Japanese industrial production falls

Japan's economic recovery took a breather in February. From AFP/CNA on Tuesday:

Japan's factory output fell for the first time in 12 months while unemployment remained unchanged at 4.9 per cent, data showed Thursday, underlining the fragile nature of the economic recovery...

Average household spending in February slipped 0.5 per cent from the previous year and 1.6 per cent from the previous month, according to official data.

The new government figures showed Japan's factory output fell by 0.9 per cent in February, marking the first monthly drop over the past year. The fall was sharper than market expectations of a decline of 0.5 per cent.

Somewhat better news was that UK fourth quarter economic growth was a bit faster than previously estimated. Reuters reports:

The Office for National Statistics said on Tuesday gross domestic product grew 0.4 percent in the last three months of 2009, above forecasts for an unrevised reading of 0.3 percent growth and the first quarter of growth since the start of 2008.

The data from the US on Tuesday were also positive. Bloomberg reports:

Consumers in the U.S. gained confidence in March as the gloom over job prospects began to lift, indicating employment will be central to preserving the recent acceleration in spending.

The Conference Board’s confidence index rose to 52.5, exceeding the median forecast of economists surveyed by Bloomberg News, from 46.4 in February, according to figures today from the New York research group...

Home prices in 20 U.S. cities rose 0.3 percent in January, indicating the housing market is stabilizing as the economy expands. The S&P/Case-Shiller home-price index climbed from the prior month on a seasonally adjusted basis after a similar gain in December.

Japanese retail sales, eurozone confidence and US consumer spending rise

The economic reports on Monday were mostly positive.

In Japan, Bloomberg reports that retail sales rose in February.

Japan’s retail sales gained at the fastest pace in more than a decade in February, signaling that a drop in the unemployment rate is feeding through to higher household spending.

Sales rose 4.2 percent from a year earlier, the Trade Ministry said today in Tokyo, the biggest monthly jump since 1997. The median estimate of 12 economists surveyed was for a 1.6 percent climb...

From a month earlier, retail sales unexpectedly climbed 0.9 percent, the second consecutive gain. None of the eight economists surveyed by Bloomberg News predicted an increase, and their median estimate was for a 1.2 percent drop.

In the euro area, confidence was up in March.

European confidence in the economic outlook improved to the highest in almost two years in March, beating economists’ forecasts and signaling the recovery is gathering strength as a weaker euro helps exporters.

An index of executive and consumer sentiment in the 16 nations using the euro rose to 97.7 from 95.9 in February, the European Commission in Brussels said today. That was the highest since May 2008 and topped the median estimate of economists in a Bloomberg News survey.

In the US, consumer spending continued to rise in February.

Consumer spending in the U.S. rose in February for a fifth consecutive month, a rebound that will require gains in employment to be sustained.

The 0.3 percent increase in purchases matched the median forecast of economists surveyed by Bloomberg News and followed a 0.4 percent advance in January, Commerce Department figures showed today in Washington. Incomes were unchanged, falling short of expectations as winter storms hurt hiring and hours worked.

US Treasury yields rise

James Hamilton has noticed the recent rise in the yield of US Treasuries and asked: How scary is it?

A Wall Street Journal report on Friday had suggested that the rise in yields on the back of weak demand for three big US Treasury offerings last week was a cause for concern.

A sudden drop-off in investor demand for U.S. Treasury notes is raising questions about whether interest rates will finally begin a march higher -- a climb that would jack up the government's borrowing costs and spell trouble for the fragile housing market.

In his blog post yesterday, Hamilton noted that not everyone was concerned.

Paul Krugman (also here) and Brad DeLong are not concerned, noting we've seen lots of yield changes of this size or higher in the past.

Nevertheless, Hamilton acknowledged that the concern is not completely misplaced.

Even so, whether demand will continue to be there for burgeoning U.S. debt is obviously a question of great interest. Yields are now near the highest levels we've seen since the Lehman failure in September 2008, and if they continue to move up at their recent pace I wouldn't want to dismiss it as an irrelevant development.

Hamilton ruled out inflation as the driver of the recent rise in yields.

One possibility that I think we can rule out is that recent bond moves signal renewed worries about inflation. The recent surge in yields on Treasury Inflation Protected Securities is just as dramatic.

Hamilton also noted that stock prices have been going up along with bond yields.

When bond yields and stock prices rise together, I would usually read that as a signal of rising investor optimism about future real economic activity. The February numbers for home sales and other indicators that we've been receiving most recently don't exactly support that thesis. Let's hope that investors are correctly anticipating that better news lies ahead.

