How is the US Really Travelling?

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As the New Year opens, there are obviously some concerning signs emerging …

* Housing construction is in decline and is unlikely to improve before mid-2008.
* Write-offs in the sub-prime mortgage area seem to be growing daily.
* Mortgage foreclosures may reach 1.4 million this year – twice that for 2005.

Despite all this, Australia is largely insulated — but will still feel some of the side effects.

You saw our local banks increased credit-card interest before Christmas; and thet are now doing the same with variable home mortgage rates.

Looking Deeper at the Global Economy

Even though recent US job figures were poor, their output actually increased by about 2.6 per cent in the 12 months to September 2007. And despite falling house prices, household consumption was up 3 per cent.

Business investment also rose by 4.8 per cent; plus exports, by 9.6 per cent. And, clearly, a lower US dollar will help their exporters during 2008.

The US economy did slowed in the run-up to Christmas, and will continue to do so until May/June this year.

However, Japan and Europe look reasonably steady; and China and India are continuing to expand.

Providing there is little threat of inflation, you’ll see the Federal Reserve reduce interest rates at the end of January — purely by way of insurance.

Back in Australia

Our Economic growth is still motoring along.

Consumer spending has grown some 4.5 per cent over 2007 — on the back of tax cuts, increased immigration and a strong demand for labour.

And this will probably force the RBA to increase our rates at their February meeting — to keep a firm lid on inflation here.

As such, you should see 2008 start well. However, do keep a watchful eye on the effects of any further rate increases throughout the year.

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