US stocks fall, BoJ phasing out emergency measures

US markets closed sharply down on Friday, the S&P 500 falling 2.8 percent to 1,036.19, more than erasing Thursday's 2.3 percent jump. For the whole of October, the S&P 500 fell 2 percent, its first monthly decline since February.

The day had started positively for investors, with Asian markets closing higher for the day. The Nikkei 225 rose 1.5 percent.

Positive news on the Japanese economy helped boost markets early in the day. From AFP/CNA:

Japan's economy on Friday showed fresh signs that it is recovering after a sharp downturn, with jobless figures hitting a four-month low, an easing in deflation and household spending edging up.

Japan's unemployment rate fell to a four-month low of 5.3 percent in September, beating the market expectation that it would rise to 5.6 percent, according to data from the internal affairs ministry.

The latest figure was down from 5.5 percent in August and the lowest since 5.2 percent in May...

Core prices, which exclude those of volatile fresh food, dropped 2.3 percent in the month from a year earlier, after an unprecedented 2.4 percent slump in August.

Compared with the previous month, prices rose 0.1 percent -- the first increase in six months...

In September Japanese household spending edged up by 1.0 percent from a year earlier, an increase for a second consecutive month.

Unfortunately for investors, the Bank of Japan has noticed the improvement in the economy. From Bloomberg:

The Bank of Japan said it will stop buying corporate debt at the end of the year, as central banks around the world phase out emergency measures taken at the height of the financial crisis.

Governor Masaaki Shirakawa and his colleagues also said they will only extend a program providing unlimited collateral- backed loans to banks one last time through March 31...

The bank also left its benchmark interest rate at 0.1 percent and pledged to keep borrowing costs at “low levels” as it forecast deflation will extend into fiscal 2011. Shirakawa said he’s “committed to prolonging the current extremely accommodative financial environment.”

Central bank tightening could threaten markets, especially if the economic recovery turns out to be weak. Unfortunately, data later in the day hinted at the latter.

German retail sales unexpectedly fell 0.5 percent in August while in the euro area as a whole, consumer prices fell for a fifth month in October after the unemployment rate increased to 9.7 percent in September, the highest in more than a decade.

Across the Atlantic, Canada produced a negative surprise on the GDP front. Bloomberg reports:

Canada’s economy unexpectedly shrank in August, suggesting it may not have followed the U.S. out of a recession in the third quarter as the central bank and a majority of economists predict.

Gross domestic product fell 0.1 percent in the month, as oil and gas extraction dropped 2.3 percent and manufacturing fell 0.7 percent, Statistics Canada said today from Ottawa. Economists expected a 0.1 percent increase after output was little changed in July, according to the median estimate of 23 analysts surveyed by Bloomberg.

And the US economy may not be all that healthy despite Thursday's positive GDP report. Again from Bloomberg:

Americans cut spending for the first time in five months and a gauge of confidence weakened, signaling consumers will make a limited contribution to the recovery without government incentives.

Consumer spending fell 0.5 percent in September after a 1.4 percent jump in August, Commerce Department figures showed today in Washington. The Reuters/University of Michigan final index of consumer sentiment decreased to 70.6 in October from 73.5 the month before.

The US did provide a positive piece of data.

The Institute for Supply Management-Chicago Inc. said its business barometer increased to 54.2, the highest level in 13 months. The gauge was forecast to rise to 49, the median estimate of 58 economists in a Bloomberg News survey. Readings above 50 signal an expansion.

US economy returns to growth

Plenty of positive economic reports on Thursday.

In the US, the economy returned to growth in the third quarter. Bloomberg reports:

The U.S. economy returned to growth in the third quarter after a yearlong contraction as government incentives spurred consumers to spend more on homes and cars.

The world’s largest economy expanded at a 3.5 percent pace from July through September, figures from the Commerce Department showed today in Washington. Household purchases climbed 3.4 percent, the most in two years.

The reports out of Europe were also positive. From Bloomberg:

European factories increased capacity usage on assembly lines for the first time in two years this quarter as confidence in the economic outlook rose to the highest since Lehman Brothers Holdings Inc. collapsed.

Assembly-line activity in the euro area rose to 70.7 percent of capacity this quarter from 69.6 percent in the prior three months, the European Commission in Brussels said today. An index of executive and consumer sentiment jumped to 86.2, the highest since September 2008, when Lehman filed the biggest bankruptcy in U.S. history, compounding the financial crisis.

And Japanese industrial production rose again in September. AFP/CNA reports:

Japan's factory output rose for a seventh straight month in September, data showed Thursday – the latest sign the world's second largest economy is slowly recovering from a deep recession.

Industrial production increased 1.4 per cent in September from August, extending its longest unbroken expansion in 12 years, as car makers boosted their output in response to recovering demand, the government said.

Norway raises interest rate

This was widely expected. From Bloomberg on Wednesday:

Norges Bank raised its key interest rate a quarter point from a record low and signaled steeper increases than it previously forecast over the next three years as inflation accelerates and unemployment remains low.

The Oslo-based bank raised the overnight deposit rate to 1.5 percent, becoming the first European central bank to reverse its easing cycle since the credit crisis started to abate. Nineteen of 20 economists surveyed by Bloomberg had predicted the move, while one had expected a half-point increase.

Don't expect the Fed to follow with a rate hike of its own soon though. Wednesday's US economic data show that the sustainability of the recovery remains a question. From Reuters:

Sales of new U.S. homes unexpectedly tumbled in September, their first drop in six months, underscoring the hazards to an economic recovery even as businesses appeared to be stepping up investment.

New single-family home sales fell 3.6 percent to a 402,000 unit annual pace from a downwardly revised 417,000 units in August, the Commerce Department said on Wednesday. Analysts polled by Reuters had expected sales to rise to a 440,000 unit pace...

The housing data represented a road bump in a recovery that otherwise appears to be widening. Another Commerce Department report showed that new orders for long-lasting U.S. manufactured goods rose 1 percent in September as businesses stepped-up investment plans...

The report showed orders for nondefense capital goods excluding aircraft, a closely watched proxy for investment spending, rose a solid 2 percent in September, suggesting businesses were growing increasingly confident the economy's recovery would be sustained.

US consumer confidence falls

US consumer confidence is unexpectedly weak. From Bloomberg on Tuesday:

Confidence among U.S. consumers unexpectedly fell for a second month in October, reinforcing the views of Federal Reserve policy makers who say household spending will be restrained by rising unemployment.

