Morning Economic News - December 18, 2008

Commentary and Overnight Trading

The big question Thursday morning is how US markets will react to the bombshell Chrysler dropped after the market close Wednesday: all plants closed for at least a month starting Friday. Bear in mind that, while this is awful news for temp workers and suppliers, it won't lower costs enough to keep the company afloat long term because Chrysler's union workers will get on average 95% of their pay under the job bank agreement.

In early overnight trading (1:30 AM Eastern) US stock market futures are mixed - the Dow Jones Industrial Average up 13 points, the NASDAQ down 12.5 points and the S&P 500 up 0.7 - as are Asian indexes. Oil is down more than 1% on top of Wednesday's 8% drop to put the NYMEX crude future below $40. The dollar is up strongly against the yen, up slightly against the pound and the Canadian dollar and down slightly against the euro.

Update and correction: US stock market futures are up - DJIA by 65 points, S&P 500 by 6.4 points. NASDAQ futures are up 5, but I'm having to get the numbers from an alternate source as my usual source isn't reporting NASDAQ - the previous "down 12.5" was actually the 12/17 close. The dollar is now up substantially against the pound and down substantially against the euro. Oil is up, with the NYMEX contract back above $40.

Wednesday's Economic News

Consumer Price Index (CPI) - November 2008

• CPI-U: 212.425


• Monthly Change: Down 1.9%


• Year-to-year Change: Up 1.1%

Federal Funds Rate (FOMC) - December 16, 2008

• Overall, the outlook for economic activity has weakened further


• …inflationary pressures have diminished appreciably…the Committee expects inflation to moderate further in coming quarters.


• …weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. 

Current Account - 3rd Quarter 2008

• Current Account Deficit: $174.1 billion


• Quarterly Change: Down $6.8 billion


• Goods Deficit: $214.7 billion


• Quarterly Change: Down $1.6 billion

Weekly Mortgage Applications Survey - December 17, 2008

• Market Composite Index: 841.4


• Change: Up 2.9%


• Purchase Index: 286.1


• Change: Down 4.5%

What if we added a whole oil producing state next year?

The Energy Information Administration is predicting big increases in US oil production in 2009. In fact, according to This Week in Petroleum
one new platform in the Gulf of Mexico, the Thunder Horse platform,
«would rank as the fourth largest producing State» in the country.
Thunder Horse will produce more oil than Louisiana or Oklahoma. Three
new platforms combined will produce more oil than all the states
combined except Alaska, Texas and California.

Creative Financing: Help During the Housing Downturn

With home prices falling in many parts of the country, sales slower
than normal in other parts and mortgage standards higher than any time
since the late ’80s, buyers and sellers can both benefit from creative
financing - owner finance, lease options, lesser known grant and loan
programs, and more.

What I'm Reading

Global Crisis Resists Central-Bank Moves

Central banks around the world cut rates a day after the
Fed's move, and Japan, the U.K. and euro-zone economies may follow suit.

OPEC Plans Record Output Cut

OPEC will cut crude production by a record 2.2 million
barrels a day, but the cartel's announcement failed to stop oil prices
from dropping to their lowest level in four years.

Global Confidence Wanes as World Sinks Into Recession, China Growth Slows Confidence in the world economy fell
in December as a recession spread beyond the U.S. and growth
weakened in China and Latin America, a survey of Bloomberg users
on six continents showed.

European November Inflation Rate Falls Most in Almost Two Decades to 2.1% Europe’s inflation rate fell the
most in almost two decades last month as oil prices plunged,
giving the European Central Bank more leeway to cut interest
rates.

Current-Account Deficit in U.S. Narrowed in Third Quarter on Export Gains The U.S. current-account deficit
narrowed more than forecast in the third quarter to $174.1
billion, reflecting gains in exports and decreases in foreign
earnings on American assets.

U.K. Unemployment Rose at Fastest Pace Since '91 as BOE Weighed Deeper Cut U.K. unemployment rose at the
fastest pace since 1991 in November and the Bank of England
considered cutting interest rates to the lowest ever this month
as the recession tightened its grip.

Fed Efforts to Unlock Housing Market Fail to Spur Buying: Chart of the Day The Federal Reserve’s efforts to make
homes more affordable have yet to bolster buying and instead are
fueling a surge in refinancing, according to data compiled by the
Mortgage Bankers Association.

Nomura Cuts Vietnam Growth Forecast to 5% on Delays in Investment Projects Nomura Holdings Inc. cut forecasts
for Vietnam’s economic growth because of delays in foreign-
invested projects amid a faltering global economy.

Bernanke Charts New Fed Course With Zero Rate, Pledge to Purchase Assets The Federal Reserve opened a new era
in U.S. monetary history, cutting interest rates to as low as
zero and pledging to buy unlimited quantities of securities,
after conventional policies failed to arrest what may be the
worst recession since World War II.

Zoellick Says the Right Government Policies Are Crucial to Global Recovery The right government policies will
be key to reviving economic growth forecast to cool globally in
the first half of 2009, World Bank President Robert Zoellick
said today.

Zhou Stokes Speculation China Will Cut Rates Again Soon as Inflation Eases Chinese central bank Governor Zhou
Xiaochuan stoked speculation that an interest-rate cut is
imminent, reiterating that falling inflation has added pressure
for a reduction.

Chrysler shuts plants

Dec 18 - Facing a credit crisis and dwindling
sales, Chrysler announced it would shut down all manufacturing
operations from Dec. 19 for at least a month