Mar 13, 2008

US Economy Report

GDP Report

Look for growth of gross domestic product to slow this year to around 1.5% as housing and credit woes and high energy prices weigh on consumers and businesses. The first quarter likely will show GDP in minus territory on the heels of a 0.6% increase in the fourth quarter of 2007. More strength will come during the second half as the impact of the Federal Reserve's rate cuts and the fiscal stimulus package being shaped by Congress take effect. They will help offset housing, which won't stabilize until late 2008 at best. The outlook for the credit markets remains murky, raising questions about whether companies will be able to raise the cash they need for day-to-day transactions and longer-term investments. Barring a full-on credit freeze, or a huge spike in oil prices, business spending should be a shade under 2007's 4.8% advance. Meanwhile, growth in consumer spending is likely to ease to 2% from 2.9% in 2007. Dept. of Commerce: GDP Data


It's likely that the Fed will deliver more rate cuts following its surprising three-quarter point reduction Jan. 22 which came between official policy meetings and another half point cut at the Jan. 30 Federal Open Market Committee's scheduled meeting. Officials are closely watching the economy, where job growth turned negative in January, and financial markets where lending conditions are tight. Though Fed officials fret about inflation stirring down the road, they say that the immediate challenge is to try to revive sagging economic growth and avoid a recession. As for long-term interest rates, we see the benchmark 10-year Treasury yielding around 4% by mid-2008 as the economy shows prospects of improvement. The 30-year fixed-rate mortgage, which is around a four-year low of about 5.7%, is likely to increase slightly later this year. Federal Reserve Open Market Committee



The weak economy especially in housing and manufacturing will hurt overall job growth this year. The economy will generate about 600,000 jobs on a net basis (total jobs added minus the total eliminated) in 2008 after a gain of 1.13 million in 2007. Job totals will shrink for several months as managers remain wary of hiring in a very weak economy. As growth picks up this summer and fall, some hiring should take place but at very modest amounts. More on Employment
Dept. of Labor: Employment Data


Price surges in food and energy likely won't be so great this year, bringing a measure of relief to consumers. After fueling the Consumer Price Index to a 4.1% gain from December 2006 to December 2007, the rate will slow to about 3% this year. Meanwhile, the core CPI, which excludes food and energy prices is likely to increase around 2% this year following an increase last year or 2.4%. Dept. of Labor: Inflation Data



The near-total freeze on mortgages for less creditworthy borrowers plus rising delinquencies will be a drag on housing demand this year that will fuel further declines in both sales and home building. The stimulus plan signed by President Bush will provide some help for high-priced markets on both coasts by raising the ceiling on jumbo loans from $417,000 to about $725,000 for mortgages held or guaranteed by Fannie Mae and Freddie Mac. But it will take several weeks to set a new ceiling for each metro market in the U.S. Meanwhile, the housing slump will continue through this year with the average house price declining about 5%. Sales of new and existing homes combined will fall about 10% in 2008. Dept. of Commerce: New Home Sales NAR: Existing Home Sales Dept. of Commerce: Housing Starts


Oil supplies are fundamentally tight, and the multitude of supply risks around the world will prevent prices form going into a tailspin. But slowing economic growth or declines in most industrialized nations will likely limit growth in global demand for crude to just under 1% in 2008, a tad less than last year, while supplies will expand at slightly more than 1%. We see oil averaging about $85 a barrel in 2008, up nearly $13 from the average of 2007. But prices will see-saw. Crude oil may well hover near $100 a barrel during the first quarter of this year, with spurts to $110 possible. As consumers and businesses cut back on motoring in response to deteriorating economic performance, oil prices should slide to about $75 a barrel by mid-year, before rising mildly in the second half.

Gasoline should average around $2.85 per gallon in 2008, up about a nickel from last year. The surge in gas pump prices during February should ease off along with oil prices by mid-year, when motorists will be paying $2.85 or so a gallon. Barring major refinery mishaps, gasoline shouldn't touch the $3 level this summer. For diesel, expect to pay an average $2.95 per gallon, up a dime. Heating oil will increase about 10¢ to $2.90 per gallon, while natural gas will average around $7.25 per million British thermal units, up 65¢. Propane prices should average $2.40 a gallon or so, up 35c. Dept. of Energy: Price Statistics


The trade deficit will shrink to roughly $652 billion and 4.6% of U.S. gross domestic product (GDP) in 2008. It will mark the second straight year of declines -- last year, the deficit totaled $708.5 billion and 5.1% of GDP, down from record highs of $758.5 billion and 5.7% of GDP in 2006. Further, 2008 will see the smallest trade gap relative to GDP since 2003. Export growth will remain robust at 8.5%, down from a scorching 12.2% in 2007. Import growth will slow to around 3.5% from 5.9% last year. Global GDP is likely to grow 2.9%, slowing from 2007's 3.6% but sustaining foreign demand for U.S. goods. The ongoing descent of the dollar will also help exporters by making U.S. goods more affordable and more competitive on world markets. Dept. of Commerce: Trade Data



Retail sales are slowing to a 2% increase in 2008 after a 4% gain in 2007. Wal-Mart, the nation's largest retailer, will slog through another modest year with a sales increase of around 2%. Target's sales will climb around 4%. Middle-market department stores will ring up 2% to 3% higher sales. Luxury merchants are poised for a 6% or so sales boost, although a protracted slump in the stock market will prompt some high-incomers to curtail their discretionary purchases.

Sales via the Web will continue their torrid increases, climbing 15% in 2008 to around $300 billion and capturing 10% of total retail sales, up from about 9% in 2007. Consumers are increasingly comfortable with buying products online, while many retailers are upgrading their Web sites to attract more buyers. Dept. of Commerce: Retail Data

Data compiled from different sites and is not created by the writers on assumptions. We are not responsible for its accuracy. Please verify the data with authorized resources.