European confidence improves

Europe's economy is looking better. From Bloomberg:

European confidence in the economic outlook rose more than economists forecast in June, adding to signs that record low interest rates and stimulus measures are helping to pull the region out of a recession.

An index of executive and consumer sentiment in the 16 nations that use the euro increased to 73.3, the highest since November, from a revised 70.2 in May, the European Commission in Brussels said today. Economists had forecast an increase to 71 from an initially reported 69.3 in May, according to the median of 24 estimates in a Bloomberg News survey...

Consumer sentiment in the euro zone rose to minus 25 in June from minus 28 in May, the report showed. A measure of manufacturers’ confidence rose to minus 32 from minus 33, while confidence among retailers declined.

Consumer confidence has also improved in the UK. Reuters reports:

The GfK/NOP consumer confidence index rose to -25 in June from -27 in May -- the highest since April 2008 and in line with analysts' forecasts.

However, UK mortgage lending is weaker than economists had expected. Bloomberg reports:

U.K. home-loan approvals climbed less than economists forecast last month as the credit squeeze led to the smallest increase in net mortgage lending since records began in 1993.

Banks granted 43,414 loans in May, compared with 43,191 in April, the Bank of England said today in London. Economists predicted 46,000, the median of 22 forecasts in a Bloomberg News survey shows. Net mortgage lending rose by 324 million pounds ($536 million), about a third of the pace in the previous month.

Residential property held its value for a second month in June after falling for more than a year, Hometrack Ltd. said today. Bank of England policy maker Kate Barker said last week the housing market is still “some way away from normal” and officials have cautioned that the lending squeeze threatens to delay Britain’s economic recovery.

Japanese industrial production rise in May

Japan's economy shows signs of returning to growth. AFP/CNA reports:

Japan's industrial output rose for a third straight month, matching the fastest pace in 56 years, as the world's number two economy claws back from its worst recession on record, data showed Monday...

Production rose 5.9 per cent in May from the previous month, matching April's revised growth, which was the strongest since a record 7.9 per cent increase in March 1953, according to the trade and industry ministry....

Output growth is expected to slow to 3.1 per cent in June and to 0.9 per cent in July, according to manufacturers' forecasts, the ministry said.

It is now a question of whether the rebound can be sustained.

Recent data have sparked hopes that the worst of the slump in exports and industrial production is now over, but analysts warn that any recovery is likely to be long and slow.

"Production was rebounding in a V-shape until June but will settle at a gradual rise from July," said Naoki Murakami, chief economist at Monex Securities...

The Bank of Japan's quarterly "Tankan" survey is expected to show an improvement in sentiment among Japan's major manufacturers from a record low the previous quarter, helping to underpin improving investor confidence.

Japan faces deflation but US consumer spending rises

The end of the week sees Japan again facing deflation. Bloomberg reports:

Japan’s consumer prices fell at a record pace in May, adding to the risk that deflation will become entrenched and hamper a rebound from the nation’s worst postwar recession.

Prices excluding fresh food slid 1.1 percent from a year earlier after dropping 0.1 percent in the preceding two months, the statistics bureau said today in Tokyo. It was the sharpest decrease since comparable figures were first compiled in 1971.

Deflation is less of a concern in the US. Again From Bloomberg:

Consumer spending rose in May as benefits from the Obama administration’s stimulus plan spurred a jump in American incomes, a sign that efforts to revive the economy are starting to pay off.

The 0.3 percent increase in purchases was the first gain in three months, the Commerce Department said today in Washington. Earnings climbed 1.4 percent, the most in a year, driving the savings rate to a 15-year high...

The jump in incomes last month reflected tax cuts and Social Security payments from the government’s stimulus plan, the Commerce Department said. Without those benefits, wages and salaries dropped 0.1 percent in May, showing the effects of mounting job losses...

Today’s spending report also showed inflation moderated. The price gauge tied to spending patterns rose 0.1 percent from May 2008, the smallest gain since records began in 1959. The Federal Reserve’s preferred gauge of prices, which excludes food and fuel, rose 0.1 percent from a month earlier and was up 1.8 percent from a year earlier.

While fiscal stimulus may be temporarily helping income and spending, improving consumer sentiment should also help.

A separate report today showed consumers grew more confident in June, underscoring that the worst of the recession has passed. The Reuters/University of Michigan final index of consumer sentiment gained to 70.8 from 68.7 in May.

Eurozone industrial orders fall, US GDP contraction revised lower

It looks like the eurozone economy is struggling a bit to get out of recession. From Bloomberg:

European industrial orders declined for a ninth month in April as the global recession cut demand for machinery, transport equipment and consumer appliances.

