Dow Takes a Huge Hit

By now I'm sure you are all aware of the Dow dropping over 400 points today, the largest drop since September of 2001. But the question is what does this mean? Are we headed to a recession? Is the economy as strong as we think? Well the way I understand it there were three factors that really contributed to this huge loss:

• Bomb going off near Vice-President Cheney in Afghanistan (psychological effect)
• Econ number for durable goods released this week lower than expected, down over 7% (appliances, computers, and large goods like airplanes)
• 9% drop in the Shanghai Stock Exchange (huge drop...largest in a decade), some analysts are suggesting that maybe this drop is just equalizing the 130% growth the Shanghai market has experienced the past year...others suggesting it is a response to fears of the government is trying to slow down the economy.
  

Most seem unsure if this massive sell off will continue tomorrow or not (I watched Cramer describe this as a great buy opportunity). I'm not sure if this indicates a looming recession, but two points are interesting here: 1)This shows how closely we are now tied to the Chinese market (at least an appearance of what it might mean for the global economy), and 2)It is ironic this occurs a day after Alan Greenspan talks about a possible recession by the end of 2007. Click here to read this article.

2007 Economic Report to the Governor

The Council of Economic Advisors to Governor Huntsman recently released the 2007 Economic Report to the Governor. We all know the economy in Utah has been good in 2006...but just how good? This report provides important data and details regarding demographic changes, tourism, jobs and wages, and overall growth in Utah. If you don't have time to read the full 226 page report I at least recommend a review of the 4 page Executive Summary. Here are a few highlights.

• 5.2% -- job growth in 2006 (compared to 1.4% nationally)
  
• 2.7% -- population growth (67,714 new residents = a city the size of St. George)
  
• 18.1% -- construction job growth led all other sectors in 2006
  
• 5.4% -- non agricultural wages increase exceeded inflation for the 3rd consecutive year
  
• 5.4 million residents are expected to live in Utah by 2050...doubling our population in the next 44 years.
  

Is Greenspan to Blame for Housing Bubble?

What should be the role of the Federal Reserve? Should the Reserve be more transparent to the general public? Will there be a policy shift from Alan Greenspan to Benjamin Bernanke? And is Greenspan to blame for the latest housing bubbles that seem to be emerging nationwide?

I found this recent article in Reason extremely interesting, exploring these questions and more. Reason asked five key Fed watchers to assess these Federal Reserve issues.

• Milton Friedman is a Nobel Prize–winning economist.
• Rep. Ron Paul is a libertarian Republican representing the 14th District of Texas.
• James Grant is a columnist for Forbes.
• Bryan Caplan, an associate professor of economics at George Mason University, was a student of Bernanke's at Princeton.
• Jeff Saut is chief investment strategist for the investment firm Raymond James Financial. He fears that Greenspan's seemingly excellent record built hazards into the economy of which investors need to be wary.

Check here for the full article: Can We Bank on the Federal Reserve?

How much is the economy slowing?

Did anyone see this article in the recent Economist? Third quarter GDP indicate the economy grew at a 1.6% annualized rate. Which is much less than most predicted and a full point lower than the previous three months. Decline in homebuilding accounts for a large portion of this GDP decline, with residential homebuilding declining by 17% this most recent quarter. According to The Economist the declines in house building accounted for two-fifths of the quarterly fall in GDP growth. See the full article here.

So what does this mean? According to the FDIC (Federal Deposit Insurance Corporation) Utah is experiencing some slowing housing growth, but not at the rate of the rest of the nation. In addition, FDIC reports that while some western states have recently experienced slowing job growth Utah's employment growth has increased by 3.6% from last year. Largely this growth is in construction related occupations. However, FDIC also concludes, "Recent declines in permit and sales activity point to slower residential construction activity in the months ahead, with possible adverse implications for overall job growth and the demand for construction financing." Something for analysts to keep a close eye for the next quarter.