(Headlines: scroll down for full stories)
1. Housing Bust Hurts GDP
2. Copper Slides to 8-Month Low; HFI Trade Up 88 percent
3. Leading Economic Indicators Limp Along
4. Expert: Ford to Slip to No. 3 Behind Toyota in 2007
1. Housing Bust Hurts GDP
U.S. economic activity slowed more than expected in the third quarter, the
Commerce Department reported today. Commerce revised the U.S. gross domestic
product downward from 2.2 percent to 2 percent.
According to the government, the housing slump has permeated the rest of the
economy, forcing manufacturers to slow production and consumers to slam shut
their wallets. Residential real estate investments slowed 18.7 percent in the
third quarter, the largest drop in 15 years.
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Consumer spending, which accounts for more than two-thirds of economic activity,
grew at a 2.8 percent pace. That's slightly less than analyst estimates.
Business spending, on the other hand, was stronger than previously thought,
expanding at an annual rate of 7.7 percent. Commercial real estate investment
swelled 15.7 percent in the third quarter. Financial Intelligence Report
continues to tout commercial real estate investments as the way to play the
housing market.
The latest GDP report runs counter to former Federal Reserve Chairman Alan
Greenspan's remarks that the housing bust wouldn't spread to the rest of the
economy. Instead, that's exactly what's happening. The housing bust shaved
1.2 percentage points off third-quarter growth, the most in nearly 25 years,
according to The Associated Press.
The question now is whether the housing bust will lead to recession. A recession
is two consecutive quarters of negative GDP.
The GDP is in a downward spiral already. GDP has fallen from 5.6 percent in the
first quarter to 2.6 percent in the second quarter and now to 2 percent; that's
nearly a two-thirds drop in economic growth from the beginning of the year.
So, the economy isn't in a recession yet, but it's certainly headed in that
direction.
Editor's Note:
2. Copper Slides to 8-Month Low; HFI Trade Up 88 percent
Yesterday, MoneyNews pointed out copper's dramatic decline, and told you that
Andrew Wilkinson's Hedge Fund Investing service has a copper trade that's up
63 percent. Today, Andrew tells us that trade is up a whopping 88 percent as
copper has slid to an eight-month low.
If they followed his advice, Andrew's HFI subscribers are sitting on $7,750 per
contract or $2,250 more than they had yesterday. Wow! And it looks like copper
still has further to fall.
"Technically copper is not a very good market at the moment . . . we are a bit
concerned," a London Metal Exchange trader tells Reuters.
Today's GDP report, which showed residential real estate spending fall to a
15-year low, is really slamming copper prices. As you'll recall, the health of
the housing market is a strong indicator of copper prices because builders use
about 400 pounds of copper per house.
"The economic series coming out of the U.S. could imply that demand is going to
weaken — the rising [copper] inventories line up with the economic data,"
commodities analyst Jon Bergtheil at JP Morgan remarks to Reuters.
Copper inventories in London warehouses are currently at a two and a half-year
high.
Editor's Note:
3. Leading Economic Indicators Limp Along
A gauge of future economic activity advanced 0.1 percent in November, suggesting
that the U.S. economy will continue to expand modestly in coming months, an
industry-backed research group said Thursday.
The Conference Board, based in New York, said its Index of Leading Economic
Indicators edged up to 138.2 last month following a revised increase of 0.1
percent to 138.1 in October and 0.4 percent to 138.0 in September.
The November performance was in line with analysts' expectations.
"The recent behavior of the leading index so far still suggests that slow
economic growth is likely to continue in the near term," the Conference Board
said.
The index is closely watched because it is designed to predict economic activity
in the next three to six months.
In Washington, the Commerce Department reported that the nation's economic
growth slowed to a 2 percent annual pace in July-September period, slower than
the 2.2 percent earlier estimated.
The economy has been losing momentum as the housing sector has weakened. In the
first three months of this year, the economy grew at a rapid 5.6 percent pace,
the strongest spurt in 2 1/2 years, but in the second quarter growth slowed to
2.6 percent.
Many economists believe the economy may have weakened further in the
October-December period.
In other Washington news, the number of newly laid-off workers signing up for
unemployment benefits rose by 9,000 to 315,000 last week, the Labor Department
reported. That was in line with economists' projections.
Gary R. Thayer, chief economist for A.G. Edwards & Sons in St. Louis, Mo., said
that the performance of the index of leading indicators suggests "we're likely
to see the economy expand in 2007 — though not necessarily robust growth."
Thayer said the housing market was likely to be less of a drag on the economy.
"We're beginning to see signs it is starting to stabilize," he said. "Mortgage
applications have turned up, and maybe we'll see some better sales numbers early
in the year and be able to clear up the excess supply of homes."
Thayer said he believed the economy was growing at an annual rate of about
2.5 percent in the current quarter and will grow at about the same pace in the
first half of 2007.
The stock market, reacting to corporate earnings reports, mostly looked past the
reports.
In early trading, the Dow Jones industrial average rose 3.36, or 0.03 percent,
to 12,467.23.
Broader stock indicators were also up. The Standard & Poor's 500 index advanced
0.64, or 0.04 percent, to 1,424.17; while the Nasdaq composite index rose 2.13,
or 0.09 percent, to 2,429.74.
The Conference Board said four of the 10 components that make up the leading
index increased in November: money supply, vendor performance, manufacturers'
new orders for nondefense capital goods, and stock prices.
Manufacturers' new orders for consumer goods and materials held steady. Negative
contributors were unemployment insurance claims, building permits, the interest
rate spread, manufacturing hours, and the index of consumer expectations.
The coincident index, which measures current activity, advanced 0.2 percent to
124.0 in November after rising 0.2 percent in October to 123.8. The lagging
index was up 0.5 percent to 124.9 last month after advancing 0.2 percent in
October to 124.3.
© 2006 Associated Press.
Editor's Note:
4. Expert: Ford to Slip to No. 3 Behind Toyota in 2007
Ford Motor Co. will slip to become the No. 3 automaker in the United States next
year as Japanese rival Toyota Motor Corp. powers ahead in the industry's largest
market, according to a sales forecast released on Thursday.
Edmunds.com, which provides information on the U.S. auto market, said Toyota
will overtake Ford by mid-2007 in sales volume.
Toyota now often outpaces DaimlerChrysler AG's Chrysler Group and for two months
this year sold more vehicles than Ford, which has seen sales drop
almost 8 percent in 2006. Toyota's U.S. sales, meanwhile, have increased
nearly 13 percent over the same period.
Ford, which is struggling with mounting losses in North America, has said
it is aiming to hold its overall share of the U.S. light vehicle market at
between
14 percent to 15 percent, including fleet sales, from the current 17.7 percent
as it restructures by shutting 16 plants and cutting more than 50,000 jobs.
Ford expects a sharp fall in share next year as it is trying to pull away from
sales of vehicles to car rental companies that typically carry steep discounts
in favor of more profitable showroom sales.
Ford has ended production of its Taurus sedan, a model that was sold almost
exclusively to fleet buyers in its final months.
Overall, Edmunds.com expects light vehicle sales to be flat in 2007, with sales
near expected 2006 levels of 16.5 million.
"Gas prices will be a leading factor in how consumers choose what vehicles they
purchase in the coming year," said Jesse Toprak, executive director of industry
analysis for Edmunds.com, in a statement.
The firm expects Toyota's new Tundra truck, which is expected to be in showrooms
in February, to take a chunk of large truck market share from U.S. domestic
automakers.
This is a very profitable segment, so any loss in market share will have a
disproportionately large impact financially, according to Edmunds.com.
© 2006 Reuters.
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