One could argue though that by at least one measure of economic activity -- the Chicago Fed National Activity Index -- bond yields have actually not kept up with the improvement in the economy.

However, the recent rise in yields may not mark the end. Today, Bloomberg reported that forecasters expect further increases by the end of the year.

Yields on 10-year notes, the benchmark for everything from mortgages to corporate bonds, climbed as high as 3.92 percent last week from a low of 3.53 percent in February. The 18 primary dealers of U.S. debt forecast the rate will reach 4.2 percent this year, the highest since October 2008, according to the median estimate in a survey by Bloomberg News.

Incidentally, the Bloomberg survey also saw a median year-end forecast for the federal funds rate of 0.5 percent. This implies a spread between the 10-year Treasury yield and the federal funds rate of 3.7 percentage points, an extraordinarily high, although not unprecedented, level.

The spread, if it materialises, could imply that the US economy would be operating under an extraordinary degree of stimulus more than a year after the recession ended, except insofar as the spread represents an aversion to US government debt.

Russia cuts interest rates

Despite the generally improving global economic picture recently, some central banks are still easing monetary policy. From Bloomberg on Friday:

Russia’s central bank cut its main interest rates for the 12th time in less than a year to resuscitate lending and contain the ruble’s gains as the economic recovery stutters.

Bank Rossii lowered the refinancing rate a quarter of a point to a record-low 8.25 percent and cut the repurchase rate charged on one- and seven-day central bank loans to 7.25 percent from 7.5 percent, effective March 29. It last cut rates a quarter-point on Feb. 19. The bank also reintroduced overnight deposit operations at the rate of 2.75 percent.

In the US, fourth quarter growth was revised down, but not by enough to prevent a surge in corporate profits. Bloomberg reports:

The fastest pace of economic growth in six years during the final three months of 2009 fueled a surge in corporate profits that may set the stage for job gains and a broadening of the U.S. recovery.

Company earnings increased 8 percent in the fourth quarter, capping the biggest year-over-year gain in 25 years, figures from the Commerce Department showed today in Washington. The economy expanded at a 5.6 percent annual rate.

Meanwhile, US consumer confidence is holding up.

The Reuters/University of Michigan final consumer sentiment index for this month held at 73.6. The preliminary reading of the measure, released two weeks ago, was 72.5. Economists forecast the final gauge would fall to 73, according to the median estimate in a Bloomberg News survey.

Japanese deflation continues, bond market rally may not

Japan remains in deflation. Bloomberg reports today:

Japan’s consumer prices fell for a 12th month in February, adding pressure on the central bank to eradicate deflation that is hampering the economic recovery.

Prices excluding fresh food slid 1.2 percent from a year earlier, after dropping a 1.3 percent in each of the preceding two months, the statistics bureau said today in Tokyo...

In Tokyo, core prices slid 1.8 percent in March on the year, the same pace as the previous month. The figures for the capital are released a month earlier than nationwide data, making them a harbinger of price trends. Tokyo prices fell a record 1.6 percent in the fiscal year ending March 31.

Japan's persistent deflation notwithstanding, Bloomberg reports that Bill Gross thinks that global bonds have seen their best days.

Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co., said the almost three-decade bond market rally may be drawing to a close.

Excess borrowing in nations including the U.S., U.K. and Japan will eventually lead to inflation as governments sell record amounts of debt to finance surging deficits, Gross said. Pimco, which announced in December that it would offer stock funds for the first time, is advising that investors buy the debt of countries such as Germany and Canada that have low deficits and higher-yielding corporate securities.

Japanese exports surge, Portugal's credit rating cut

Japan's economic recovery continued in February. From AFP/CNA:

Japan's exports soared at the fastest pace in about three decades last month, helping the world's number two economy to extend a recovery from the worst recession in decades, data showed Wednesday...

Exports in February leapt 45.3 percent to 5.13 trillion yen (56 billion US dollars), the fastest year-on-year growth since April 1980, according to the finance ministry...

Last month Japan's trade surplus surged more than nine-fold to 651.0 billion yen (7.2 billion US dollars) from 70.8 billion a year earlier, topping market expectations...

Imports increased 29.5 percent to 4.48 trillion yen owing to higher prices of oil and nonferrous metals.

There were also positive data out of Europe on Wednesday. From Bloomberg:

Europe’s services and manufacturing industries grew at the fastest pace since 2007 and German business confidence jumped as the economy rebounded from a fourth-quarter relapse.

