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1. Economists: Housing Slump to Force Rate Cut in 2007
2. Weekly Jobless Claims Climbs Unexpected 12,000
3. GM Exec: Automaker May Speed Cost Cuts
4. Dollar Sinks to Three-Month Low
1. Economists: Housing Slump to Force Rate Cut in 2007
The slowdown in the U.S. housing market may be nearing a trough, but will
still be enough to force the Federal Reserve to cut interest rates by the
middle of next year, according to a Reuters poll of economists.
There seems to be little doubt that U.S. economic growth will slow but the
question of what kind of "landing" the economy will have is unclear.
Median forecasts in the survey of 60 economists showed the Fed's next move
will be to cut the federal funds rate to 5.0 percent, from 5.25 percent now,
by mid-2007 while the odds of the economy sliding into recession in 2007 is
about one in four.
Those forecasts were roughly unchanged from a month ago.
Economic growth is expected to average about 3.1 percent this year, slightly
above trend, and gradually coast to about 2.6 percent in 2007 as the U.S.
consumer feels the pinch of the housing market decline and global growth
tempers somewhat.
"The housing slowdown is casting a big shadow over the rest of the economy,"
said Mark Vitner, senior economist at Wachovia Corp in Charlotte, NC. "The
situation's not dire, but it's certainly not robust," he said.
Housing Watch
The super-low interest rates of the past few years fuelled the biggest boom in
U.S. real estate history that in turn fed healthy consumer spending.
Now, the extent of the slowdown is becoming apparent as home sales have tailed
off sharply and house prices have fallen. But median forecasts in the poll
showed house prices were likely to fall only around six percent from peaks
earlier this year.
"The sharp drop in home sales has caused a significant jump in the inventory
of unsold homes," said David Berson, chief economist at Fannie Mae, the
largest U.S. home funding company.
"That will result in the modest drop in home prices that we expect for 2007.
By 2008, with home sales rebounding and unsold inventories down, home prices
should rise again," he added.
Fed policymakers have said that while the cooling of the housing market will
take a chunk out of growth in the coming quarters, officials have stressed
that their greatest concern is tackling the rate of increase in U.S. core
consumer prices.
The poll showed that analysts do not believe there will be much respite from
inflation next year, which some analysts say may leave the door open for
another rate rise.
The core consumer price index (CPI) is expected to run at an annual rate of
2.5 percent this year before easing just a tenth of a percentage point to 2.4
percent in 2007, according to median forecasts.
"Inflation data suggests that the Fed might have more time to evaluate
incoming housing data and, as such, we have moved our expectation for a rate
hike to March from January," wrote Drew Matus at Lehman Brothers in New York,
in a note.
"However, we do not see any evidence that this is the start of a new trend of
lower CPI readings and still expect that inflation pressures will remain a
concern," he said.
© 2006 Reuters.
Editor's Note:
2. Weekly Jobless Claims Climbs Unexpected 12,000
Considerably more newly laid-off workers signed up for unemployment benefits
last week, although the figures suggest the job market remains stable even as
a housing slump afflicts the economy.
The Labor Department reported Wednesday that new applications filed for the
work week ending Nov. 18, rose by a seasonally adjusted 12,000 to 321,000. The
increase was bigger than many economists were expecting. They were forecasting
new claims to clock in at about 310,000.
Even though the increase left claims at a three-week high, the level was still
considered consistent with a jobs climate that remains decent despite the
strain of job losses related to the cooling of the once-sizzling housing
market. The current number of new filings for unemployment benefits is in line
with last year's applications in this same time frame, when claims stood at
322,000.
The more stable, four-week moving average of claims, which smooths out
week-to-week fluctuations, rose to 317,000 last week. That was an increase of
3,000 from the previous week. And it marked the highest level since late
August. Compared with a year ago, the four-week moving average of claims has
remained fairly stable. For the same week last year, the moving average stood
at 316,750.
The report also said that the number of people continuing to collect
unemployment benefits grew by 14,000 — to 2.45 million — for the week ending
Nov. 11, the most recent period for which that information is available.
Other barometers suggest that the job market thus far is weathering well the
slowdown in overall economic activity.
The unemployment rate sank to a five-year low of 4.4 percent in October and
workers' wages grew solidly, the government reported earlier this month.
Economic growth slowed to a 1.6 percent annual rate in the late summer, the
most sluggish pace in more than three years. The housing slump was the biggest
factor in the slowdown.
The Federal Reserve has left interest rates intact since August and is likely
to stay on the sidelines at their next meeting on Dec. 12. The Fed, which had
hoisted rates 17 times since June 2004, wants the economy to slow sufficiently
to thwart inflation but not so much as to tip into recession.
© 2006 Associated Press.
