Saturday, 29 April 2006

US GDP grows 4.8 percent in Q1, outlooks improving in Japan and Europe

The economic news from the US yesterday was dominated by the report on first quarter GDP, which was about as good as expected. From Reuters:

Gross domestic product grew at a 4.8 percent annual rate in the January-March quarter, the Commerce Department said on Friday, more than twice the fourth quarter's 1.7 percent rate...

The GDP report showed a gauge of personal spending excluding food and energy -- an inflation measure favored by the Federal Reserve -- advanced at a 2 percent rate in the first quarter compared with 2.4 percent in the fourth quarter last year.

Separately, the Labor Department said employment costs measuring what employers pay in wages and benefits rose at the slowest pace in seven years during the first quarter, which should temper concerns about potential wage-induced inflation.

Its Employment Cost Index rose 0.6 percent in the first quarter, down from a 0.8 percent rise in the fourth quarter and well short of the 0.9 percent gain that had been forecast.

But the Reuters report highlights other indicators that suggest a slowdown is coming.

Financial markets on Friday faced an avalanche of data -- not all of it strong -- including a University of Michigan survey showing the consumer sentiment index slipped to 87.4 in April from 88.9 in March. In addition, a Chicago Purchasing Managers Index fell to 57.2 in April from 60.4 in March.

There was also plenty of news elsewhere, including in Japan.

Japan's jobless rate held steady at a seven-year low in March while core consumer prices rose for a fifth straight month, stoking talk of an early interest rate hike.

The unemployment rate remained at 4.1 percent as the world's second-largest economy recovers from a decade-long slump, official figures showed.

Meanwhile the core consumer price (CPI) index, which excludes volatile prices of fresh food, increased 0.5 percent last month, the government said...

The CPI index for Tokyo - the leading indicator for national price trends - was up 0.3 percent in April from a year earlier. Excluding volatile prices of fresh food it was also 0.3 percent higher...

A slew of other economic data also showed that industrial output rose by 0.2 percent in March from February - the first rise in three months...

Japan's average monthly household spending fell 2.1 percent in March from a year earlier, the third straight monthly decline.

And the Bank of Japan has upgraded its outlook for the economy.

The world's second-largest economy is set to grow 2.4 percent in the current fiscal year to March 2007, up from 1.8 percent previously forecast but below the 3.2 percent pace of last year, the Bank of Japan (BoJ) said.

Growth is expected to slow slightly to 2.0 percent the following year, the central bank said in its twice-yearly economic outlook report. The forecasts are based on the views of its policy board members.

Consumer price inflation is expected to pick up to an annual pace of 0.6 percent in the current fiscal year, accelerating to 0.8 percent in the following term, it bank said...

"It seems probable that the accommodative financial conditions ensuing from very low interest rates will be maintained for some time following a period in which the uncollateralised overnight call rate is at effectively zero percent.

"Through and beyond this stage, the Bank will adjust the level of interest rates gradually in the light of developments in economic activity and prices," the BoJ said in the report.

Meanwhile, in Europe, optimism is at a 5-year high.

An index of economic sentiment among companies and households in the dozen euro nations climbed to 105.3 from 103.6 in March, the European Commission said in Brussels. Consumer prices rose 2.4 percent from a year ago, the most since January, the European Union's statistics office said in a separate report...

In another report, the ECB said money supply growth accelerated to the fastest pace in almost three years. M3, the ECB's preferred measure of money supply, rose 8.6 percent in March from a year earlier after increasing 8 percent in February, the bank said. Economists expected a reading of 7.9 percent.

The German government now expects its economy will expand 1.6 percent in 2006, up from the 1.5 percent it predicted in January...

Retail sales in Germany unexpectedly fell for a second straight month in March. Sales, adjusted for inflation and seasonal swings, dropped 2.7 percent, the biggest decline since Mary 2004, the Federal Statistics Office in Wiesbaden said today.

Consumer confidence in France also unexpectedly fell following nationwide prices. A gauge based on a poll of 2,000 people slipped to minus 27 from minus 26 in March, Insee, the national statistics office in Paris, said today. Unemployment fell to 9.5 percent in April from 9.6 percent in March, the Labor Ministry said in a separate announcement.

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