A composite index based on a survey of euro-area purchasing managers in both industries rose to 55.5 in March from 53.7 in February, London-based Markit Economics said today. That’s the highest since August 2007. The Ifo institute’s business climate index for Europe’s largest economy jumped more than economists projected to 98.1 from 95.2. The gauge measuring executive’s expectations soared to the highest since June 2007.

However, industrial new orders in the euro area fell by 2.0 percent in January.

And things could yet get worse for the euro area after another sovereign debt downgrade. From Bloomberg:

Portugal’s credit grade was cut by Fitch Ratings for the first time, underscoring growing concern that Europe’s weakest economies will struggle to meet their debt commitments as finances deteriorate.

The rating was lowered one step to AA- with a “negative” outlook, Fitch said in a statement today, adding that further economic or fiscal underperformance this year or in 2011 may lead to another downgrade. The euro extended its decline, dropping against all but one of the 16 most-traded currencies. Portuguese stocks and bonds fell.

Meanwhile, data out of the US were mixed on Wednesday. From Bloomberg:

Orders for durable goods rose in February for a third month and new-home sales fell to the lowest on record, indicating manufacturing will stay at the forefront of the economic recovery.

The 0.5 percent increase in bookings for long-lasting goods followed a 3.9 percent surge the prior month, the Commerce Department said today in Washington. Excluding transportation equipment, orders advanced more than anticipated. Sales of new homes fell 2.2 percent to an annual pace of 308,000 in February, the Commerce Department reported.

UK inflation slows, US existing home sales fall

Reuters reports that UK inflation has slowed.

British annual inflation slowed last month for the first time since September, boosting hopes that price pressures have peaked and cementing expectations that interest rate rises remain a long way off.

The Office for National Statistics said consumer price inflation eased to 3.0 percent in February from January's 14-month high of 3.5 percent. Analysts had expected a smaller drop to 3.1 percent.

Meanwhile, Fed officials don't think that inflation will be a near-term concern for the US. Bloomberg reports Janet Yellen's speech on Tuesday:

Federal Reserve Bank of San Francisco President Janet Yellen said it’s too soon to raise interest rates, and she discounted concerns record budget deficits might fuel inflation.

“I don’t believe this is yet the time to be tightening monetary policy,” Yellen said in the text of a speech today in Los Angeles. “But as recovery takes firm root and economic output moves toward its potential, a time will come when it is appropriate to boost short-term interest rates.”

Tuesday's economic data indicate that the recovery may take some time to take "firm root". Again from Bloomberg:

Sales of existing U.S. homes fell in February for a third month, and the number of properties on the market climbed by the most in almost two years, casting a pall over the prospects for a recovery.

Purchases dropped 0.6 percent to a 5.02 million annual rate, the lowest level in eight months, figures from the National Association of Realtors showed today in Washington. There were 3.59 million houses for sale, a 312,000 increase from January that marked the biggest gain since April 2008.

Will US inflation stay low?

Inflation in the United States has remained low even as the economy has begun to recover.

The Labor Department reported on Friday that US consumer prices were unchanged in February. This brought the year-on-year change in the consumer price index down to 2.1 percent from 2.6 percent in January.

Consumer prices excluding food and energy rose 0.1 percent in February after having fallen 0.1 percent the previous month. Compared to February last year, consumer prices less food and energy were up 1.3 percent, less than the 1.6 percent increase in January.

The inflation report on Friday followed the decision by the Federal Open Market Committee on 16 March to keep the federal funds rate unchanged at between zero to 0.25 percent. In its statement issued after the monetary policy meeting, the FOMC cited, among other things, subdued inflation trends as likely to warrant "exceptionally low levels of the federal funds rate for an extended period".

The FOMC statement also mentioned low rates of resource utilisation as a factor in keeping the federal funds rate low. Indeed, the unemployment rate was at 9.7 percent in February and a report by the Federal Reserve last week showed that industry capacity utilisation rate was only 72.7 percent that month, significantly below the 80.6 percent average for the period from 1972 to 2009.

Nevertheless, the trends in resource utilisation do indicate that this period of disinflation may not necessarily last. The recovery in the US economy since the middle of last year is already making a dent in resource slack, with the unemployment rate having come off its peak of 10.1 percent in October last year and the capacity utilisation rate up from its trough of 68.3 percent in June last year.

