary clarified the goal - it's actually to reduce oil imports from anywhere by the equivalent of 75% of projected Middle East imports," says Hall. The U.S. Energy Department estimates that Middle East oil imports will total 6 million barrels per day in 2025. The White House wants that number sliced by 4.5 million barrels a day over the next 20 years. Watchdog groups like Americans for Energy Independence say the key to oil addiction is to make Americans pay more for it. The AEI recently came out for a gradual rise in oil and gasoline taxes. The revenue gained by the higher taxes "would be used for incentives to spur the move to plug-in hybrids (gas-electric cars) and a national bio-fuels campaign," says Chris Wolfe, the group's president.
The American government is also considering increasing the mileage for new cars. Hall says that fuel efficiency for passenger cars jumped from an average 12.9 mpg in 1974 to 27.5 mpg in 1985, after Congress imposed stricter standards. "(But) the requirements for cars haven't been raised since, and they're lower for trucks, including SUVs," he says. The real question is whether Congress has the stomach to impose tougher standards on American car owners - and risk some punishment meted out at the polls on election day. Until that day comes, says Hall, don't expect our "addiction" to oil to dry up.
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