Friday, 1 September 2006

US consumer spending up, ECB holds rates

It looks like the US consumer remains the engine of the global economy.

According to the US Commerce Department's latest report on personal income and spending yesterday, personal income rose by 0.5 percent in July while personal consumption expenditures rose by 0.8 percent. The personal saving rate dipped to a negative 0.9 percent.

The news on the inflation front is also relatively good. The PCE price index increased 0.3 percent in July but the core PCE price index, excluding food and energy, increased 0.1 percent.

Reuters has more on this and other economic news from the US.

The NAPM Chicago business barometer slipped to 57.1 in August from 57.9 in July and compared with economists' median forecast for a 57.0 reading...

Also on Thursday, the Commerce Department said new orders at U.S. factories fell by a smaller-than-expected 0.6 percent in July, lead by sharp declines in orders for transportation and defense goods...

After stripping out transportation, factory orders increased 1.1 percent in July.

The government also said the number of Americans filing new claims for jobless benefits edged down by 2,000 last week, in a report showing stability in the pace of layoffs...

Meanwhile, New York City companies reported business conditions improved in August but were slightly less optimistic about current and future business conditions, according to the National Association of Purchasing Management-New York.

Across the Atlantic, the European Central Bank held interest rates unchanged yesterday. FT reports on this and other economic news.

Eurozone interest rates were left at 3 per cent by the European Central Bank on Thursday as concerns over economic growth outweighed the need for vigilance on inflation.

Although growth in the second quarter was strong, pushing up to 0.9 per cent from 0.6 per cent in the first quarter, there were possibly temporary factors contributing to this, including the Football World Cup in Germany...

The European Commission’s index of economic sentiment on Thursday showed its first fall in nine months, driven by a fall in industrial confidence and consumer sentiment...

August inflation data on Thursday showed a further fall in the headline measure to 2.3 per cent, but this remains well above the 2 per cent ceiling, and most economists believe that the ECB has two more 25 basis point rate increases up its sleeve for later in the year.

The ECB's updated economic forecasts do suggest that interest rates are headed higher. From AFX/Forbes:

The ECB raised its 2006 GDP growth forecast to 2.5 pct from 2.1 pct previously and its 2007 growth forecast to 2.1 pct from 1.8 pct.

It also raised its forecast for 2006 inflation to 2.4 pct from 2.3 pct, and its projection for 2007 inflation to 2.4 pct from 2.2 pct.

But the news from Germany yesterday was somewhat mixed. Bloomberg reports:

Germany's unemployment rate held at a two-year low in August after three straight declines as employers in Europe's largest economy paused hiring during the summer vacation period.

The adjusted unemployment rate was unchanged from July at 10.6 percent, matching the median forecast in a Bloomberg survey of 34 economists. The number of people without work, adjusted for seasonal swings, rose 5,000 from July to 4.45 million, the Federal Labor Agency in Nuremberg said today. In unadjusted terms, German unemployment fell to 4.37 million, the agency said...

Still, retail sales in Germany dropped more than expected in July as the World Cup soccer tournament ended and record temperatures kept people out of stores. Sales, adjusted for inflation and seasonal swings, fell 1.5 percent from June, when they rose a revised 1.1 percent, the Federal Statistics Office in Wiesbaden said today.

There were also mixed signals from the UK. From Reuters:

House prices jumped sharply in August, the Nationwide Building Society said on Thursday, indicating the Bank of England's rate hike at the start of the month has done little to cool the property market.

But a separate survey showed people's optimism on the economy falling to its lowest since the start of the Iraq war in 2003, perhaps pushed lower by scenes of chaos at airports after police said they had foiled a plot to blow up aircraft in mid-air...

Nationwide said the cost of an average home rose 0.8 percent on the month, taking the average price to 167,721 pounds, and lifting the annual rate of house price inflation to 6.6 percent, its fastest rate since April 2005...

GfK's headline consumer confidence barometer slipped to -8 from -4 in July, while people's perception about the economic outlook in the coming year plummeted to its weakest since the Iraq war, with an index reading of -23 from -14.

Update on 2 September: Gain in personal consumption expenditures corrected to 0.8 percent.

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