Industrial orders in the 16-member euro region slipped 1 percent from March, when they dropped a revised 0.2 percent, the European Union’s statistics office in Luxembourg said today. From a year earlier, orders slumped 35.5 percent, the biggest annual drop since data were first compiled in 1995.

Meanwhile, the news out of the US has been getting a little better. From Bloomberg:

The U.S. economy shrank at a 5.5 percent annual rate in the first quarter, reflecting declines in inventories, housing and business spending that have since eased.

The contraction in gross domestic product, which was smaller than estimated last month, capped the worst six-month performance in half a century, revised figures from the Commerce Department showed...

Somewhat ominously, though, initial unemployment claims has taken a turn for the worse.

The number of Americans filing claims for unemployment benefits unexpectedly rose last week and the total number receiving payments increased, indicating the labor market may take longer to stabilize. Initial jobless claims rose by 15,000 to 627,000 in the week ended June 20, from a revised 612,000 the week before, the Labor Department said today in Washington.

US data mixed as Fed maintains monetary policy

The US economic data on Wednesday were mixed. Bloomberg reports that durable goods orders jumped in May.

Orders for U.S. durable goods unexpectedly jumped in May, a sign companies are gaining confidence the recession is easing.

The 1.8 percent rise in bookings for items meant to last several years matched the previous month’s increase, the Commerce Department said today in Washington...

Demand for non-defense capital goods excluding aircraft, a proxy for future business investment, jumped 4.8 percent, the most since September 2004. Shipments of those items, used in calculating gross domestic product, rose 0.3 percent after dropping 2.7 percent.

But new home sales remained weak.

... Another report showed sales of new houses unexpectedly dropped last month, indicating foreclosures made existing homes more attractive...

Sales of new houses decreased 0.6 percent to an annual pace of 342,000 after a revised 344,000 rate in April that was lower than previously estimated, the Commerce Department also reported today. The median sales price fell 3.4 percent from May 2008, compared with a 17 percent drop for existing homes reported yesterday by the National Association of Realtors.

No surprise then that the Fed decided to maintain its monetary policy.

“The pace of economic contraction is slowing,” the Fed said in a statement after its meeting. Officials said inflation will remain “subdued for some time,” and rates will stay at “exceptionally low levels” for an “extended period.” Policy makers kept the benchmark interest rate between zero and 0.25 percent.

And if doubts about the US economic recovery linger, the same can be said of Japan's. From Bloomberg:

Japan’s export slump deepened in May, casting doubt on the nation’s growth prospects as the economy struggles to emerge from its worst postwar recession.

Shipments abroad dropped 40.9 percent from a year earlier, more than April’s 39.1 percent decline, the Finance Ministry said today in Tokyo. The median estimate of economists surveyed was for a 39.3 percent decrease. From a month earlier, exports fell 0.3 percent, the first deterioration since February.

Still, the consensus is that the global recession is at least easing, and the OECD is no exception to that view. From Bloomberg:

The Organization for Economic Cooperation and Development raised its forecast for the economy of its 30 member nations for the first time in two years as the U.S. slump shows signs of easing.

The combined economy of the world’s most-industrialized countries will shrink 4.1 percent this year and grow 0.7 percent in 2010, the Paris-based group, which was founded in 1961 to coordinate international economic policies, said today. The new projections compare with March forecasts for contractions of 4.3 percent and 0.1 percent.

US existing home sales and eurozone PMI rise

The global economy continues to show signs that it is gradually turning around.

Reuters reports a rise in US existing home sales.

Sales of previously owned U.S. homes rose for a second straight month in May but were weaker than expected, adding to growing fears of an anemic economic recovery from a deep recession...

The [National Association of Realtors] said sales climbed 2.4 percent last month to an annual rate of 4.77 million units. While that pace was below market forecasts it was the second straight month sales had risen, for the first back-to-back gain since September 2005.

Despite signs the market is stabilizing, the NAR said the median national home price fell 16.8 percent in May from a year earlier, the third-largest drop on record.

A separate government report on Tuesday showed home prices fell 6.8 percent year-on-year in April after dropping 7.3 percent the previous month.

Other data on the US economy on Tuesday also indicate improvement.

A monthly survey of manufacturers from the Federal Reserve Bank of Richmond showed factory activity in the U.S. mid-Atlantic states quickened in June compared with May. However, manufacturers' outlook for the next six months softened, signaling conditions remain fragile...

Separately, U.S. chief executives were less pessimistic about the economy in the second quarter but still planned to cut jobs and capital spending, according to a Business Roundtable survey released on Tuesday.

There were also some signs of improvement from Europe, as Bloomberg reports.