The Conference Board’s confidence index dropped to 47.7, trailing the lowest economist forecast, from a revised 53.4 in September, a report from the New York-based private research group showed today. A measure of employment availability slid to a 26-year low.

Not all the day's data were negative.

The S&P/Case-Shiller home-price index covering 20 metropolitan areas climbed 1 percent from the prior month, seasonally adjusted, after a 1.2 percent increase in July, the group said today in New York.

Consumer confidence has also been unexpectedly weak in Europe. In Germany, the GfK consumer confidence index fell to 4.0 in November from 4.2 in October. In Italy, the ISAE consumer confidence index fell to 111.7 in October from 113.6 in September.

France, however, reported an improvement in consumer sentiment, the INSEE consumer confidence indicator rising to -35 in October from -36 in September.

In other positive news, UK retail sales improved in October with the Confederation of British Industry's distributive trades survey reported sales balance rising to 8, the highest reading since December 2007, from 3 in September.

Asian policy-makers start to tighten

Bloomberg reports the Reserve Bank of India's monetary policy decision today.

India’s central bank took the first step toward withdrawing its record monetary stimulus as inflation pressures build, ordering lenders to keep more cash in government bonds.

“It may be appropriate to sequence the ‘exit’ in a calibrated way,” Governor Duvvuri Subbarao said today after increasing the statutory liquidity ratio to 25 percent from 24 percent and raising the inflation forecast...

The central bank said “unconventional” steps taken during the global meltdown in the past year can now be reversed to damp price gains, adding that reversing the “conventional measures is not considered appropriate for now.”

Subbarao maintained the reverse repurchase rate at 3.25 percent, the repurchase rate at 4.75 percent and the cash reserve ratio at 5 percent, in line with the median forecast of 24 economists surveyed by Bloomberg News. He increased the inflation forecast for the year to March 31 to 6.5 percent from 5 percent...

India becomes the second country, after Australia, among Group of 20 nations to take steps to boost borrowing costs, underscoring a rising threat of accelerating consumer and asset prices...

Other Asian nations have avoided tightening monetary policy so far despite rising asset prices, but that does not mean they have been inactive. Again from Bloomberg:

Policy makers from South Korea to Singapore, confronted with rising real-estate values that threaten to mimic in Asia the U.S. mortgage bubble that roiled the global economy, are stepping up efforts to rein in prices.

Regulators in South Korea, Hong Kong and Singapore told banks in recent weeks they need to tighten lending standards. Central banks including India’s and South Korea’s have signaled a readiness to raise interest rates in the coming months...

In Hong Kong, where mortgage rates are the lowest in at least 19 years, home prices have climbed 26 percent this year, spurring authorities to tighten down-payment requirements for luxury homes. A one-bedroom, 816-square-foot apartment in the city’s Kowloon district last month sold for HK$24.5 million ($3.2 million).

Hong Kong’s index of finance stocks jumped 60 percent this year, and a measure for property shares is up 67 percent...

Singapore’s private-residential developers sold 10,000 units in the first seven months of 2009, more than the 4,300 sold the whole of last year. In South Korea, bank lending to households expanded for a seventh straight month in August as home prices rose.

Stocks are also surging in some markets. China’s Shanghai Composite Index is up 66 percent so far this year, compared with the 24 percent gain in the MSCI World Index, and benchmarks from Hong Kong, South Korea, Singapore and Taiwan are all up more than 45 percent. By comparison, the U.S. Standard & Poor’s 500 Index has advanced 18 percent...

In Singapore, the government barred interest-only loans for some housing projects last month. It also stopped allowing developers to absorb interest payments for apartments that are still being built.

Hong Kong authorities on Oct. 23 limited buyers of homes costing more than HK$20 million to borrowing 60 percent of the property’s value, down from 70 percent before. The Hong Kong Mortgage Corp., a government-backed home-loan insurer, suspended insurance for homes that aren’t owner-occupied.

South Korea’s financial regulator said Oct. 8 it plans to tighten regulations on non-banking finance companies’ lending to households, and authorities have cut loan-to-value ratios in mortgages to 50 percent from 60 percent in some Seoul areas. In the past month, China’s five largest banks were told to increase write-offs against bad loans and maintain their capital adequacy.

Central banks and rising asset prices

I have been writing that the Federal Reserve won't be raising rates soon (see "Fed funds rate to stay exceptionally low" and "Stock markets still safe from Fed rate hike"). Those posts assume that the surge in asset prices in the past few months won't influence the Fed much. It is possible, however, that this assumption is incorrect.

This Bloomberg article says that central banks are beginning to pay more attention to asset prices.

Central bankers from Washington to Oslo are taking greater account of accelerating asset prices to avoid the policy mistakes that inflated two speculative bubbles in a decade and led to the worst financial crisis since the Great Depression.

A month after warning that property prices are rising “probably excessively,” Norges Bank Governor Svein Gjedrem is set to increase interest rates on Oct. 28. Reserve Bank of Australia Governor Glenn Stevens cited costlier real estate as a reason for raising rates three weeks ago.

At the Federal Reserve, officials under Chairman Ben S. Bernanke are reviewing whether recent gains in asset prices and narrowing credit spreads are justified as they try to ensure near-zero borrowing costs don’t generate future market turmoil.

I won't be changing my call soon, though. As the article notes:

When Bernanke was a Fed governor in 2002, he sided with Greenspan by saying “monetary policy cannot be directed finely enough to guide asset prices without risking severe collateral damage to the economy.” He’s now likely to maintain a preference for revamping supervision such as by enforcing stricter capital rules on large banks to curb their risk-taking and leverage. Federal Reserve Bank presidents appear divided over whether interest rates should be used.

“In certain circumstances, the answer as to whether monetary policy should play a role may be a qualified yes,” Janet Yellen, of San Francisco, said in June. By contrast, Philadelphia’s Charles Plosser said in an Oct. 22 Bloomberg Radio interview that trying to identify and head off asset bubbles is a “very slippery slope” and rates are a “very blunt instrument.”

Rather, Asian central banks are widely seen as being among the next to raise rates.

In Asia, the central banks of South Korea and India are already signaling they may boost rates next year. South Korean home prices rose for a sixth month in August, while India’s Mumbai Stock Exchange Sensitive Index is up about 75 percent since January.

This view would have been bolstered by the latest data on South Korea's economy, reported by Bloomberg today:

South Korea’s economy grew at the fastest pace in seven years, stoking speculation the central bank will raise borrowing costs for the first time since the collapse of Lehman Brothers Holdings Inc.

