Friday, 9 December 2005

Amid more signs of strength in global economy, S Korea raises rates

There was more confirmation of the strength in manufacturing yesterday. Reuters reports:

The U.S. factory sector is poised to grow through 2007, although the pace of its expansion is slowing, a manufacturing group said on Wednesday.

The Manufacturers Alliance/MAPI said 20 of 27 industries enjoyed stronger new orders or production in the third quarter than a year ago, the same number of industries that showed growth in the second quarter.

"Energy, medical and high-tech industries are leading growth this year," said Daniel Meckstroth, the group's chief economist, in a statement. "The capital equipment markets are generally strong but decelerating."

[...]

Overall, the group expected manufacturing to grow by an average of 3.42 percent during the 2006-10 period.

There was mixed reading on the unemployment front.

Initial claims for state unemployment insurance benefits climbed to a seasonally adjusted 327,000 in the week ended December 3 from an upwardly revised 321,000 the previous week, the Labor Department said.

A Labor Department analyst said that historically, claims tend to rise in the week following the holiday-shortened Thanksgiving week...

A four-week moving average of new claims, which smooths weekly volatility to provide a better picture of labor market trends, fell for the second straight week, dropping to 322,500 from 322,750 the prior week.

While a Federal Reserve report on Wednesday had shown that total consumer debt outstanding fell in October, another report yesterday showed that household debt had grown in the third quarter.

The net wealth of American households rose in the third quarter of 2005 as real estate and financial assets gained value, but household debt grew at the fastest rate since 1987, the Federal Reserve said on Thursday.

In its quarterly "Flow of Funds" report, the central bank said household balance sheet values rose to $51.09 trillion in the quarter, up from a revised $49.77 trillion in the second quarter...

Household real estate assets grew by $615 billion in the third quarter, while financial assets rose by $959.3 billion.

At the same time, household liabilities rose $338 billion, with mortgage debt climbing $289.5 billion to $8.2 trillion.

And Bill Cara highlights the fact that M3 continues to grow, hitting US$10,058.1 billion in October.

And some central banks remain reluctant to rein in money supply. Yesterday, the Bank of England left interest rates unchanged, as did the Reserve Bank of South Africa. These were as expected by markets.

What was not expected was the decision by the Bank of Korea to raise rates. FT reports:

The Bank of Korea delivered a surprise interest rate rise on Thursday, increasing its benchmark rate to 3.75 per cent on concerns that strengthening economic growth will stoke inflation in Asia’s third-largest economy next year...

Earlier on Thursday, the statistics office released separate figures showing further improvement in consumer confidence. Its consumer expectation index rose to 98.5 in November from 97.5 in the previous month, the third consecutive improvement, taking the index closer to the 100 mark that shows optimists outnumbering the pessimists.

And there were signs of economic strength coming from Germany as well. Bloomberg reports:

German industrial production rose more than expected in October, supporting the European Central Bank's forecast that European growth will accelerate through next year.

Production at factories, utilities, construction sites and mines gained 1.1 percent from September, when it rose 1.5 percent, the Economy and Technology Ministry said today in Berlin. Economists expected a 0.5 percent increase, according to the median of 37 economists' estimates in a Bloomberg survey...

Germany's Kiel Institute for World Economics, one of six that provide forecasts for the government, today raised its estimates for German growth this year and next.

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