If the economic recovery is sustained and these improving trends in resource utilisation hold, then inflation is likely to pick up. The accompanying chart shows that historically, when both the unemployment rate is on a sustained downtrend and the industry capacity utilisation rate is on a sustained uptrend, inflation more often than not accelerates.

The Economic Cycle Research Institute also sees rising inflationary pressures. Its future inflation gauge rose 10 consecutive months before falling in February to 101.4 from 102.1 in January. Despite the decline in February, ECRI managing director Lakshman Achuthan said on Friday that the inflation gauge "remains in a cyclical uptrend, with underlying inflation pressures continuing to trend upward".

Also, while the Fed talks about subdued inflation trends and low rates of resource utilisation, purchasing managers in industry are mostly indicating higher prices. The Institute for Supply Managers' survey of purchasing managers showed that the prices index for February was 67.0 in manufacturing and 60.4 for non-manufacturing. Both are thus substantially above the 50 reading that indicate generally stable prices and are, in fact, around the levels commonly seen during 2007 when inflation was so much a concern.

So despite the Fed's dovish stance, there are signs of incipient inflationary pressures already building up. To what extent these pressures translate into actual acceleration in inflation will depend on how sustainable and strong the on-going economic recovery turns out to be.

India raises interest rates

The tightening trend continues, with India taking action on Friday. Bloomberg reports:

The Reserve Bank of India yesterday increased the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent, saying containing inflation has become “imperative.”

Governor Duvvuri Subbarao’s move comes after Australia and Malaysia increased rates this month, while Norway and Israel did so at the end of last year as the global economy’s recovery from the worst recession since World War II gathers pace. The World Bank indicated this week that China should also act to help contain the risk of a property bubble...

... Subbarao moved after India’s industrial production gained 16.7 percent in January following a 17.6 percent increase in December from a year earlier, the fastest pace since at least 1994, according to Bloomberg data. The wholesale-price inflation rate touched 9.89 percent in February, according to the commerce ministry.

US consumer prices unchanged

The US economic data on Thursday were positive. From Bloomberg:

Consumer prices were unchanged in February, the first time they didn’t increase since March 2009, Labor Department figures showed today in Washington. The index of leading indicators rose 0.1 percent last month, the 11th straight gain, according to the Conference Board, a New York research group...

Excluding food and energy costs, the so-called core index increased 0.1 percent, in line with forecasts, capping a 1.3 percent year-over-year gain that was the smallest since 2004...

Another Labor Department report today signaled the job market is gradually improving along with the economy. First-time jobless applications dropped by 5,000 to 457,000 in the week ended March 13, in line with forecasts.

Manufacturing in the Philadelphia region expanded in March at the fastest pace so far this year as factories boosted payrolls, figures from the Fed Bank of Philadelphia also showed. The bank’s general economic index rose to 18.9, the highest level since December, from 17.6 in February. Readings greater than zero signal growth.

The Bloomberg article sounds optimistic about the inflation outlook.

The U.S. economy will keep expanding without a pickup in inflation that would require the Federal Reserve to raise interest rates, reports today indicated...

“We’re on the recovery path,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “There’s not much pressure on inflation. There’s really no need for the Fed to raise short-term interest rates any time soon.”

But such a conclusion is probably premature. Inflation is a lagging indicator. As the economy recovers and employment rises, inflation is likely to pick up.

BoJ boosts loan facility

There were more signs on Wednesday that the Japanese economy is recovering. From Bloomberg:

Japan’s demand for services rose the most in more than a decade in January, adding to evidence that the export-led recovery is starting to benefit households.

The tertiary index, which captures 63 percent of the economy, advanced 2.9 percent from December, marking the first increase in three months, the Trade Ministry said today in Tokyo. The median forecast of 20 economists surveyed by Bloomberg News was for a 1.3 percent gain.

Nevertheless, the BoJ has decided to inject yet more money into the economy. AFP/CNA reports:

Japan's central bank doubled the amount of cash it would make available to banks Wednesday while keeping interest rates at a record low as it tries to kickstart a stuttering economic recovery.

Under government pressure to help fight deflation, the Bank of Japan said it would extend emergency steps taken in December by boosting its short-term loan facility to 20 trillion yen (US$220 billion).

The facility offers three-month loans at 0.1 per cent against collateral such as government bonds and corporate debt. However, the bank surprised markets by not extending the loan duration to at least six months...

The BoJ held its benchmark interest rate unchanged at 0.1 per cent, a level it has kept since December 2008, the height of the global financial market meltdown.