Gross domestic product increased 2.9 percent in the third quarter from three months earlier, when it expanded 2.6 percent, the central bank said today in Seoul. That was the fastest since the first quarter of 2002 and compared with a median estimate of 1.9 percent growth in a Bloomberg survey. From a year earlier, GDP rose 0.6 percent.

UK economy shrinks again, better data elsewhere

The end of the week produced a big surprise in the form of a contraction in UK GDP. Reuters reports:

The economy contracted unexpectedly in the third quarter of this year, squashing hopes of an end to the downturn and instead making the current recession the longest on record, official data showed on Friday.

The Office for National Statistics said British gross domestic product fell by 0.4 percent between July and September, meaning the economy has contracted for six successive quarters for the first time since records began in 1955.

This was much worse than analysts' expectations of a 0.2 percent rise. Not a single analyst out of the 35 polled by Reuters before the data had expected a negative reading.

Elsewhere in Europe, the data were much better. From Bloomberg:

Europe’s manufacturing expanded for the first time in 17 months and services industries grew at a faster pace in October as evidence mounted that the global economy is pulling out of the recession.

An index of manufacturing increased to 50.7 from 49.3 in September and a services gauge rose to 52.3 from 50.9, London- based Markit Economics said today. Both indexes topped economist forecasts, and the factory gauge climbed above 50, indicating expansion, for the first time since May 2008...

A composite index of manufacturing and services industries in the euro-area economy rose to 53 from 51.1 in September, Markit said in today’s report. That was the highest since December 2007 and above the 51.6 that economists had projected in a Bloomberg survey.

And German business confidence rose to a 13-month high in October, the Ifo index climbing to 91.9 from 91.3 in September.

Meanwhile, in the US, sales of existing homes surged a record 9.4 percent in September.

US leading index points to continued recovery

The US economic recovery appears to be intact. Bloomberg reports:

The index of U.S. leading economic indicators rose in September for a sixth straight month, showing the economy is likely to expand into early 2010.

The Conference Board’s gauge of the economic outlook for the next three to six months climbed a greater-than-forecast 1 percent, contributing to the biggest six-month gain in 26 years, the New York-based private research group said today...

Economists forecast the U.S. leading indicators index would increase 0.8 percent, according to the median of 60 estimates in a Bloomberg News survey. Projections ranged from increases of 0.3 percent to 1.1 percent. The Conference Board revised August figures down to show a 0.4 percent increase from a 0.6 percent previously reported gain.

The number of Americans filing first-time claims for unemployment insurance rose by 11,000 to 531,000 last week, figures from the Labor Department showed. The reading exceeded the 515,000 median estimate of economists surveyed and served as a reminder that the labor market will be slow to recover.

The average number of applications over the past four weeks, a less volatile measure, showed some improvement as it fell to the lowest level in nine months.

Home prices nationally fell 0.3 percent in August from July and were down 3.6 percent over the past 12 months, a report from the Federal Housing Finance Agency also showed.

Still, Federal Reserve Bank of Boston President Eric Rosengren said the US economy remains at risk of relapsing into recession after expanding in the second half of 2009.

Nomura Research's Richard Koo even thinks that the US faces the risk of a lost decade like Japan. From Bloomberg:

“This isn’t a cold, its more like pneumonia,” said Koo, author of “Balance Sheet Recession,” a 2003 book about the malaise that hit Japan after its stock and real-estate markets crashed in 1990. “We still need more government spending,” he said, adding it could take “three to five years to get out of this mess, even under the best of circumstances.”

US, Japan show signs of recovery, China's growth accelerates

The US economy remains on a gradual path to recovery. Reuters reports the latest findings in the Fed's beige book published on Wednesday.

U.S. economic conditions stabilized or improved modestly in most parts of the country, according to a Federal Reserve report on Wednesday that suggested the economy was slowly clawing out of a recession.

In its "Beige Book" of anecdotal reports on the economy, the Fed noted improvement in two of the hardest hit areas -- residential real estate and manufacturing...

The central bank gave a grim assessment of commercial real estate, which is widely seen as one of the big remaining trouble spots for the still-struggling financial sector.

The economic recovery is not looking strong, at least in the US, but it is clearly global. AFP/CNA reports today that Japan's trade surplus hit an 18-month high in September.

Japan's trade surplus soared almost six-fold last month from a year earlier, hitting an 18-month high on the back of recovering demand in China and other Asian countries, official figures show.

Exports exceeded imports for an eighth straight month, although they remain sharply lower than before the current global economic slump began.

Asia's biggest economy posted a trade surplus of 520.64 billion yen (5.7 billion US dollars) in September -- the highest figure since March 2008 -- up from 90.97 billion yen a year earlier, the finance ministry said.

Exports were down 30.7 percent from a year earlier, better than a drop of 36.0 percent in August. Imports fell 36.9 percent due to lower energy costs.

And in China, the economy is booming again. AFP/CNA reports:

China's economy grew 8.9 percent in the third quarter of 2009, the government said Thursday, in a strong sign the world's third-largest economy was on the road to recovery.

The Asian giant expanded at the fastest quarterly rate in a year after growing 7.9 percent in the second quarter and 6.1 percent in the first three months of the year, which was the slowest pace in more than a decade.

BoC keeps rate unchanged

The Bank of Canada left interest rates unchanged on Tuesday. Bloomberg reports:

The Bank of Canada left its key interest rate at a record low and amplified a warning about the country’s strengthening currency, saying it will “more than fully offset” recent signs of economic growth.

The target rate for overnight loans between commercial banks remained at 0.25 percent, as forecast by all 26 economists surveyed by Bloomberg. The bank repeated a commitment to keep the rate unchanged through June 2010 unless the inflation outlook shifts, adding it will now take three more months, until the third quarter of 2011, for inflation to return to the 2 percent target.

The Federal Reserve will also probably not make any move soon on interest rates. Again from Bloomberg:

Builders in the U.S. broke ground on fewer homes than forecast and wholesale prices unexpectedly fell in September, giving the Federal Reserve more reason to keep interest rates low to ensure an economic recovery.

Housing starts rose 0.5 percent to an annual rate of 590,000 from a 587,000 pace in August that was lower than previously estimated, a Commerce Department report showed today in Washington. Prices paid to factories, farmers and other producers fell 0.6 percent, the second drop in three months, the Labor Department said...

The National Association of Home Builders/Wells Fargo’s confidence index, released yesterday, unexpectedly declined in October on concern the expiration of the first-time homebuyer tax incentive would reduce demand...

