Economic Update 2/5/2007

Citing healthy economic growth and reduced inflation, the Federal Reserve on January 31 held its key federal funds rate at 5.25%. The fed funds rate is the overnight interest rate that banks charge one another to borrow money. It was the fifth straight time the Fed has held steady, a move that was widely expected by Wall Street analysts.

In the final quarter of 2006, the economy grew at a faster-than-expected 3.5% pace, despite lagging automotive and real estate markets, the Commerce Department said January 31. The performance exceeded analysts' forecasts for a 3% growth rate. For all of 2006, the gross domestic product (GDP) increased by 3.4%, an improvement over 2005's 3.2% showing.

Pending sales of existing homes in December increased at a seasonally adjusted annual rate of 4.9%, the National Association of Realtors (NAR) said February 1. The climb was the biggest since March 2004. "Some of the monthly gain may be weather-related, but it appears buyers are becoming more comfortable, sensing the timing is good and that their local market has bottomed out," said David Lereah, NAR's chief economist.

For all of 2006, income climbed 6.4%, the biggest annual gain since 8.0% in 2000, the Commerce Department reported February 1. However, the personal savings rate for 2006 was a minus 1%, meaning that people spent not only all the money they earned, but also dipped into savings or increased borrowing to finance purchases. The 2006 figure was lower than the negative 0.4% in 2005 and was the poorest showing since a minus 1.5% savings rate in 1933 during the Great Depression.

This week look for updates on worker productivity on February 7.