Friday, 7 July 2006

US service sector slows, ECB and BoE leave rates unchanged, BoJ may not

The US service sector slowed in June, but apart from that, yesterday's data did not indicate much of a slowdown in the US economy. Reuters reports:

The Institute for Supply Management said on Thursday its non-manufacturing business activity index fell to 57.0 in June, the lowest level since January. The June figure was below May's 60.1 and the median forecast of 59.0 among economists polled by Reuters...

Earlier Thursday, the government reported that new claims for U.S. unemployment benefits unexpectedly slipped by 2,000 last week, signaling a solid U.S. job market. The jobless claims reinforced the view of strong private-sector job growth signaled by data in the ADP National Employment Report released on Wednesday...

Pending sales of U.S. homes increased unexpectedly in May, reversing three straight monthly declines, said the National Association of Realtors. The group's pending sales index rose 1.3 percent to 113.4 in May, above the forecasted 111.2...

The Mortgage Bankers Association said on Thursday its mortgage application index rose 5.9 percent last week as interest rates on 30-year fixed-rate mortgages fell for first time in four weeks to 6.80 percent...

The International Council of Shopping Centers said on Thursday chain store sales rose by 2.6 percent in June from a year earlier, the slowest pace in three months.

Europe is not doing badly either, lower May factory orders in Germany notwithstanding. From Bloomberg:

German factory orders fell in May as the euro's appreciation against the dollar made the country's exports more expensive abroad.

Orders declined 1.2 percent from April, when they jumped 4 percent, the Economy and Technology Ministry in Berlin said in a faxed statement today. Economists expected orders to be unchanged, the median of 32 forecasts in a Bloomberg News survey showed. From a year ago, orders increased 17.3 percent...

In a two-month comparison, which smoothes out short-term fluctuations, manufacturing orders grew 1.3 percent in May and April from March and February, with foreign orders slipping 0.3 percent and domestic orders up 3.3 percent.

And retail sales in the euro zone rose in June, according to a survey.

A seasonally adjusted index of retail sales in the dozen euro nations reached 55.1, the second highest since the survey began in January 2004, down from 56.3 in May, according to a survey for Bloomberg LP by NTC Economics Ltd. A reading above 50 signals growth. Sales rose from last year for a third month.

So there are good reasons for European Central Bank President Jean-Claude Trichet to recommend vigilance on inflation yesterday, as Bloomberg reports.

"We will exercise strong vigilance to ensure that risks to price stability don't materialize," said Trichet at a press conference in Frankfurt. A "progressive withdrawal of monetary accommodation remains warranted" if growth picks up and inflation stays "elevated," he said.

The bank's 18-member governing council today kept the refinancing rate at 2.75 percent...

The Bank of England also left interest rates unchanged yesterday. But many economists expect a hike later this year. And that expectation is likely to have been reinforced with yesterday's reports of higher mortgage equity withdrawal in the first quarter and a jump in manufacturing output in May.

The next interest rate hike from a major central bank, however, looks likely to come from Japan, especially after its index of leading indicators rose to 75.0 in May from a revised 54.5 in April. But in a speech yesterday, Bank of Japan Governor Toshihiko Fukui gave few hints on interest rates. From The Japan Times Online:

"Looking ahead, a sustained economic expansion is likely to continue, with a positive cycle of production, income and spending," Fukui said in a presentation at a quarterly meeting of BOJ branch managers.

With respect to monetary policy, Fukui avoided mentioning when interest rates may be hiked, saying only that the central bank aims to contribute to sustained growth and price stability by steering monetary policy via close monitoring of economic and price conditions.

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