Editor's Note:
Story Continues Below
3. GM Exec: Automaker May Speed Cost Cuts
General Motors Corp. North America President Troy Clarke said Tuesday he will
work toward achieving aggressive cost-cut targets as soon as possible as the
company scrambles to revive its North American automotive unit and "adapt to a
global, very tough, very competitive" marketplace.
Clarke, speaking during a question-and-answer session that followed a speech
given to the Automotive Press Association, said the company currently has a
target to reduce structural costs to 25 percent of revenue by 2010, but he
insists he is working to meet that goal as soon as possible.
He said the costs currently represent nearly 30 percent of revenue. He said
there are still "pockets" at GM where workers operate under "the legacy of
having been big."
He noted that GM once held 50 percent of the U.S. market but now holds less
than 25 percent, and Clarke insists the company must continue to "break up"
bureaucracy to cope with reality.
Clarke heads GM's North American auto operations, which has been a money loser
and a key contributor to the company's financial woes. He took the helm of the
troubled unit four months ago, taking the role from GM Chief Executive Rick
Wagoner, who had been running the unit for more than a year.
GM's troubles in North America primarily stem from high labor costs, excessive
manufacturing capacity and falling market share. The company began
restructuring the operations in 2005 and has knocked down several items it
needed to do to reduce costs and streamline operations.
"The turnaround is not yet finished," Clarke said, during his speech prior to
the question-and-answer session. "We are only beginning the transformation."
Clarke, who previously ran GM's Asia operations, pointed to Suzuki Motor
Corp., a GM joint-venture partner, as "an organization that I truly admire."
He said the Japanese automaker, which primarily produces mini cars, runs the
business with "a very healthy level of paranoia."
Clarke said GM would continue to focus on cost cutting "as a new way of life."
He said the company will continue to focus on further trimming U.S.
health-care costs. He characterized the company's drive to cut $9 billion in
structural costs annually as a cost-reduction target that "may be unmatched in
American business history."
Clarke said the company is looking to boost top-line results to complement the
cost cutting. He pointed to a renewed focus on mid-sized cars, which is a huge
U.S. vehicle segment where GM has lagged Asian rivals.
"GM needs to have a presence" in the segment, Clarke said.
He said the company will unveil its new Chevrolet Malibu sedan at the Detroit
auto show in January and the car will give buyers the sense they receive "more
than they paid for."
© 2006 Associated Press.
Editor's Note:
4. Dollar Sinks to Three-Month Low
The dollar stumbled broadly on Wednesday, hitting three-month lows against the
euro, as investors pared back risk within their portfolios in thin trade.
National holidays in the United States and Japan on Thursday have caused
trading volumes to decrease as the week continues, exaggerating the volatility
of price moves.
"It's everybody trying to get out of their dollar long positions ahead of the
weekend," said Boris Schlossberg, senior currency strategist with Forex
Capital Markets in New York.
"Everybody is rushing for the exits all at once, and it's mostly technical in
nature rather than anything fundamental behind the move," he said.
The euro rose to its highest since Aug. 21, at $1.2927 , according to Reuters
data, climbing closer to the top of the trading range it has held for the last
1-1/2 years at $1.2980. By midmorning, it was trading at $1.2915.
Against the yen, the dollar was down 0.9 percent at 116.80 yen, dipping
briefly below a key chart level.
Earlier, CitiFX Technicals analysts said the dollar was trading on a "cliff
edge" against the yen and that a clear break below 116.83 yen suggested a move
to 113.45 yen.
Overnight traders cited talk that the Japanese Ministry of Finance was
advising exporters to hedge their dollar holdings or sell dollars as a reason
for the dollar's weakness against the yen, but the rumor was denied by a
finance ministry official.
Other dealers said carry trades — where investors borrow in a low-yielding
currency such as the yen to buy a higher-yielding one — were being unwound
ahead of the U.S. and Japanese holidays.
Indeed, the currencies that rose the most against the dollar on Wednesday were
those that have the lowest yields among the most liquid currencies in the
world: the yen, Swiss franc and Swedish crown.
Also, while the New Zealand dollar — the highest-yielding currency among the
most liquid — was up 0.2 percent against the dollar at $0.6710, it was down
1.5 percent against the yen, at 77.78 yen.
Sentiment favoring the U.S. dollar has suffered in this holiday-shortened
week, particularly after the White House downgraded its forecast for U.S.
economic growth in 2007 on Tuesday. However, analysts and dealers said
Wednesday's dollar weakness was mostly the result of position shifting ahead
of market holidays.
"Nothing in particular is driving this move but relatively thin and quiet
markets, which means that the moves are being magnified," said Nick
Bennenbroek, currency strategist at Brown Brothers Harriman.
© 2006 Reuters.
Editor's Note:
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