Europe’s manufacturing and service industries contracted at the slowest pace in nine months in June, adding to signs the recession is bottoming out.

A composite index of both industries for the 16 euro nations rose to 44.4, the highest since September, from 44 in May. The index is based on a survey of purchasing managers by Markit Economics and a reading below 50 indicates a contraction. Economists forecast an increase to 44.9, according to the median of 12 estimates in a Bloomberg News survey...

Markit’s manufacturing index rose to 42.4 this month from 40.7 in May, according to today’s report. The services index fell to 44.5 from 44.8.

German business confidence rises but US corporate insiders cash out

German business confidence rose in June. Bloomberg reports:

German business confidence rose for a third month in June, providing further evidence that the recession in Europe’s largest economy is easing.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, increased to 85.9 from 84.3 in May. Economists expected a gain to 85, the median of 34 forecasts in a Bloomberg News survey showed. The index reached a 26-year low of 82.2 in March.

However, executives at US companies appear to be losing confidence in the prospective performance of their shares.

Insiders of Standard & Poor’s 500 Index companies were net sellers for 14 straight weeks as the gauge rose 36 percent, data compiled by InsiderScore.com show. Amgen Inc. Chairman and Chief Executive Officer Kevin Sharer and five other officials sold $8.2 million of stock. Christopher Donahue, the CEO of Federated Investors Inc., and his brother, Chief Financial Officer Thomas Donahue, offered the most in three years.

Sales by CEOs, directors and senior officers have accelerated to the highest level since June 2007, two months before credit markets froze, as the S&P 500 rebounded from its 12-year low in March. The increase is making investors more skittish because executives presumably have the best information about their companies’ prospects.

Indeed, markets showed some nervousness on Monday.

U.S. and European stocks tumbled, sending the Standard & Poor’s 500 Index down the most in two months, as the World Bank said the recession will be deeper than previously forecast. Treasuries rose, while oil fell below $67 a barrel and metals slumped...

The S&P 500 slid 3.1 percent to 893.04 at 4:05 p.m. in New York following last week’s 2.6 percent slump. The Dow average sank 200.72 points, or 2.4 percent, to 8,339.01. Europe’s Dow Jones Stoxx 600 fell 2.8 percent and the MSCI World Index decreased 2.7 percent. Almost 14 stocks fell for each rising on the New York Stock Exchange, the broadest sell-off since May 13.

US leading index rises again

US inflation remained subdued in May, but deflation worries should recede with further signs of an impending economic turnaround on Thursday.

From Bloomberg:

The leading index increased 1.2 percent after a 1.1 percent gain in April, the best back-to-back performance since November- December 2001, the New York-based Conference Board reported today...

The Conference Board’s index of coincident indicators, a gauge of current economic activity, fell 0.2 percent, the smallest drop since October, after decreasing 0.3 percent the prior month...

The Fed Bank of Philadelphia said its general economic index climbed to minus 2.2 from minus 22.6 in May, paced by improvements in orders and sales. Negative numbers signal contraction...

The number of people collecting unemployment insurance plunged by 148,000 in the week to June 6, the most since November 2001, to 6.69 million, the Labor Department said today. The average number of initial claims over the last four weeks fell to the lowest level in four months.

BoJ holds rate amid mixed global economic data

Economic data on Tuesday were mixed.

In Japan, the BoJ left interest rates unchanged as it upgraded its assessment of the economy. AFP/CNA reports:

Japan's central bank on Tuesday left its key interest rate unchanged at 0.1 per cent, while upgrading its assessment of the world's number two economy for the second consecutive month.

"Japan's economic conditions, after deteriorating significantly, have begun to stop worsening," the Bank of Japan said in a statement. "Japan's economy is likely to show clearer evidence of levelling out over time."

Further monetary easing also appears less necessary in Europe.

In Germany, investor sentiment reached a three-year high in June. Bloomberg reports:

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months ahead, increased to 44.8 from 31.1 in May. That’s the highest reading since May 2006. Economists expected a gain to 35, according to the median of 35 forecasts in a Bloomberg News survey.

And while inflation has practically disappeared in the euro area, it remains stubbornly persistent in the UK. Reuters reports:

The Office for National Statistics said consumer prices rose 0.6 percent last month, taking the annual rate to 2.2 percent from 2.3 percent in April. That was the lowest since January 2008 but above forecasts of 2.0 percent.

But in the US, signs of a possible upturn in the economy were tempered by further declines in industrial production. Bloomberg reports:

Housing starts jumped more than forecast in May while industrial production tumbled, offering a picture of an American economy still struggling to emerge from the deepest recession in half a century.