Signs of deflation on Wednesday mainly came from elsewhere though.

In the US, producer prices fell in February. Bloomberg reports:

Wholesale prices in the U.S. fell in February more than anticipated, led by a drop in fuel costs and signaling there are few inflation pressures building in the early stages of the economic recovery.

The 0.6 percent decrease in prices paid to factories, farmers and other producers was the biggest since July and followed a 1.4 percent January increase, according to figures from the Labor Department in Washington. Excluding food and fuel, so-called core prices climbed 0.1 percent.

And in the euro area, construction output fell in January. Again from Bloomberg:

European construction output fell the most in more than a year in January, led by declines in Germany and Spain.

Construction in the 16-nation euro region dropped 2.2 percent from December, when it decreased 1 percent, the European Union’s statistics office in Luxembourg said today. That is the biggest decline since December 2008. Euro-area labor costs rose 2.2 percent in the fourth quarter from a year earlier, the slowest growth in more than four years, a separate report showed.

Fed maintains low rates pledge

Not too much change from the FOMC on Tuesday. Bloomberg reports:

Federal Reserve officials repeated their pledge to keep the main interest rate near zero for an “extended period” and confirmed that emergency measures to prop up the housing market will end as planned this month.

While the economy has “continued to strengthen,” policy makers noted that “housing starts have been flat at depressed levels” and “employers remain reluctant to add to payrolls.”

The details of the housing data released on Tuesday were provided in another Bloomberg report.

Housing starts fell in February as record snowfall in parts of the U.S. hampered construction, while fewer building permits signaled the recovery in real estate will take longer to unfold.

Builders broke ground on 575,000 homes at an annual rate, down 5.9 percent from 611,000 in January, Commerce Department figures showed today in Washington. February starts reflected declines in the Northeast and South, which experienced winter storms...

Building permits, a sign of future construction, decreased 1.6 percent to a 612,000 annual rate after a 4.7 percent drop in January. Permits were forecast to decrease to a 601,000 annual pace, according to the survey median.

Low interest rates by the Fed would be even better justified if the reversal in import prices in February sticks.

The Labor Department reported that its import price index fell 0.3 percent, the first decline in seven months, pointing to few signs of inflation from abroad. Economists forecast a 0.2 percent drop, according to the median estimate in a Bloomberg survey.

US industrial production rises in February

US industrial production increased in February. Bloomberg reports:

Industrial production unexpectedly rose in February, due in part to gains in demand for computers and semiconductors that signal the pickup in U.S. business investment is being sustained.

Output climbed 0.1 percent, the eighth consecutive increase, as utility use and mining increased, figures from the Federal Reserve showed today in Washington...

Capacity utilization, or the proportion of plants in use, climbed to 72.7 percent from 72.5 percent, today’s Fed production report showed. The gauge averaged 80 percent over the past two decades and suggests inflation will remain low...

Manufacturing output declined 0.2 percent after increasing 0.9 percent in January, the report showed. “Production was likely held down somewhat by winter storms in the Northeast,” the Fed said in the release.

There were indications that manufacturing expanded in March.

Manufacturing in the New York region expanded in March for an eighth consecutive month, a report from the Fed Bank of New York also showed today. The so-called Empire State index, in which figures greater than zero signal growth, fell to 22.9 from 24.9 in February. The bank’s employment gauge climbed to the highest level since October 2007.

Housing, however, remains weak.

Also today, homebuilder confidence unexpectedly declined in March, a sign the housing recovery is having trouble gaining momentum. The National Association of Home Builders/Wells Fargo index of builder confidence dropped to 15 this month from 17 in February, the Washington-based group said. A reading below 50 means most respondents view conditions as poor.

Japanese economy continues to recover

The recovery in the Japanese economy that began last year appears to have continued at the beginning of 2010.

Last week, however, Japan's Cabinet Office announced downward revisions to economic growth estimates. It now says that the economy grew 0.9 percent in the fourth quarter of 2009, less than the initial estimate of 1.1 percent growth. In addition, the revised data show that the recovery that had begun in the second quarter actually stalled in the third quarter when the economy contracted 0.1 percent. For the whole of 2009, the economy contracted 5.2 percent.

The fourth quarter expansion, however, probably continued into the beginning of 2010. Last week, the Ministry of Economy, Trade and Industry reported that industrial production rose 2.7 percent in January, its eleventh consecutive month of increase.

