The ISM (Institute for Supply Management) index fell to 49.3 percent in January, the lowest level since April 2003 and below the key 50 percent line, indicating that most firms in the factory sector are not growing. The index had stood at 51. The decline in US inventories was breathtaking. In January, inventories dropped by the largest amount since 1984, dropping to 39.9 percent in January from 48.5 percent the previous month. This is the lowest level of inventories since February 2002. The ISM survey committee said the “major sign of weakness” was the low level of order backlogs which fell to 43.5 percent from 45.0 percent in December. The National Association of Purchasing business barometer fell to 48.8 from 51.6 in December. The REAL numbers are all negative.

The US savings rate has been negative for an entire year only four times in American history - in 2005 and 2006 - and back in 1932 and 1933. In December 2006, the US savings rate descended to a negative 1.2 percent compared to a negative 1.0 percent in November. The US savings rate has been in negative territory for the past 21 consecutive months. Personal spending in the US has jumped in December by the most in five months! The 0.7 percent rise in purchases followed a 0.5 percent increase in November, the US Commerce Department said on February 1 in Washington.

US personal consumption increased 4.4 percent in the fourth quarter, the Commerce Department reported on January 31. Confidence among US consumers approached a five-year high in January in the latest national surveys. But their actions belie their words. 2006 saw existing US home sales decline by 8.4 percent (the biggest drop in 17 years) while new homes sales fall by a stunning 17.3 percent (the largest in 16 years). US house prices are falling slowly and more houses are now being taken off the market.

General Motors Corp. and Ford Motor Co.'s US auto sales plunged in January as the two US automakers yielded market share while scaling back on low profit deliveries to rental-car companies. Ford’s sales fell 19 percent and GM’s dropped 17 percent, prompting a deeper cut in GM's North American production.

But the investment banks that fuelled the craze of lending to borrowers with weak credit histories look like they are escaping relatively unscathed. Amid increasingly ominous signs of a shakeout in the subprime mortgage industry, investors in securities backed by these risky mortgages have seen the value of their holdings slide this year. Risk premiums - or the spreads over government bonds - on the lowest-rated cash securities have risen by up to 400 basis points, while the cost of insuring such deals against losses through the derivatives market has doubled.

The problem for investors who bought last year’s crop of high-risk mortgage originations was that, after several years of booming house price appreciation, the US housing market last year hit a wall. In response, mortgage lenders - financed by the Wall Street banks that can sell this debt into capital markets - relaxed their standards to prop up sagging origination volumes, lending to ever-riskier borrowers on ever more favourable terms. Last year, 38 per cent of new subprime mortgages were for 100 per cent of the value of the home. ‘Years ago, the banks had to live with what they underwrote, so if they got too aggressive they had to bear the consequences,’ says David Hendler, analyst at CreditSights. ‘Now the worst losses will be held by a handful of hedge funds who thought they knew better.’”