Builders broke ground on 532,000 dwellings at an annual rate, with single-family starts posting a third straight gain, Commerce Department figures showed today in Washington. Output at factories, mines and utilities dropped 1.1 percent, and the share of industrial capacity in use slid to a record low, the Federal Reserve said...

Wholesale prices dropped 5 percent in the 12 months to May, the biggest slump in half a century, the Labor Department also reported today. On a monthly basis, the producer-price index rose 0.2 percent, less than forecast.

Stocks fall, IMF raises forecast for US economy

The week hasn't started on a positive note.

Stocks and commodities fell sharply on Monday. Bloomberg reports:

The S&P 500, which had climbed 40 percent from a 12-year low on March 9, decreased 2.4 percent to 923.72 at 4:08 p.m. New York time. The Dow Jones Industrial Average, which last week erased its 2009 loss, tumbled 187.13 points, or 2.1 percent, to 8,612.13 as 28 of its 30 companies declined. Almost 13 stocks fell for each that rose on the New York Stock Exchange. The MSCI World Index of 23 developed nations plunged 2.6 percent, the most since April 20.

Europe’s Dow Jones Stoxx 600 Index lost 2.5 percent after Group of Eight finance ministers, who met in Italy over the weekend, began drawing up contingency plans for rolling back budget deficits and bank bailouts as the economy shows signs of recovery and investors start worrying about inflation...

The dollar strengthened the most against the euro since April today after Russian Finance Minister Alexei Kudrin said the U.S. currency is in “good shape,” further affirming there’s no substitute for the world’s reserve currency...

Kudrin’s comments helped U.S. Treasuries climb for a third day, the longest streak in a month, even after international holdings of long-term U.S. financial assets rose at a slower pace in April as China, Japan and Russia trimmed holdings of bonds. Purchases of long-term equities, notes and bonds rose a net $11.2 billion, compared with buying of $55.4 billion in March, the Treasury said today in Washington...

Crude oil for July delivery slid 2.1 percent to $70.56 a barrel in New York Mercantile Exchange trading as the stronger dollar limited the appeal of commodities as a hedge against inflation.

Freeport-McMoRan, the world’s biggest publicly traded copper producer, slid 5.8 percent to $55.14 as gold declined to a three-week low. Copper futures fell 3.7 percent in New York, the most in eight weeks.

Markets received no boost from economic reports.

Bloomberg reports that employment in the euro area has been falling.

Europe’s economy lost a record 1.22 million jobs in the first quarter as companies cut spending to survive the worst global economic slump in more than six decades.

Employment payrolls in the 16-member euro region fell 0.8 percent from the fourth quarter, when they declined 0.4 percent, the European Union statistics office in Luxembourg said today. The first-quarter drop was the biggest decline since the data series started in 1995. From a year earlier, payrolls contracted 1.2 percent, the first annual decline on record.

And the recovery in the US economy may not materialise as quickly as some anticipate. Bloomberg reports that the nascent recovery in homebuilder confidence stalled this month.

The National Association of Home Builders/Wells Fargo index of builder confidence decreased to 15 this month from 16 in May, the Washington-based NAHB said today. A reading below 50 means most respondents view conditions as poor.

And manufacturing continued to contract in the New York region this month.

The Federal Reserve Bank of New York’s June general economic index fell to minus 9.4, less than forecast, from minus 4.6 the prior month, the bank said today. Readings below zero for the Empire State index signal manufacturing is shrinking.

But it isn't all gloomy.

Factory executives in the New York Fed’s district, which encompasses New York state, northern New Jersey and one county in Connecticut, turned more optimistic about the future. The gauge measuring the manufacturing outlook climbed to 47.8, the highest level since July 2007, from 43.8.

And the IMF has raised its forecast for the US economy. Again from Bloomberg:

The International Monetary Fund, which has rescued economies from Pakistan to Iceland in the past year, raised its outlook for the U.S. and called for steps to reduce concern about rising public debt and inflation.

The IMF forecasts the world’s largest economy will contract 2.5 percent this year before expanding 0.75 percent in 2010, according to a statement today after an annual staff analysis of the U.S. In the IMF’s World Economic Outlook report released in April, the U.S. was forecast to contract 2.8 percent this year before stalling in 2010.

Most global economic indicators show improvement

The week ended with mostly positive data on the global economy.

In China, industrial production and retail sales both increased in May. AFP/CNA reports:

China's May industrial output and retail sales both grew at a faster pace than in previous months, the government said Friday, as massive stimulus measures introduced since last year kicked in...

Industrial production, a key gauge of activity in factories and plants across China, grew 8.9 per cent in May, the National Bureau of Statistics said - compared to a 7.3 per cent increase in April and 8.3 per cent in March.

