Business Outlook • PMI was registered at 50.8 percent indicating that manufacturing economy is generally expanding. However, compared to October’s 50.9 percent it indicates that manufacturing industry is expanding at a slower rate. • Profits from current production decreased $19.3 billion in the third quarter, in contrast to an increase of $94.7 billion in the second quarter. • Domestic profits of financial corporation decreased $29.1 billion in the third quarter, in contrast to an increase of $25.3 in the second. Purchasing Manager's Index 58 Percentage 56 54 52 50 48 46 44 Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov06 06 07 07 07 07 07 07 07 07 07 07 07 Corporate Profit $1,800.0 $1,400.0 $1,200.0 $1,000.0 $800.0 $600.0 $400.0 $200.0 $0.0 20 02 q 20 1 02 q 20 3 03 q 20 1 03 q 20 3 04 q 20 1 04 q 20 3 05 q 20 1 05 q 20 3 06 q 20 1 06 q 20 3 07 q 20 1 07 q3 Billions of dollars $1,600.0 Due to the weakening of the dollar, the US current account deficit has been declining due to an increase in exports and a decrease in imports. U.S. Dollar vs. Other Currencies USD to EURO USD to Canadian Dollar (CAD) USD to Chinese Yuan USD to Japanese Yen U.S. Dollar Index The dollar has been dropping due to rumors that the Federal Reserve will cut interest this month. The dollar has fallen 5% against the pound; 7% against the yen; 10% against the euro; 14% against the Canadian dollar; and 8% against the Federal Reserve’s trade weighted basket of currencies. Housing Market • Building Permits went down 24.3% compared to October 2006, and Housing Starts went down 16.4% compared to October 2006. • Existing Home Sales went down 20.7% compared to October 2006, and current existing home inventory went up by 15.4% compared to October 2006. • Median sales price of existing home went down by 5.1% compared to last year, and average sales price of existing home went down by 3.4% compared to last year. • Persistent weakness in the housing market will lead to below-trend growth for the rest of this year. • Job losses in residential buildings (-9,000) and in residential specialty trade contractors (-13,000) were offset by job gaining in nonresidential specialty trade contractors (+16,000) Existing Home Sales in the United States & Current Housing Inventory 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2006 Oct Sept Aug Jul Jun Apr May Mar Feb Jan Dec Nov Oct Existing Home Sales Inventory 2007 Existing Home Sales in the United States & Current Housing Inventory 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 Existing Home Sales Inventory 2,000,000 1,000,000 0 Oct 2006 Dec Feb Apr Jun Aug Oct Sales Price of Existing Homes 300,000 200,000 Median sales price of existing homes Average sales price of existing homes 150,000 100,000 50,000 2006 2007 Oct Sept Aug Jul Jun May Apr Mar Feb Jan Dec Nov 0 Oct r Dollars 250,000 Consumer confidence has been dropping since August. The Consumer Confidence Index is 87.3, compared to 95.2 in September. This is the lowest since October 2005; it’s reading then was 85.2. The Present Situation Index is down 115.4 from 118.0 during October. Declining Credit Source: Federal Reserve •Personal Income increased .2% •Disposable Income increased by .5% •Personal Consumption Expenditures increased by 2% All figures were lower than the increases economists projected. Personal Consumption Expenditures (Seasonally adjusted) 2 20 07 : Q 4 20 06 : Q 2 20 06 : Q 4 20 05 : Q 2 20 05 : Q 4 20 04 : Q 2 Q 04 : 20 20 03 : Q 4 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Ja n05 Ap r-0 5 Ju l-0 O 5 ct -0 Ja 5 n06 Ap r-0 6 Ju l-0 O 6 ct -0 6 Ja n07 Ap r-0 7 Ju l-0 O 7 ct -0 7 10-Year TIPS-Derived Expected Inflation 3 2.5 2 1.5 1 0.5 0 Oil Prices Crude oil futures have declined significantly from a high of $98.18 on November 23, amid speculation that OPEC may increase oil production. Markets DJIA NASDAQ Source: Bloomberg S&P 500 Source: Bloomberg DJ Wilshire 5000 Source: Bloomberg Source: Wilshire Associates Outstanding Commercial Paper Source: Federal Reserve