Building permits fell 1.2 percent to a 573,000 annual rate last month. They were forecast to climb to a 595,000 pace from 579,000 in August.

Stock markets still safe from Fed rate hike

Low interest rates have helped stocks in the United States and around the world rally strongly since March this year. With recent economic data showing that inflation is likely to stay moderate for some time, the stock market rally is under no threat from a rate hike by the Federal Reserve at the moment.

Stocks continued their rally last week. The Standard & Poor's 500 index rose 1.5 percent to 1,087.68 at the close of the week, hitting a 12-month high of 1,096.56 on Thursday. The Dow Jones Industrial Average rose 1.3 percent, climbing above 10,000 on Wednesday before closing the week at 9,995.91.

Third quarter corporate earnings reports have generally been positive for stocks. Most of the S&P 500 companies that have released third quarter results have beaten analysts' estimates. Investors have been especially cheered by good performances by the large financials like JP Morgan Chase.

Economic data over the past week have also been mostly positive. Industrial production increased in September while retail sales fell less than expected, boosting hopes that a self-sustaining recovery is developing. Not so encouraging though was a fall in the Reuters/University of Michigan index of consumer sentiment to 69.4 this month from 73.5 in September.

Over the medium and long term, however, the performance of the stock market may depend more on the outlook for interest rates. Typically, cyclical bull markets come to an end after the Federal Reserve raises the federal funds rate.

The good news for the bulls is that the latter is not looking likely at the moment. The Federal Reserve has made it clear that the federal funds rate will be kept low for an extended period. Ironically, this is because it expects the economic recovery to be weak. The Federal Reserve will want to keep rates low to help the economy recover. A weak recovery also tends to keep inflation at bay.

Recent economic data show that deflationary pressure has abated but inflation will probably take a while to build up to a level that will trigger a hike in the federal funds rate by the Federal Reserve.

A Labor Department report last week showed that consumer prices in the US as measured by the consumer price index rose 0.2 percent in September. Compared to September 2008, prices were 1.3 percent lower, a slightly smaller decline than the 1.5 percent fall in August.

An index of consumer prices that excludes food and energy, often referred to as the core index, also rose 0.2 percent in September. This index was up 1.5 percent from September 2008, slightly higher than the 1.4 percent increase in August.

For monetary policy, the Federal Reserve focuses on core inflation.

Historically, at cycle peaks and troughs, core inflation usually lags overall inflation. As the accompanying chart shows, the latter appears to be already turning up. Will core inflation also show a positive trend soon?

Probably not. The year-on-year core inflation rate may have picked up slightly in September but usually, a sustained acceleration in the core rate begins only well after the unemployment rate starts to decline (see accompanying chart, where the unemployment rate is on a reverse scale). The unemployment rate in the US, though, was still on a rising trend in September, climbing to 9.8 percent from 9.7 percent in August.

Of course, eventually, even unemployment will turn as the economy continues to recover. Indeed, a Federal Reserve report last week showed that industrial production increased 0.7 percent in September, its third consecutive month of increase.

And that report showed that another measure of resource slack, industrial capacity utilisation, is diminishing. Capacity utilisation rose to 70.5 from 69.9 in August. Capacity utilisation has now increased for three consecutive months. A rising trend in capacity utilisation is usually followed by a rise in inflation.

Still, historically, the Federal Reserve does not raise interest rates until both industrial capacity utilisation and unemployment are showing clear improvement trends (see "Fed funds rate to stay exceptionally low"). That should be some months away.

Therefore, investors can be confident that the Federal Reserve will not undermine the stock market rally with a rate hike for many more months to come.

US industrial production rises, consumer sentiment falls

US industrial production continued to recover in September. Bloomberg reports:

Industrial production in the U.S. rose more than anticipated in September, putting manufacturing at the forefront of the emerging economic recovery.

The 0.7 percent increase in production at factories, mines and utilities exceeded every forecast of economists surveyed by Bloomberg News and followed gains of 1.2 percent in August and 0.9 percent in July, Federal Reserve figures showed today...

Capacity use climbed to 70.5 percent last month from 69.9 in August, the report showed. It was estimated to rise to 69.8 percent, according to the Bloomberg survey median...

Factory output, which accounts for about four-fifths of industrial production, increased 0.9 percent after a 1.2 percent gain the prior month.

However, consumer confidence fell in October.

The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 69.4 from 73.5 in September, which was the highest in more than a year, the group reported today. Measures of expectations for six months ahead and current conditions both fell.

US economic reports show expansion

The US economy remains on a recovery path. Bloomberg reports:

Regional Fed bank reports indicated that manufacturing, which has helped drive the recovery from the recession, continued to expand this month.

The Philadelphia Fed’s general economic index dropped to 11.5 in October from a September reading of 14.1 that was the highest since June 2007. The Fed Bank of New York’s economic index soared to 34.6 this month, the highest since mid-2004, from 18.9 in September. Readings above zero indicate expansion...

The number of Americans filing first-time claims for unemployment benefits dropped by 10,000 to 514,000 in the week ended Oct. 10, lower than forecast, from a revised 524,000 the week before, Labor Department data showed.

Meanwhile, consumer prices maintained their climb at both the headline and core levels in September.

Consumer prices rose 0.2 percent in September after a 0.4 percent gain in August, the Labor Department said today...

Energy prices increased 0.6 percent in September as the cost of gasoline climbed 1 percent. Excluding food and energy costs, the so-called core index climbed 0.2 percent, more than anticipated and pushed up by health care and a rebound in auto prices following the expiration of the government’s “cash for clunkers” program.

Another Bloomberg report suggests that:

Slowing inflation may give the upper hand to Federal Reserve policy makers who want to keep interest rates low for a long time to support a recovery from the worst recession since the 1930s.

The Australians, though, may have other ideas. Again from Bloomberg:

Australian central bank Governor Glenn Stevens’s view that he can’t be “too timid” in raising borrowing costs is stoking speculation the benchmark interest rate will be increased next month by the most in a decade.

Experience “counsels against” an approach where policy makers who cut rates rapidly in response to a threat become “too timid to lessen that stimulus in a timely way when the threat has passed,” Stevens said in Perth yesterday...

“I’ve said it consistently, interest rates will go up because they’ve been brought to emergency lows,” Prime Minister Kevin Rudd told Melbourne radio station 3AW today. “I don’t see any point whatsoever in trying to be cute with people about that.”