Retail sales meanwhile grew 15.2 per cent in May, it said.

Japan is also looking better, with industrial production for April having been revised up. From Reuters:

Industrial output rose 5.9 percent in April, the biggest monthly gain since 1953, Friday's revised data showed, in another sign the economy may be picking up from its deepest recession in decades...

Even households are feeling better. From Bloomberg:

Japan’s household sentiment rose to a 14-month high in May, adding to signs that the deepest postwar recession may be easing.

The confidence index climbed to 35.7 from 32.4 in April, the Cabinet Office said today in Tokyo. It has improved every month since tumbling to a record low of 26.2 in December. A number below 50 means pessimists outnumber optimists.

US consumer confidence has also improved. Bloomberg reports:

Confidence among U.S. consumers rose for a fourth straight month in June, reinforcing signs of an impending end to the recession, while prices of imported goods jumped as oil costs climbed.

The Reuters/University of Michigan preliminary index of consumer sentiment increased to 69, from 68.7 in May. The import-price index rose 1.3 percent in May, the most since July and in line with forecasts, a Labor Department report showed today in Washington.

The euro area, however, provided some disappointing data. From Bloomberg:

European industrial production dropped by the most on record in April as the worldwide recession ravaged demand for goods.

Production in the euro region plunged 21.6 percent from a year earlier, the most since the data series started in 1986, the European Union’s statistics office in Luxembourg said today. Economists expected a 19.8 percent decline, according to the median of 14 estimates in a Bloomberg News survey. From March, output declined 1.9 percent.

US retail sales rise, China's fixed-asset investment surges

The US data on Thursday were somewhat encouraging. From Bloomberg:

Retail sales rose in May for the first time in three months, an increase driven almost solely by U.S. shoppers returning to automobile showrooms seeking bargains and the rising cost of gasoline...

Retail sales rose 0.5 percent, as forecast, after a 0.2 percent drop in April, the Commerce Department said in Washington. Sales excluding autos also increased 0.5 percent, led by gasoline as prices jumped last month...

The number of Americans filing claims for unemployment insurance fell for the third time in four weeks, to 601,000, lower than economists had forecast. The number of jobless continuing to collect benefit payments still rose to a record for the 19th straight time, to 6.82 million.

Inventories at U.S. businesses fell in April for an eighth straight month, the longest stretch since 2002, as companies cut back in the face of slowing sales. The 1.1 percent decline in stockpiles followed a revised 1.3 percent drop in March and sales decreased 0.3 percent, Commerce also said today.

However, if US demand fails to pull the global economy out of recession, there is always China. From Bloomberg:

China’s spending on factories, property and roads surged by the most in five years as the government’s 4 trillion yuan ($585 billion) stimulus package countered a record slump in exports.

Urban fixed-asset investment climbed 32.9 percent in the five months to the end of May from a year earlier, the statistics bureau said today in Beijing. Overseas shipments declined 26.4 percent last month from a year earlier, the customs bureau said...

The slide in exports was the biggest since data began in 1995...

Even the Chinese export slump may be turning around.

Seasonally adjusted, the decline was a smaller 22.8 percent, and month-on-month shipments rose 0.2 percent, the customs bureau said. China’s export orders index advanced to 50.1 in May, marking the first expansion in 11 months, a government-backed manufacturing index showed previously.

Mixed economic data

Wednesday's economic reports were mixed.

In the US, the trade deficit widened in April, according to a Reuters report.

The U.S. trade gap widened to $29.2 billion in April as exports weakened again in a reflection of waning global demand, a U.S. government report on Wednesday showed.

The Commerce Department said total exports fell 2.3 percent to $121.1 billion, the lowest level for foreign sales since mid-2006...

Imports declined in April for a ninth straight month but by a smaller amount than exports, down 1.4 percent to $150.3 billion.

But the Fed's beige book shows signs that the slide in the economy is easing.

In Europe, France reported that industrial production fell by 1.4 percent in April but Italy reported that industrial production rose 1.1 percent in April, offsetting somewhat a worse-than-expected downward revision in first quarter GDP growth to minus 2.6 percent.

The UK also reported a rise in industrial production. Reuters reports:

British industrial output rose for the first time in over a year in April after a jump in oil and pharmaceuticals production, raising the prospect that the economy could already be out of recession...

The Office for National Statistics said industrial output...rose 0.3 percent on the month -- the first increase since February 2008 and better than the 0.1 percent decline economists had expected...

The National Institute of Economic and Social Research estimated after the data that Britain's economy returned to growth in April, expanding by roughly 0.2 percent over the month and another 0.1 percent in May.