Leading indicators released last week were also mostly positive. The Cabinet Office reported that its composite leading index rose to 97.1 in January from 94.7 in December, its eleventh consecutive month of increase. The Cabinet Office's Economy Watchers Survey also showed improvement, the diffusion index for future conditions rising to 44.8 in February from 41.9 in January.

And today, the Cabinet Office reported that its consumer confidence index rose to 39.8 in February from 39.0 in January.

The recent improvements notwithstanding, some of the initial momentum in the economic recovery may have dissipated though. The accompanying chart shows that the diffusion index from the Economy Watchers Survey and the consumer confidence index did dip towards the end of last year and the February numbers for both remained below the peaks of last year.

The government for one certainly remains cautious about the outlook for the economy. In its latest monthly economic report released today, it said that although the economy "has been picking up steadily", it "remains in a difficult situation".

While today's report noted that an "incipient recovery" in employment can be seen, it said that the economy is "only weakly self-sustaining" and is at risk from a possible slowdown in overseas economies and from deflation.

Nevertheless, the report concluded that for the short term, the economy is expected to expand.

Japanese and eurozone industrial production increase, US retail sales rise

There was good news from Japan on Friday with industrial production growth for January being revised higher. Reuters reports:

Japan's industrial output rose 2.7 percent in January, revised data showed on Friday, boosted by a sharp rise in production of cars and chemical products.

The figure compared with an initial reading of a 2.5 percent rise and a 1.9 percent increase in December, the trade ministry said.

Industrial production is also expanding in the euro area. Bloomberg reports:

European industrial output rose the most in two decades in January as the reviving global economy prompted companies to boost production of goods including steel and machinery parts.

Output in the economy of the 16 nations using the euro jumped 1.7 percent from December, the biggest increase since the euro-area data were first compiled in 1990, the European Union’s statistics office in Luxembourg said today. The January increase was more than double the 0.7 percent gain projected by economists, according to the median of 34 forecasts in a Bloomberg survey. From a year earlier, output rose 1.4 percent, the first annual increase since April 2008.

Meanwhile, in the US, retail sales unexpectedly increased again in February. Bloomberg reports:

Americans braved blizzards and overcame job concerns to propel retail sales in February, pointing to a broadening in growth that will help sustain the expansion.

Purchases unexpectedly climbed 0.3 percent, the fourth gain in the past five months, Commerce Department figures showed today in Washington...

Retail sales were projected to fall 0.2 percent, according to the median estimate of 77 economists in a Bloomberg survey. Forecasts ranged from a decline of 1 percent to a 0.9 percent gain. The Commerce Department revised January data down to show a 0.1 percent increase compared with an originally reported 0.5 percent gain.

Sales excluding autos rose 0.8 percent, exceeding all estimates of economists surveyed...

Excluding autos, gasoline and building materials ... sales increased 0.9 percent after a 0.6 percent gain, today’s sales report showed...

But consumer confidence has fallen again in March.

The Reuters/University of Michigan preliminary report for March showed its index fell to 72.5 from a final reading of 73.6 in February. The index was forecast to rise to 74, according the median estimate in a Bloomberg News survey of 68 economists.

Japanese growth revised down, Chinese inflation reaches 16-month high

Thursday provided a mixed bag of economic reports.

Growth in Japan turned out to be weaker than previously estimated. AFP/CNA reports:

Japan's economy grew at a slower rate than previously thought in the fourth quarter of 2009, new data showed Thursday, raising fresh concerns over the country's recovery from a crushing recession.

The world's number two economy expanded at a pace of 0.9 per cent in October-December from the previous quarter, revised down from an initial estimate of 1.1 per cent growth, the government said.

And a revised figure for July-September showed a contraction of 0.1 per cent, illustrating how Japan's nascent revival stalled in the third quarter.

China, in contrast, looks in need of some moderation. From Bloomberg:

China’s inflation reached a 16- month high, industrial output climbed and new loans exceeded forecasts, adding to the case for the government to pare back stimulus measures.

Consumer prices rose 2.7 percent in February from a year earlier, the National Bureau of Statistics said in Beijing today, compared with the 2.5 percent median estimate of 29 economists surveyed by Bloomberg News. Seasonal factors stemming from a weeklong holiday may have boosted prices. Production rose 20.7 percent in the first two months of 2010, the most in more than five years...

Banks extended 700 billion yuan ($103 billion) of new loans in February, central bank data showed today. That compared with 1.39 trillion yuan in the previous month and 1.07 trillion yuan a year earlier. The median estimate was 600 billion yuan.