The ECB, however, is more likely to follow their US counterparts, considering the inflation trend in the euro area as reported by Eurostat:

Euro area annual inflation was -0.3% in September 2009, down from -0.2% in August. A year earlier the rate was 3.6%. Monthly inflation was 0.0% in September 2009.

EU annual inflation was 0.3% in September 2009, down from 0.6% in August. A year earlier the rate was 4.2%. Monthly inflation was 0.0% in September 2009.

US retail sales fall less than expected, Chinese exports grow

Data released on Wednesday show that the US consumer is holding up well. Bloomberg reports:

Sales at U.S. retailers fell less than forecast in September after the Obama administration’s cash-for-clunkers program expired, signaling consumers are gaining confidence in the outlook for an economic recovery.

The 1.5 percent decrease followed a 2.2 percent gain the prior month, figures from the Commerce Department showed today in Washington. Sales excluding automobiles climbed 0.5 percent, more than projected...

Another Commerce Department report showed inventories fell more than forecast in August as sales climbed, helping put firms in a position to increase orders in coming months. The 1.5 percent decrease in stockpiles, the biggest this year, was led by a plunge at auto dealers as the “cash-for-clunkers” plan revived sales.

Prices of imports increased 0.1 percent last month, the Labor Department said, after rising a revised 1.6 percent in August. Costs excluding fuel rose 0.6 percent, the most since July 2008, led by gains in metals.

Predictably, the good news was mirrored in China. From Reuters:

China reported surprisingly strong trade figures on Wednesday, providing fresh evidence that the world's third-largest economy is firmly on a recovery track and that global demand is improving too.

Exports in September fell 15.2 percent from a year earlier, beating forecasts of a 21 percent fall, while imports fell just 3.5 percent -- well short of expectations of a 15.3 percent decline, the General Administration of Customs said...

Indeed, after adjustments to take account of the number of working days in each month, exports rose 6.3 percent in September from August and imports rose 8.3 percent, Customs said.

Japanese consumer spending will never match that of the US, but at least consumer confidence there is getting better. Bloomberg reports:

Japan’s household sentiment rose to a 23-month high in September as the economy climbed out of its deepest postwar recession.

The confidence index advanced to 40.5 last month, the Cabinet Office said in Tokyo today, the ninth consecutive increase. Household sentiment plunged to a record low in December as an export slump prompted manufacturers to fire workers and slash paychecks.

Not to be left out, Europe also reported good numbers on Wednesday. Again from Bloomberg:

European industrial output rose for a fourth month in August, led by consumer durable goods, adding to signs the euro-area economy is emerging from the deepest recession since World War II.

Production in the economy of the 16 nations using the euro increased 0.9 percent from July, when it gained 0.2 percent, the European Union’s statistics office in Luxembourg said today. Output of durable goods such as washing machines jumped 5.3 percent, the biggest gain since the data began in 1990. From a year earlier, August output fell 15.4 percent, the slowest annual drop in eight months.

BoJ leaves rates unchanged, inflation tame in Europe

The Bank of Japan left interest rates unchanged today. Bloomberg reports:

The Bank of Japan held the benchmark interest rate near zero and refrained from saying whether it would end its corporate debt purchase programs.

Governor Masaaki Shirakawa and his colleagues voted to keep the key rate at 0.1 percent, the central bank said in a statement in Tokyo. The central bank became more optimistic about the economy, saying it has “started to pick up.”

Interest rates are also unlikely to be changed in the euro area soon as inflation remains tame, with consumer prices in France falling 0.2 percent in September.

In the UK, inflation is also low, falling to its lowest in five years in September, but other recent data were less supportive of continued low interest rates. From Reuters:

Inflation fell more than expected to 1.1 percent in September but analysts said this probably represented the trough and price pressures would start rising again over the next few months, due to rising commodity prices and the reversal of a cut in value added tax...

The Royal Institution of Chartered Surveyors said 22 percent more surveyors reported price rises in the last three months than price falls. That was the highest reading since May 2007, before money markets froze and sent the world's financial system to the brink of collapse...

The British Retail Consortium said retail sales rose at their fastest annual pace in 5 months in September. But it cautioned the rise was skewed by base effects, following a slump in sales in the wake of Lehman Brothers' collapse last year, and the timing of the August bank holiday.

The BRC said the value of like-for-like sales rose 2.8 percent in September compared with a year ago, the biggest rise since April, when sales were bolstered by the timing of Easter.

OECD, Singapore economies continue recovery

The economic recovery in the OECD appears to be on track, according to the latest composite leading indicators released on Friday.

OECD composite leading indicators (CLIs) for August 2009 continue to point to recovery in all major economies with CLIs for France and Italy pointing to a potential expansion...

The CLI for the OECD area increased by 1.5 point in August 2009 and was 0.6 point higher than in August 2008. The CLI for the United States increased by 1.6 point in August, 1.6 point lower than a year ago. The Euro area’s CLI increased by 1.7 point in August, 4.1 points higher than a year ago. The CLI for Japan increased by 1.3 point in August, 3.9 points lower than a year ago.

As if to emphasise the global economic recovery, Singapore today reported a strong set of third quarter GDP numbers. CNA reports:

The economic growth forecast for 2009 has been revised upwards to between -2.5% and -2.0%, the Ministry of Trade and Industry said in a news release Monday.

It also said the Singapore economy expanded by 0.8% year-on-year in the third quarter of 2009 with growth driven by the biomedical and electronics sector and improvements in the trade-related and tourism sectors of the economy on the back of a gradual stabilisation in global economic conditions.

This is the first such growth in five quarters.

Advance estimates by the MTI show that in the third quarter of 2009, Singapore’s GDP expanded by 14.9% on a seasonally-adjusted quarter-on-quarter annualised basis, following a 22.0 per cent expansion in the second quarter of the year.

Monetary policy in Singapore remained unchanged as the Monetary Authority of Singapore today said that it will maintain its current policy of zero appreciation of the Singapore dollar.

US trade gap narrows, German exports fall

A fall in imports left the US with a smaller trade deficit in August. MarketWatch reports:

The U.S. trade gap unexpectedly narrowed in August to $30.7 billion on a big drop in imports of crude oil, the Commerce Department reported Friday...

Imports fell by $913 million, or 0.6%, to $158.9 billion in August, as imports of crude oil fell by $1.28 billion. Read the full report.

Exports rose by $228 million, or 0.2%, to $128.2 billion, the highest since December. Exports were led by autos, metals and soybeans. Exports of capital goods fell to the lowest level in four years, as shipments of civilian aircraft dropped by $1.3 billion.