There have also been unofficial reports that Chinese industrial production rebounded in May.

However, prospects for Japan's economic recovery encountered a setback on Wednesday. Bloomberg reports:

Orders for Japanese machinery fell to a 22-year low and producer prices tumbled the most since 1987 as dwindling profits forced companies to cut costs amid the worst postwar recession.

Bookings, an indicator of capital investment in the next three to six months, fell 5.4 percent to 688.8 billion yen ($7.1 billion) in April, the lowest since 1987, the Cabinet Office said today in Tokyo. Wholesale prices, the costs companies pay for energy and raw materials, slid 5.4 percent in May from a year earlier, the Bank of Japan said.

Still, a report today shows that Japan's contraction has not been quite as bad as previously reported. Again from Bloomberg:

Japan’s economy shrank at a record 14.2 percent annual pace last quarter as exports and business investment plummeted.

The contraction in gross domestic product was smaller than the 15.2 percent estimated last month, revised figures from the Cabinet Office showed today in Tokyo. The fourth quarter contraction was revised to 13.5 percent from 14.4 percent.

German industrial production and exports fall

Tuesday's economic reports were more mixed than those from previous days.

Germany provided much of the bad news, as Bloomberg reports:

German exports fell more than economists forecast in April as the global crisis restrained demand, keeping Europe’s largest economy mired in a recession.

Sales abroad, adjusted for working days and seasonal changes, fell 4.8 percent from March, when they rose a revised 0.3 percent, the Federal Statistics Office in Wiesbaden said today...

German imports dropped 5.8 percent in April from the previous month, when they increased a revised 0.2 percent, the statistics office said. The trade surplus narrowed to 9.4 billion euros ($13.1 billion) from 11.3 billion euros.

Bloomberg also reports that German industrial production was down in April.

German industrial output unexpectedly declined in April led by investment goods, suggesting Europe’s largest economy may struggle to gather strength.

Production dropped 1.9 percent from March when it rose 0.3 percent, the Economy Ministry in Berlin said today. Economists predicted an increase of 0.3 percent, the median of 30 forecasts in a Bloomberg survey showed. From a year earlier, output declined 22 percent when adjusted for work days.

However, the positive news flow continued in Japan, with both the coincident and leading indices of economic indicators rising 1 point in April, and in France, where the Bank of France’s Business Sentiment Indicator climbed to 81 in May from 75 in April.

Meanwhile, economic data from the UK were mixed, with the Royal Institution of Chartered Surveyors reporting that house prices fell at their slowest annual pace in 1-1/2 years in the three months to May but the British Retail Consortium reporting that consumers curbed spending in shops.

OECD indicators show slower decline

More hopeful indications for the global economy on Monday, this time from the OECD. Reuters reports:

The economic outlook for the OECD area declined at a slower pace in April, an OECD survey said on Monday, and there were stronger indications that the downturn may have hit bottom in Canada, France, Italy and Britain.

The Paris-based Organization for Economic Co-operation and Development said its composite leading indicator for the OECD area rose in April, reaching 93.2 compared to a revised 92.7 in March. There was an 8.3 point drop from April a year earlier.

Other reports from Europe on Monday reinforced the view that the recession is easing. Sentix's gauge of investor and analyst sentiment in the euro zone rose to -27.0 in June from -34.3 in May while German manufacturing orders held steady in April after increasing in March.

Recession abating in US and Japan

Recent economic reports continue to show that the worst of the recession is probably over for the United States and Japan.

On Friday, the US Labor Department reported that non-farm payrolls fell by 345,000 in May. Although the unemployment rate rose to 9.4 percent, the highest since 1983, the number of jobs lost in May was the least in eight months, boosting hopes that the recession is easing.

While the decline in job losses for May represents only one month's data, it is consistent with the picture coming from reports on claims for unemployment insurance. Initial claims fell by another 4,000 to 621,000 in the week ending 30 May, boosting hopes that it had peaked at 674,000 in the week ending 28 March and that the recession is therefore coming to an end. In addition, continuing claims for unemployment insurance fell to 6,735,000 in the week ended 23 May from 6,750,000 the prior week, the first decrease in almost five months.

Earlier last week, reports from the Institute for Supply Management also indicated that the recession is abating. The ISM's manufacturing PMI rose to 42.8 in May from 40.1 in April while its non-manufacturing index rose to 44.0 from 43.7. Although both indices remain below the 50 level that traditionally separates expansion from contraction, they remain on rising trends that have been in place since late last year.

Today's data indicate that Japan's economy may also be past its worst.

A Ministry of Finance report on Japan's current account for April shows that the trade situation is improving. Although exports came in 40.6 percent below the level last year, on a seasonally-adjusted basis, they were 7.2 percent higher than in March.