M2, a measure of money supply, rose 25.5 percent, compared with a 26 percent gain in January. The government targets 17 percent M2 growth for this year.

Retail sales rose 17.9 percent in the first two months from a year earlier, and urban fixed- asset investment gained 26.6 percent. Retail sales grew 22.1 percent in February, the bureau said...

Producer-price inflation climbed to 5.4 percent in February from 4.3 percent in January, the statistics bureau said today.

The reports from the US were mixed. From Bloomberg:

The trade deficit in the U.S. unexpectedly narrowed in January as imports fell for the first time in five months, indicating demand is cooling following the fastest pace of growth in six years.

The gap shrank 6.6 percent to $37.3 billion from $39.9 billion in December as refineries imported the fewest barrels of crude oil in a decade, Commerce Department figures showed today in Washington. Exports decreased for the first time in nine months, on fewer shipments of aircraft and autos...

Initial applications for jobless benefits dropped by 6,000 to 462,000 in the week ended March 6, according to figures from the Labor Department. The number of people receiving unemployment insurance increased, while those getting extended benefits fell.

Mixed data from Asia and Europe

The economic reports from Asia's two biggest economies on Wednesday were mixed.

Data on China's economy showed that it remained red-hot in February Bloomberg reports:

China’s exports rose more than forecast in February and property prices jumped the most in almost two years, adding pressure on policy makers to pare stimulus measures adopted during the global recession.

Shipments abroad gained 46 percent in February from a year before after a 21 percent advance in January, the customs bureau reported on its Web site today. Commercial and residential property prices in 70 cities climbed 10.7 percent, the statistics bureau said separately.

Meanwhile, though, Japan is still struggling to sustain a recovery in capital spending. Again from Bloomberg:

Japan’s machinery orders slipped in January after the biggest jump since 2000, indicating a subdued appetite among the nation’s companies to ramp up capital spending even as manufacturing passed its worst.

Orders, a signal of business investment in three to six months, dropped 3.7 percent from December, when they climbed 20.1 percent, the Cabinet Office said today. The government said after the report that machinery demand is “bottoming.”

Wednesday's European data were also mixed.

Bloomberg reports that German exports were down in January.

German exports unexpectedly slumped in January, erasing December’s jump and ending a four-month streak of gains.

Sales abroad, adjusted for working days and seasonal changes, plunged 6.3 percent from the previous month, when they rose 3.4 percent, the Federal Statistics Office in Wiesbaden said today. Economists had forecast a 0.5 percent increase, the median of 11 estimates in a Bloomberg News survey showed. From a year earlier, exports rose 0.2 percent.

And Reuters reports that UK manufacturing output fell in January.

Manufacturing output slumped in January at its sharpest monthly rate since last August, confounding expectations of growth and reversing December's strong rise after icy weather dented production...

The Office for National Statistics said manufacturing output fell 0.9 percent in January -- well below analysts' expectations for a rise of 0.3 percent and a complete reversal of December's 0.9 percent rise.

However, industrial production posted gains in France and Italy. From Bloomberg:

French and Italian industrial production jumped in January, signaling the recovery is gaining pace in the euro-area’s second and third largest economies.

Output at French factories and utilities advanced 1.6 percent after a revised 0.2 fall percent in December, Paris- based national statistics office Insee said today. In Italy, production climbed 2.6 percent after a revised 0.2 percent decline in December. Economists expected gains of 0.1 percent in France and 0.7 percent in Italy, Bloomberg News surveys showed.

Japanese merchant confidence and German industrial production rise

There were some positive economic reports from Japan and Germany on Monday.

From Japan, Bloomberg reports improving confidence among merchants.

Confidence among Japanese merchants rose to the highest level in five months in February, a sign consumers are starting to benefit from the economic recovery.

The Economy Watchers index, a survey of barbers, taxi drivers and others who deal with consumers, climbed to 42.1 from 38.8 in the previous month, the Cabinet Office said today in Tokyo. It was the third consecutive advance.

Other reports from Japan were also mostly positive. From Bloomberg:

Japanese corporate bankruptcies fell for a seventh month in February as emergency government programs helped companies stay afloat.

Business failures slid 17.3 percent from a year earlier to 1,090 cases, Tokyo Shoko Research Ltd. said in Tokyo today, extending the longest streak of declines since 2005...

