Headlines (Scroll down for complete stories):
1. Manufacturing Growth Slows in September
2. Commercial Construction Props up Spending
3. Report: U.S. Automakers Face Profit Gap
4. Despite Cuts, Oil Slides Below $61
1. Manufacturing Growth Slows in September
Growth in the U.S. manufacturing sector slowed in September to a 16-month low,
according to the Institute of Supply Management survey of manufacturers.
The ISM manufacturing index fell to 52.9 in September from 54.5 a month ago. A
reading below 50 would indicate a recession in the manufacturing sector.
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"The number was on the soft side but it still shows an expansion of
manufacturing," Gary Thayer, chief economist at A.G. Edwards, tells Reuters.
"The components didn't look too bad, so it looks like there is a cooling off in
manufacturing but not a big decline under way."
Each of the components slowed with the exception of a rising import index and
steady new orders. The employment, order backlog, and inventories indexes fell
below a reading of 50, meaning that they are contracting.
Economists polled by Reuters had been expecting a decrease of 53.5.
The Associated Press posited that the cooling housing market and struggling auto
industry are leading factors in the manufacturing slowdown.
The auto industry, which accounts for 10 percent of the nation's manufacturing,
is slashing production. Auto parts manufacturers such as Timken Co., Visteon
Corp., BorgWarner Inc., and Lear Corp., have all lowered sales and earnings
guidance.
The housing sector's slump is also weighing on the manufacturing industry. New
home sales rose in August, but only after three straight months of declines.
Home sales are off 17.4 percent since August 2005. Homebuilders have announced
that they will cutback on the pace of building. In fact, housing starts - the
number of new homes builders broke ground on - fell to a three-year low in
August.
One positive component in the manufacturing report was the prices paid
component. The component, a measure of inflation in the manufacturing sector,
fell to 61 in September from 73 in August. That's the lowest it's been since
July 2005.
Editor's Note:
2. Commercial Construction Props up Spending
Though the residential housing sector is in the midst of a slump, commercial
real estate is showing signs of expansion, according to a report by the Commerce
Department.
Construction of private nonresidential properties such as commercial buildings,
office projects, power plants, and manufacturing facilities rose 3.4 percent in
August. That helped overall construction spending to rise an unexpected 0.3
percent. Economists had expected a decline of 0.1 percent, according to
Marketwatch.
Nonresidential construction has risen a whopping 23.9 percent in the past year.
That's the largest year-over-year increase in 21 years. Meanwhile, residential
spending is down 5.2 percent year over year.
Private residential construction fell for the fifth month in a row, falling 1.5
percent in August.
"The decline in private residential construction is following the downward trend
in housing starts, which have fallen in six of the past seven months," says
Moody's Economy.com. "In contrast, private nonresidential construction is being
driven by booming office and power construction. Public construction activity is
growing on almost all fronts."
Higher interest rates and a glut of homes already on the market are forcing
homebuilders to pull back on their building efforts.
Editor's Note:
- Housing expert and Yale professor, Robert Shiller, tells Financial Intelligence
Report that housing prices nationwide could fall by as much as 40% over the next
few years. Find out how the five ways to protect yourself and profit from the
coming real estate crisis. Go here now.
3. Report: U.S. Automakers Face Profit Gap
U.S. automakers have a $2,400 per-vehicle profit disadvantage compared with
foreign manufacturers, due to flawed pricing strategies, a lack of common
platforms and vehicle architectures, and labor issues, according to a report
released Monday.
"Lean methods have driven the Detroit automakers for the past 25 years," veteran
automotive consultant Jim Harbour, who authored the report with Laurie
Harbour-Felax, said in a statement. "They've made impressive progress in quality
and productivity, and now they must adopt a new guiding principle: Common."
By using common platforms, body architectures and components, Toyota Motor Corp.
has saved approximately $1,000 per vehicle over the last five years, according
to the report, titled "Automotive Competitive Challenges: Going Beyond Lean" and
put out by the Harbour-Felax Group. In addition, when fewer unique parts are
needed for each vehicle, quality improves, reducing warranty costs, it said.
Another major contributor to the gap is revenue per vehicle. On average,
domestic automakers take in $21,597, 11 percent less than the average revenue of
Japanese automakers, which collect $24,289 per vehicle, the report said. The
authors attributed that disparity to steep discounts that domestic manufacturers
use to fuel sales, as well as discounts for rental and other fleet sales, which
average 25 percent of total domestic sales.
The study also pointed to labor issues, including generous health care benefits
and contracts that allow workers to continue collecting wages when there is no
work for them, as a major factor in the profit gap.
Harbour called on the United Auto Workers and the government to help General
Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group resolve
those issues.
© 2006 Associated Press.
Editor's Note:
- Sir John Templeton is recommending the next company that will surpass GM as the
world's leading automaker. He predicts major profits ahead.
Learn More.
4. Despite Cuts, Oil Slides Below $61
Oil dipped back to below $61 a barrel as fears of an economic slowdown in the
U.S. outweighed production cut backs in Nigeria and Venezuela.
Slowing growth in the manufacturing industry sent up a red flag for energy
traders (see above article). The more-than-expected slip had economists worrying
that the manufacturing slowdown would spread to the rest of the economy quicker
than expected, says Reuters.
"This just helps add to fears that demand isn't going to be as robust as many
had expected," Chip Hodge, managing director at John Hancock Financial Services,
tells Reuters.
OPEC members Nigeria and Venezuela have announced that they will cut oil
production. Nigeria says it will slash production by 5 percent starting
yesterday. Venezuela, meanwhile, says that it will cut production by 50,000
barrels per day.
Prices went as high as $63 a barrel, but slipped back down to below $61 as the
cuts weren't widespread.
"It's a question of how far does it fall before there is some action out of
OPEC," Hodge asks Reuters. "My gut tells me somewhere in the $50 range."
Solid inventories in the U.S. have also kept crude prices from rebounding.
Distillate stocks, which include the all-important heating oil during the winter
months, are at their highest level since January 1999, says Reuters.
Editor's Note:
- Hedge Fund Investing's energy recommendations have pocketed gains of up to
198%. Go here now.
Editor's Notes:
- Cholesterol Shocker: Heart Attacks Not Linked.
- Housing expert and Yale professor, Robert Shiller, tells Financial
Intelligence Report that housing prices nationwide could fall by as much as 40%
over the next few years. Find out how the five ways to protect yourself and
profit from the coming real estate crisis.
Go here now.
- Sir John Templeton is recommending the next company that will surpass GM as
the world's leading automaker. He predicts major profits ahead.
Learn More.
- Hedge Fund Investing's energy recommendations have pocketed gains of up to
198%. Go here now.
- Doctor Reveals Fat Burner Supplement –
Go Here.