While the US managed to increase exports, German exports unexpectedly fell in August. Bloomberg reports:

German exports unexpectedly fell for the first time in four months in August, a sign that the recovery of Europe’s largest economy remains “fragile” even as global demand picks up.

Sales abroad, adjusted for working days and seasonal swings, slid 1.8 percent from July, when they climbed a revised 1.7 percent, the Federal Statistics Office in Wiesbaden said today. Economists expected a gain of 1.9 percent, the median of 12 forecasts in a Bloomberg News survey showed. Exports were down 20 percent from a year earlier.

Japanese businesses are probably also concerned about the country's recovery. Again from Bloomberg:

Japanese machinery orders rose less than estimated in August, barely rebounding from a record low as depressed capital spending by companies inhibits the economy’s recovery from its worst postwar recession.

Orders, an indicator of business investment in three to six months, climbed 0.5 percent from July, when they fell 9.3 percent, the Cabinet Office said today in Tokyo. Bookings in July dropped to the lowest level since the government began the survey in 1987. Economists forecast a 2.1 percent gain.

ECB and BoE hold rates amid continuing signs of global recovery

There has not been much follow-up from other central banks on the rate hike from the RBA on Tuesday. Bloomberg reports that both the ECB and BoE left interest rates unchanged on Thursday.

The European Central Bank and the Bank of England kept their benchmark interest rates at record lows to support a recovery from the worst economic slump since World War II.

The ECB left the main rate at 1 percent and President Jean- Claude Trichet signaled at a press conference in Venice that the ECB has no plans to raise borrowing costs, describing their level as “appropriate.” The U.K. central bank kept its rate at 0.5 percent and maintained a program to buy 175 billion pounds ($278 billion) of government bonds with newly created money...

“The recovery is expected to be rather uneven,” Trichet said. “It will be supported in the short term by temporary factors but will be hampered in the medium term by balance sheet issues at financial and non-financial institutions.”

For the moment, the recovery remains on track though, at least in Germany.

German industrial output rose in August as domestic stimulus measures and improved global trade lifted demand.

Production rose 1.7 percent from July, when it fell a revised 1.1 percent, the Economy Ministry in Berlin said today. Economists had forecast an increase of 1.8 percent, according to the median of 36 forecasts in a Bloomberg survey. From a year earlier, production declined 16.8 percent when adjusted for the number of work days.

Also on track is Japan's recovery, with exports in particular continuing its recovery in August.

Japan’s current-account surplus widened in August as a rebound in global demand helped ease declines in exports.

The surplus widened 10.4 percent to 1.171 trillion yen ($13.2 billion) in August from a year earlier, the Ministry of Finance said in Tokyo today...

Exports fell 37.1 percent in August from a year earlier, less than a 37.6 percent decline the previous month, the report showed. Imports slid 42.8 percent, more than a 41.2 percent drop in July, in part because oil prices have tumbled from last year’s record highs. From a month earlier, exports rose a seasonally adjusted 3.2 percent.

And merchant sentiment is improving.

Confidence among Japanese merchants rose in September, a boost economists say may not last as near- record unemployment and falling wages deter people from spending.

The Economy Watchers index, a survey of barbers, taxi drivers and others who deal with consumers, climbed to 43.1, the Cabinet Office said today in Tokyo. The index dropped for the first time in eight months in August.

Meanwhile, in the US, despite the dismal employment figures last Friday, the labour market is probably turning, based on the jobless claims data.

The number of Americans filing first- time claims for unemployment benefits fell last week to the lowest since January, a sign the labor market is deteriorating more slowly as the economy emerges from the recession.

Applications fell by 33,000 to 521,000, lower than forecast, in the week ended Oct. 3, from a revised 554,000 the week before, Labor Department data showed today in Washington. The total number of people collecting unemployment insurance dropped in the prior week to the least since March.

UK industrial output falls, eurozone and Japanese economies recovering

The recovery in the UK is looking less certain after the release of data on Tuesday. From Reuters:

The economic recovery stalled in the three months to September, the National Institute of Economic and Social Research said after official data on Tuesday showed a sharp drop in industrial output in August.

NIESR said GDP was flat in the third quarter following a modest expansion of 0.1 percent in the three months to August, an outturn it described as disappointing...

The Office for National Statistics said industrial output, which accounts for some 17 percent of the economy, fell 2.5 percent in August, while manufacturing output was 1.9 percent down, leading some analysts to doubt the likelihood of a rebound in growth in Q3.

And in the euro area, it turns out that the recession in the second quarter was not quite as mild as initially thought. From Bloomberg on Wednesday:

Europe’s economy contracted more than estimated in the second quarter as consumer spending, investment and exports were weaker than earlier reported.

Gross domestic product in the 16-nation euro region fell 0.2 percent from the first quarter, when it dropped 2.5 percent, the European Union’s statistics office in Luxembourg said today in publishing final figures on second-quarter GDP. The decline was sharper than the 0.1 percent decrease estimated on Sept. 2.

However, the economy appears to be improving in the third quarter, at least for the eurozone's biggest. Again from Bloomberg:

German factory orders rose more than economists forecast in August, indicating that growth in Europe’s largest economy continued to accelerate in the third quarter.

Orders, adjusted for seasonal swings and inflation, rose 1.4 percent from July, when they advanced a revised 3.1 percent, the Economy Ministry in Berlin said today. That was a sixth consecutive increase and exceeded the 1.1 percent median forecast of 38 economists in a Bloomberg News survey. Compared with a year earlier, orders were down 20.4 percent.

Japan's economic recovery also appears to be on track based on Wednesday's data. From Bloomberg:

Japan’s broadest indicator of economic health rose for a fifth month in August as global stimulus spending helped the country emerge from its worst postwar recession.

The coincident index, a composite of 11 indicators including factory production and retail sales, climbed to 91.4 in August, the highest since November, from a revised 89.8 a month earlier, the Cabinet Office said today in Tokyo. The median estimate of 11 economists was for a gain to 91.2...

The leading index, a gauge of economic conditions in three to six months, rose to 83.3 from a revised 82.5.

RBA raises rate as economy proves stronger than expected

On Tuesday, the Reserve Bank of Australia raised its benchmark interest rate, becoming the first among the Group-of-20 economies to do so since the global recession began to show signs of easing.

During its monetary policy meeting, the RBA decided to raise the cash rate by 25 basis points to 3.25 percent.

