Economic Update 2/12/2007

U.S. productivity -- the amount of output per hour of work -- grew at a healthy 3% in the final quarter of 2006, the Labor Department reported February 7. It was the fastest quarterly pace since the first three months of 2006 and nearly double the 1.7% gain economists had expected. However, for all of 2006, productivity rose by 2.1%, the slowest pace since 1997. Economists keep close tabs on productivity, because declining worker output, coupled with higher wages and benefits, can ignite inflation.

U.S. retail sales rose 3.9% in January, beating analysts' 3.1% estimate. Retailers Limited Brands, Nordstrom, Federated Department Stores and Wal-Mart Stores reported better-than-expected results. The arrival of frigid temperatures in much of the country helped spur sales of cold-weather items.

The U.S. service sector expanded in January, signaling a strong start to economic growth in 2007, the Institute for Supply Management reported February 5. The trade group's index advanced to 59 in January from 56.7 in December. A reading above 50 indicates expansion.
The Labor Department reported February 8 that claims for jobless benefits rose by 3,000 from the previous week, in line with economists' expectations. The national unemployment rate edged up from 4.5% in December to 4.6% in January. On the news of weaker job growth, mortgage rates dipped slightly for the week, Freddie Mac said February 9.

This week look for updates on housing starts and housing permits on February 16.