And the improvement does not apply just to the external sector of the economy. The Cabinet Office's economy watchers survey shows improving sentiment among workers in economically-sensitive jobs in general. The survey's diffusion index for current conditions rose to 36.7 in May from 34.2 in April while the diffusion index for future conditions jumped to 43.3 from 39.7.

So based on the latest economic indicators, it looks like the recession is abating in the US and Japan.

US job losses ease

The US employment picture brightened a little in May. Bloomberg reports:

The U.S. lost fewer jobs than forecast in May, reinforcing signs that the deepest recession in half a century is starting to abate.

Payrolls fell by 345,000, the least in eight months, after a revised 504,000 loss in April, the Labor Department said today in Washington. The jobless rate increased to 9.4 percent, the highest since 1983, in part as more people joined the labor force to look for work...

Revisions added 82,000 to payroll figures previously reported for April and March, the Labor report said.

Treasury yields jumped on Friday but stocks could not hold on to gains.

Yields on benchmark 10-year U.S. notes jumped to 3.84 percent at 4:16 p.m. in New York from 3.71 percent late yesterday, and the dollar climbed to a four-week high against the yen, gaining 2.4 percent to 98.85. The Standard & Poor’s 500 Stock Index slipped 0.3 percent to 940.09 after rising as much as 1 percent earlier.

ECB, BoE and BoC leave rates unchanged

The ECB and BoE both left interest rates unchanged on Thursday. Bloomberg reports:

The European Central Bank kept its benchmark interest rate at a record low of 1 percent today after first signs of an economic recovery emerged.

President Jean-Claude Trichet also said the ECB will start its plan to buy 60 billion euros ($85 billion) of covered bonds in the primary and secondary markets next month. The Bank of England today left its rate at 0.5 percent...

Central bank rate cuts aren't necessarily a thing of the past.

Other central banks are still cutting rates to bolster their economies. Iceland’s central bank today lowered its benchmark by a percentage point to 12 percent, defying the International Monetary Fund. Russia’s central bank cut the main rates for the third time in six weeks, lowering the refinancing rate to 11.5 percent from 12 percent.

Still, the Bank of Canada on Thursday chose to follow the ECB and BoE's examples and left its key lending rate unchanged at 0.25 percent.

The more sanguine stance by the major central banks is quite understandable. Recent data indicate that the global economy may already be on the mend. For example, Thursday also saw a Bloomberg report showing that eurozone retail sales rose in April.

European retail sales increased for the first time in seven months in April as consumers spent more on food and drinks.

Sales in the 16-nation euro region rose 0.2 percent from the previous month, when they fell 0.1 percent, the European Union’s statistics office in Luxembourg said...

And jobless claims in the US appear to have peaked, according to another Bloomberg report.

Initial applications for unemployment insurance fell by 4,000 to 621,000 in the week ended May 30, in line with forecasts, figures from the Labor Department showed today in Washington...

The claims report also showed the number of people collecting unemployment insurance fell to 6.74 million in the week ended May 23 from 6.75 million the prior week. It was the first decrease in almost five months, breaking a string of 17 consecutive records.

Services improve in May

The global economy looks like it remains on track to turn around.

In the US, the ISM's non-manufacturing index rose in May while factory orders rose in April. Bloomberg reports:

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, climbed less than forecast to 44 from 43.7 in April...

Another report today showed orders placed with factories in April rose for the second time in three months, as demand for automobiles, electrical equipment and construction machinery increased. Bookings gained 0.7 percent, after a revised 1.9 percent drop in March that was more than twice the previous estimate, the Commerce Department said.

However, employment remains weak.

... ADP Employer Services estimated companies cut 532,000 workers from payrolls.

The euro area also reported improvement in the services sector. From Bloomberg:

Europe’s manufacturing and service industries contracted more slowly in May, adding to evidence that the region’s worst recession since World War II is easing.

A composite index of both industries rose to 44.0 from 41.1 in April...

Markit’s services index increased to 44.8 from 43.8 in April...

There was even better news for the services sector in the UK. From Reuters:

The services purchasing managers' index rose to 51.7 in May from 48.7 in April, its highest level since March 2008 and the first time it has crossed the 50-mark that separates growth from contraction since April 2008, a survey by Markit and the Chartered Institute of Purchasing and Supply showed.

The unexpected increase in the service PMI also propelled the composite PMI, which includes Britain's harder-hit manufacturing and construction industries, into growth territory for the first time since March 2008, and pushed sterling to a 6-month high versus the euro.