In his statement following the meeting on Tuesday, RBA governor Glenn Stevens said that the "global economy is resuming growth" and "the recovery will likely continue during 2010". In Australia, economic conditions have been "stronger than expected" and inflation "will probably not fall as far as earlier thought". Therefore, he said that it is "now prudent to begin gradually lessening the stimulus provided by monetary policy".

The Australian economy had contracted by 0.7 percent in the fourth quarter of 2008 but grew by 0.4 percent and 0.6 percent in the first and second quarters of this year respectively. Consumer prices rose 1.5 percent in the year to June 2009.

RBA staff forecasts prepared for the August monetary policy meeting had revised 2009 GDP up to show a rise of 0.5 percent instead of the previous 1 percent decline.

In its latest World Economic Outlook released in October, the International Monetary Fund said that "Australia is on its way to recovery". It expects the Australian economy to grow 0.7 percent in 2009, much better than the 1.4 percent decline in its April report.

Past and -- Tuesday's rate hike notwithstanding -- ongoing monetary stimulus is likely to keep the economy on an expansion path. The spread between 10-year government bonds and the cash rate had surged to over 2 percent around the middle of this year. Historically, such a surge has often been followed by rapid economic expansion.

While the first in the G-20 to raise interest rates, the RBA is not the first central bank to raise rates in this cycle. That honour goes to the Bank of Israel, which had raised interest rates back in August.

The rate hikes from these two central banks, however, are not likely to start a widespread trend. Other central banks are likely to take their time in tightening monetary policy. The IMF's forecasts show that Australia is the only advanced economy expected to register positive growth this year while Israel's economy is expected to contract by just 0.1 percent, the smallest decline among the rest. Furthermore, the IMF also said in its report that risks to the global economic outlook remain "on the downside" and that premature exit from accommodative monetary and fiscal policies is "a particular concern".

No doubt, that concern is shared by the most important central bank of all, the Federal Reserve. At its last monetary policy meeting, it had said that economic conditions warrant "exceptionally low levels of the federal funds rate for an extended period". So don't expect interest rate hikes there.

So despite the latest move by the RBA, rate hikes by central banks are likely to remain the exception rather than the rule in the near future.

Service sectors expand

Monday mostly brought positive economic news.

Retail sales data in the euro area was not one of them. Bloomberg reports:

European retail sales fell for a 15th month in August as rising unemployment curbed consumer spending.

Store revenue in the 16-nation euro region declined 2.6 percent from a year earlier after sliding 1.9 percent in July, the European Union’s statistics office in Luxembourg said today. Economists predicted a drop of 2.4 percent, according to the median of 13 forecasts in a Bloomberg News survey. From the prior month, sales fell 0.2 percent.

However, the eurozone economy may already have returned to growth. Again from Bloomberg:

Europe’s manufacturing and services industries expanded more than initially estimated in September, adding to signs the economy is gaining steam after the worst recession in six decades.

A composite index of both industries in the euro-area economy rose to 51.1, up from 50.4 in August and higher than an initial estimate of 50.8, London-based Markit Economics said today in a statement. A reading above 50 indicates expansion and the gauge, which is based on a survey of purchasing managers, had remained below that level for 14 months before topping it in August. Economists had projected the index would rise to 50.9 in September, according to a Bloomberg News survey...

The euro-area services index rose to 50.9 in September from 49.9 in the previous month, today’s report showed. While a gauge of manufacturing remained below 50, indicating contraction, it increased to 49.3, the highest since May 2008, data showed on Oct. 1.

In the UK, service activity accelerated in September. Reuters reports:

The service sector expanded at its fastest pace for two years in September, and firms were more optimistic about the next 12 months than at any time since April 2007, purchasing managers' data showed on Monday...

The headline PMI number rose to 55.3 in September from August's 54.1, its fifth successive month above the 50-level that divides growth and contraction and above economists' forecasts of a rise to 54.5, the data from Markit and the Chartered Institute of Purchasing and Supply showed.

And not about to be left out is the US service sector. From Bloomberg:

U.S. service industries expanded in September for the first time in a year as the emerging recovery spread from housing and factories to the broader economy.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 50.9, higher than forecast, from 48.4 in August, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction.

Weak economic recovery puts market recovery at risk

In the wake of the disappointing US employment report on Friday, John Hussman has some cautionary words for investors.

Four weeks ago, I noted that if indeed the economy is in recovery, we have already entered the “show me” phase. The jobs report was dismal on that front, with even overtime hours and temporary workers declining. Those are the first measures that should advance, well before we can expect any turn in headline employment. The unemployment rate met expectations at 9.8%, but only because 571,000 workers left the labor force, dropping out of the calculation entirely.

My view continues to be that the intrinsic condition of the U.S. economy has not improved, and that the green shoots we've observed are a transient artifact of green dollars poured out by the government...

Market internals, as well as the uniformity of action across major indices, should be monitored closely here. The probable economic concerns become quite pointed about 6 months out (when current delinquencies will be transformed into foreclosures and reportable balance sheet losses). That's about the horizon over which the market often begins to pay attention to oncoming trouble, so while we've known about the risk of a second wave of credit problems for a while, we may be at the point where investors begin to act on those prospects.

Nouriel Roubini also sees a possibility of a market correction soon. Bloomberg reports:

New York University Professor Nouriel Roubini, who predicted the financial crisis, said stock and commodity markets may drop in coming months as the gradual pace of the economic recovery disappoints investors.

“Markets have gone up too much, too soon, too fast,” Roubini said in an interview in Istanbul on Oct. 3. “I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year.”

US unemployment rises, Japan's shrinks

There was no improvement in the rate at which the US economy lost jobs in September. Bloomberg reports:

U.S. job losses accelerated last month and the unemployment rate climbed to the highest level since 1983, stark reminders of how the worst financial crisis in more than seven decades may undermine consumer spending and economic growth in the months ahead...

Payrolls dropped by 263,000 in September, exceeding the median forecast in Bloomberg’s survey, with losses extending from cash-strapped state and local governments to retailers to builders, today’s report showed. The jobless rate rose to 9.8 percent from 9.7 percent in August, while working hours matched a record low...

A Commerce Department report today showed that orders placed with factories fell unexpectedly in August, restrained by long-lasting items such as commercial aircraft and construction machinery. Bookings fell 0.8 percent after a revised 1.4 percent increase in July that was larger than previously estimated. Excluding transportation equipment, orders rose 0.4 percent.

Earlier on Friday, however, Japan had provided somewhat better news. AFP/CNA reports:

Japan's jobless rate fell unexpectedly for the first time in seven months in August while consumer spending rose, data showed Friday, boosting hopes the economy is healing after its worst slump in decades...

