Tags: Gas | Cheaper | Plummeting | Demand

Gas Cheaper on Plummeting Demand

Friday, 23 December 2005 12:00 AM

There's more good news on the economic front, judging from U.S. manufacturing order levels in November. For the month, big-ticket items rose by the largest rate since May 2005, when durable goods rose 7.3%.

Fueled primarily by more orders for commercial aircraft - especially from Boeing Co. - the Commerce Department notes that orders for large durable goods rose 4.4% for the month ($223 billion), up from 3% in October.

"The 4.4% advance was far above the 1.1% increase that Wall Street analysts had been expecting," says the AP.

"The strength was led by a 133.8% surge in orders for commercial aircraft and parts, which jumped to $25.9 billion from $11.1 billion the previous month."

The AP reports that orders for a broader array of transportation goods rose 15.6% for the month. Pulling the sector back a bit was continued bad news from the auto industry, where demand for goods fell 5.7%.

"Excluding transportation, orders for durable goods, items expected to last three or more years, fell by 0.6%," says the AP.

"That was the third straight drop in durable goods orders outside of transportation. Orders for non-defense capital goods, seen as a good barometer of business plans to expand and modernize, rose by 19.6%, but all of that strength was in the surge in aircraft orders."

The durable goods number came out the same day the Conference Board announced its November numbers on its U.S. Leading Index survey.

That news was positive as well, as the index rose 0.5% for the month.

"The leading index increased again in November, following a large gain in October," said the Conference Board in a Dec. 22 statement.

"With November's increase, the six-month growth rate of the leading index picked up to about a 3.4% annual rate, up from an average of about 1.9% (annual rate) in the first half of 2005, and strength among the leading indicators has been widespread since August."

The Board said that lower unemployment claims were a big reason for the positive number, as employment rolls returned to pre-Katrina levels for the first time. 

"The positive contributors - beginning with the largest positive contributor - were average weekly initial claims for unemployment insurance (inverted), real money supply, index of consumer expectations, stock prices, building permits, interest rate spread and manufacturers' new orders for consumer goods and materials. The negative contributors were vendor performance, average weekly manufacturing hours and manufacturers' new orders for non-defense capital goods."

Oil and natural gas prices dropped for a second straight day on fears of plummeting fuel demand in the wake of forecasted rising temperatures across the northern U.S.

Bloomberg News reports that through the new year, home-heating demand for that region will be 18% lower than normal, according to forecaster Weather Derivatives.

And in the Midwest, the use of natural gas - that region's primary fuel - is expected to be 24% lower. The commodity dropped 9.5% Thursday, according to the news service.

"The collapse in natural gas is obviously spilling over," Michael Fitzpatrick, vice president of energy risk management at Fimat USA, told Bloomberg. "Weather has turned mild, which is reducing the supply fear premium."

While oil reached a record $70.85 a barrel in August, the price is currently $57.80 - still 31% higher than a year ago, said Bloomberg.

"Oil may trade near $58 a barrel next week in New York because supplies are sufficient to meet demand as the weather is set to turn milder in the U.S.," a Bloomberg survey showed.

However, legendary oil fund manager T. Boone Pickens believes that prices for oil and natural gas are set to decline further.

In a recent interview, Pickens said, "Today we're oversupplied with oil and we're oversupplied with natural gas ... We've had a cold couple of weeks here and we're drawing gas storage down. But if we go out December with two-and-a-half trillion in storage, well ... you're going to see gas prices come on down."

Earlier this year Pickens was forecasting that crude oil prices could surge sharply toward $100. Following the fallout from the twin hurricanes, he changed his view and has been calling for oil to settle back to as low as $50 per barrel.

New home sales for November slid 11.3%, suggesting a loss of a major prop to the economy. That marked the steepest decline in 12 years to an annualized rate of 1.245 million units.

In October, homebuilders sold an annualized 1.404 million new homes and today's decline marks the largest fall since January 1994. The report fell short of economists' expectations.

This news helped lift government bond prices since the cool-off will likely deter the Federal Reserve from lifting rates much further.

The yield on 10-year government debt fell to 4.39% -- the lowest rate since Nov. 29.

The median price of a new home fell to $225,200, marking the third straight monthly decline. Prices are still higher over one year ago by just 0.3%.

New home sales have risen to record levels in each of the last five years, but few expect that feat to be repeated in 2006, thanks to rising borrowing costs and declining affordability.

Already homebuilders such as Toll Brothers are seeing share price weakness in anticipation of tougher business conditions next year. In the last six months, Toll Brothers' share price has slumped by 29%.

The stock of unsold homes rose to 503,000 in November from 487,000 a month earlier. That marks the highest level in nine years and leaves the supply of new homes at 4.9 months' worth - up from October's 4.2 months.

Hovnanian Enterprises CEO Ara Hovnanian predicts that home prices will continue to rise, but at a much more moderate 3 to 5% pace, instead of lofty 20% annual increases.

Mortgage rates also jumped between October and November. The 30-year fixed rate rose from 6.06 to 6.33%. That compares with a 2005 average so far this year of 5.85%.

On a brighter note, the University of Michigan's consumer sentiment survey shot up to 91.5 from November's 81.6 as energy costs dissipate. This finalized reading was higher than a preliminary analysis from two weeks ago.

The jump in confidence was still the sharpest in almost two years.


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There's more good news on the economic front, judging from U.S. manufacturing order levels in November. For the month, big-ticket items rose by the largest rate since May 2005, when durable goods rose 7.3%. Fueled primarily by more orders for commercial aircraft -...
Friday, 23 December 2005 12:00 AM
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