Positive housing data, inflation risk

There was another piece of good economic news in the US on Tuesday. Bloomberg reports:

The number of Americans signing contracts to buy previously owned homes climbed 6.7 percent in April, more than forecast and the fourth increase in five months, as lower prices attracted buyers.

The gain in the index of signed purchase agreements, or pending home resales, was the biggest in more than seven years and followed a 3.2 percent increase in March, the National Association of Realtors said today in Washington. The April reading was up 3.2 percent from the same month a year earlier.

The UK housing market also appears to be getting better. Telegraph reports:

Bank of England figures showed mortgage approvals rose for the fourth month out of the last five to a one-year high of 43,201. That was higher than the 41,000 expected and an increase of 3,163 compared with March...

Separately the latest construction Purchasing Managers' Index (PMI) showed that housing output and orders showed a sharp improvement in May...

Housing activity jumped to 48.5 on the PMI from 33.7 in April... It was the highest level since November 2007...

Output and orders in construction overall rose to 45.9 in May, the highest since last April and up from 38.1 the month before.

If housing markets are improving, there is hope for some sort of economic recovery in the not-too-distant future.

And that in turn means that it may be time to start looking at inflation risk again. Indeed, Paul Kasriel thinks that inflation is the bigger risk over the next five years, not deflation.

... [E]ven with relatively large output gaps in the near term, other factors point to, at least, continued inflation in the neighborhood of what has been experienced in recent years rather than persistently very low inflation or outright deflation. With the reversal of...secular disinflationary factors in combination with cyclical factors such as relatively high money growth and the potential for a depreciating U.S. dollar, it seems to me that over the next five years inflation rather than deflation is the greater risk.

Global stocks surge as manufacturing shows signs of recovery

It looks like financial markets are all ready to welcome the global economic recovery. From Bloomberg:

The S&P 500 surged 2.6 percent to 942.87 at 4:08 p.m. in New York, its highest close since Nov. 5. The Dow rose 221.11 points, or 2.6 percent, to 8,721.44, the highest since Jan. 8. Almost nine stocks climbed for each that fell on the New York Stock Exchange.

Europe’s benchmark Dow Jones Stoxx 600 jumped 2.9 percent, the biggest gain in two months, and the MSCI Asia Pacific Index advanced 1.9 percent to the highest since October. The MSCI Emerging Markets Index, up 61 percent the past three months, posted the steepest advance in almost a month with a 3.7 percent climb...

U.S. bonds dropped, driving the yield on the benchmark 10- year note 20 basis points higher to 3.67 percent, the steepest increase in eight months.

Economic reports provided good reasons to cheer. Bloomberg reports the US data.

Manufacturing in the U.S. shrank less than forecast in May, spurred by the first gain in new orders since the recession began, a sign companies are increasingly confident the slump will end this year...

The Institute for Supply Management’s factory index rose to 42.8, the highest level since September, from 40.1 in April; readings of less than 50 signal a contraction. Consumer spending fell 0.1 percent in April and the savings rate rose to 5.7 percent, spurred by an unexpected jump in incomes linked to the fiscal stimulus, Commerce figures showed...

... Spending on construction unexpectedly rose in April, led by gains in residential and commercial building, Commerce also reported. The 0.8 percent gain was the biggest since August and followed a revised 0.4 percent increase the prior month.

Europe's manufacturing sector is also showing signs of improvement. Bloomberg reports:

Europe’s manufacturing industry contracted at the slowest pace in seven months in May, adding to signs that the worst may be over.

A gauge of manufacturing activity rose to 40.7 from 36.8 in April, Markit Economics said today. That was the biggest increase since the survey started in 1997 and compared with the initial estimate of 40.5 published on May 21...

And the same story is told for the UK by Reuters.

The manufacturing PMI rose to 45.4 last month from an upwardly revised 43.1 in April, beating the consensus forecast of 44.0, but is unlikely to alter expectations that interest rates will stay at record lows for some time to come.

That marked the third consecutive month of improvement in the headline index, which has been below the 50 level which separates expansion from contraction for more than a year.

Friday had shown that the Nomura/JMMA Japan Manufacturing Purchasing Managers Index rose to 46.6 in May from 41.4 in April.

But it was China that really sparked the markets on Monday by reporting another month of manufacturing expansion. From Reuters:

China's manufacturing sector continued to expand moderately in May as new export orders improved, two surveys showed on Monday, adding to tentative signs that the world's third-largest economy is stabilising...

The official purchasing managers' index (PMI) fell slightly to 53.1 from 53.5 in April, its third straight month above the mark of 50 that separates expansion from contraction.

A separate PMI published by Hong Kong-based brokerage CLSA rose to a 10-month high of 51.2 from 50.1 in April, its second month above 50.