The jobless rate fell to 5.5 percent in August, from a record high of 5.7 percent in July, the government said. The improvement surprised markets, which had anticipated a figure of 5.8 percent...

Household spending rose by 2.6 percent in August from a year earlier, reversing a drop of 2.0 percent in July, the government said.

Stocks fall on first trading day of October

Markets did not see a positive start to October. Bloomberg reports:

U.S. stocks fell the most in three months as Treasuries and the dollar rallied after a decline in a gauge of manufacturing and an increase in jobless claims spurred concern over the strength of a recovery from the recession...

The Standard & Poor’s 500 Index slid 2.6 percent to 1,029.85 at 5:22 p.m. in New York a day after capping its biggest back-to-back quarterly rally since 1975. The Dow sank 203 points, or 2.1 percent, to 9,509.28. Both gauges lost the most since July 2. About 18 stocks fell for each that rose on the New York Stock Exchange, the broadest sell-off since April.

And it was not just in the US. European and Asian stocks also started October on a negative note.

Economic reports on Thursday were actually mixed.

Bloomberg reports a slowing of US manufacturing and a rise in jobless claims.

Manufacturing in the U.S. expanded less than anticipated by economists and more Americans filed claims for unemployment benefits, pointing to a recovery that will be slow to generate jobs.

The Institute for Supply Management’s factory gauge decreased to 52.6 in September from 52.9 in August, the Tempe, Arizona-based group said today. Fifty is the dividing line between expansion and contraction. The number of jobless claims climbed to 551,000 last week, more than economists forecast, figures from the Labor Department showed.

However, there were also positive data.

Household purchases jumped 1.3 percent in August, the largest gain since October 2001, data from the Commerce Department also showed today. Incomes climbed 0.2 percent for a second month and inflation decelerated, the report also showed...

Lower home prices and mortgage rates combined with the first-time buyer credit have helped end the housing-market meltdown that sparked the financial crisis. The index of signed purchase agreements, or pending home sales, jumped 6.4 percent in August, a seventh consecutive increase, the National Association of Realtors said today in Washington.

The UK also saw a disappointing fall in its manufacturing index. Reuters reports:

The manufacturing sector continued to contract modestly last month after employers cut jobs for a 17th straight month and the pace of pick-up in new orders slowed, purchasing managers' data showed on Thursday.

The headline manufacturing purchasing managers' index (PMI) fell to 49.5 last month from 49.7 in August, surprising analysts who had forecast a rise to 50.3.

In contrast, manufacturing data from the euro area surprised on the upside. From Bloomberg:

The contraction in Europe’s manufacturing industry eased more than initially estimated in September, adding to signs the economy is recovering from the worst recession in six decades.

An index of euro-area manufacturing rose to 49.3 from 48.2 in August, compared with an initial estimate of 49 released on Sept. 23, Markit Economics said today. The September reading is the highest since May 2008, when the index was last above the 50 level that indicates expansion...

Still, the recovery may falter next year as rising unemployment damps consumer spending. The euro-area jobless rate rose to 9.6 percent in August from 9.5 percent in July, the highest since March 1999, according to a report today.Germany’s Federal Labor Agency said yesterday there is “no turnaround” in the job market.

Meanwhile, there was confirmation on Thursday that China's manufacturing sector continued to expand in September. From Bloomberg:

China’s manufacturing expanded at the fastest pace in 17 months in September on stimulus spending and this year’s record growth in new loans.

The Purchasing Managers’ Index rose to a seasonally adjusted 54.3 from 54.0 in August, the Federation of Logistics and Purchasing said today in an e-mailed statement in Beijing. The latest number was lower than the median estimate of 55 in a Bloomberg News survey of 13 economists. A reading above 50 indicates an expansion.

Japan also provided better data. From AFP/CNA:

Japanese business confidence has improved for a second straight quarter as the world's number two economy slowly emerges from its worst recession in decades, the Bank of Japan said Thursday.

Sentiment among major manufacturers improved to minus 33 in September from minus 48 in June, after hitting a record low of minus 58 in March, according to the central bank's closely watched Tankan survey of more than 10,000 firms...

The confidence index for major non-manufacturers rose to minus 24, from minus 29 three months earlier.

The Tankan found that big manufacturers expect sentiment to continue to improve, forecasting a sentiment rating of minus 21 for December.

However, the survey also provided negative signals.

But the profit outlook remains bleak. The major makers forecast a 38.9 per cent drop in pre-tax earnings for the current financial year to March, after a 61.9 per cent plunge last year...

Large manufacturers plan to slash their spending on plants and equipment by 25.6 per cent in the year through March 2010 compared with the previous year, according to the Tankan survey.

Manufacturing activity expands in China and Japan

Asia's economic recovery appears to be on track with mostly positive economic reports on Wednesday. From Reuters:

Manufacturing activity powered ahead in China and Japan in September, providing fresh evidence of a global recovery, boosted by new orders from their home markets and abroad...

HSBC's China Purchasing Managers' Index (PMI) showed factory output expanded for a sixth straight month. At 55.0, the reading was little changed from August's 16-month high of 55.1...

In Japan, the Nomura/JMMA Manufacturing Purchasing Managers Index (PMI) rose to 54.5 in September, from 53.6 in August. It remained above the 50 threshold that separates contraction from expansion for the third month in a row...

[August industrial output] rose 1.8 percent from July, the sixth straight month of gains. But it was smaller than a 2.1 percent gain in July and a 1.9 percent rise that had been forecast by economists polled by Reuters.

Highlighting the patchiness and fragility of the global recovery, export powerhouse South Korea reported industrial output fell a seasonally adjusted 1.3 percent in August from July, missing market expectations and ending a seven-month gaining streak...

Australia's August retail sales climbed 0.9 percent, nearly twice as much as had been expected, while personal borrowing, such as on credit cards, rose for the first time in 11 months.

However, despite an upwardly-revised second quarter GDP, Wednesday's US data were less upbeat. Bloomberg reports:

The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 46.1, lower than the most pessimistic forecast, from 50 in August. Readings below 50 signal a contraction. Companies cut payrolls by 254,000 jobs in September, according to ADP Employer Services...

A report from the Commerce Department showed the worst U.S. recession since the 1930s eased more than anticipated in the second quarter. The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in more than a year, according to revised figures. Gross domestic product contracted at a 6.4 percent pace in the first three months of 2009.