A global trade revival and stimulus spending has fueled Japan’s recovery from its worst postwar recession. Exports surged 40.6 percent in January from a year earlier, helping the country post an 899.8 billion yen current-account surplus, Finance Ministry figures showed today...

A separate report today showed bank lending declined for a third consecutive month as companies cut spending. Loans, excluding those by credit associations, dropped 1.6 percent last month from a year earlier, the Bank of Japan said.

There was also good news in Germany on Monday as industrial production rebounded in January. Again from Bloomberg:

German industrial production rose in January as energy output surged during the cold winter, helping to offset a collapse in construction activity.

Production rose 0.6 percent from December, when it fell 1 percent, the Economy Ministry in Berlin said today. Economists had forecast a 1 percent gain for January, the median of 36 estimates in a Bloomberg News survey shows. From a year earlier, production increased 2.2 percent when adjusted for the number of work days.

Germany’s economic recovery stalled at the end of 2009, and the coldest winter in 14 years is damping growth at the start of this year. Still, factory orders surged 4.3 percent in January. The Bundesbank expects the economy, Europe’s largest, to expand 1.6 percent in 2010 after a 5 percent contraction in 2009, which was the biggest slump since World War II.

Global economic recovery continues in early 2010

The global economy is likely to continue growing in early 2010, although the United States economy is still losing jobs and the economic recovery is looking fragile in the euro area.

On Friday, the Organisation for Economic Co-operation and Development released its composite leading indicators for January 2010. According to the OECD report, the indicators "continue to signal an improvement in economic activity for the G7 countries although only marginally more so than in the assessment for December". The CLI for the OECD area increased by 0.8 point in January.

Also released on Friday was the employment report for the US. This showed that nonfarm payrolls declined by 36,000 in February while the unemployment rate was unchanged at 9.7 percent. Considering the bad weather during the survey period, this could be considered a decent report.

Employment could start expanding again in coming months with continued economic recovery.

The latest data from the Commerce Department show that the US economy grew at an annualised rate of 5.9 percent in the fourth quarter of 2009 and the Institute for Supply Management's reports indicate that the economy continued to expand in early 2010. The ISM's manufacturing PMI fell to 56.5 in February from 58.4 in January while its non-manufacturing index rose to 53.0 from 50.5. With both indices above 50 in the past two months, economic activity in the US likely expanded at the beginning of this year.

A recovery in consumer spending has helped keep the overall economic recovery going. Consumer spending rose again in January by 0.5 percent and it has now essentially recovered from the recession. After adjusting for inflation, consumer spending in January was only 0.3 percent lower than at its peak in November 2007.

Still, the prolonged period of high unemployment may be taking its toll on consumer confidence. The previous week, reports showed that the Reuters/University of Michigan index of consumer sentiment for February dropped to 73.6 from 74.4 in January while the Conference Board’s consumer confidence index plunged to 46.0 in February from 56.5 in January.

The economic recovery in the euro area may be more fragile.

Real gross domestic product in the euro area was just 0.1 percent higher in the fourth quarter than in the previous quarter and recent data show that it is not getting any better in early 2010. The European Commission's economic sentiment indicator for the euro area fell to 95.9 in February from 96.0 in January while Markit's composite PMI, based on a survey of euro-area purchasing managers in manufacturing and service industries, was at 53.7 in February, unchanged from the previous month.

Official projections also acknowledge the fragility of the economic expansion in the euro area. The European Commission's latest forecast for eurozone growth in 2010 is 0.7 percent while the European Central Bank is forecasting growth of between 0.4 percent and 1.2 percent.

Japan's economic recovery is also widely considered to be fragile. Still, the economy managed to grow by 1.1 percent in the fourth quarter according to a preliminary government estimate, its third consecutive quarter of expansion.

And the expansion has continued at the beginning of 2010. A preliminary estimate of industrial production in January showed a 2.5 percent increase, the 11th consecutive month of increase and the biggest monthly rise since May last year.

However, growth in the Japanese economy remains highly dependent on exports. Today, the government reported that Japanese exports rose 40.6 percent in January from a year earlier and 8.8 percent from December.

A sustained recovery in the Japanese economy will probably require a sustained recovery in the rest of the global economy.

US employment falls less than expected, consumer credit rises

US employment continued to fall in February but by less than expected. MarketWatch reports:

U.S. nonfarm payrolls declined for the 25th time in the past 26 months, falling by 36,000 in February to a seasonally adjusted 129.5 million, the Labor Department estimated Friday.

The nation's jobless rate was steady at 9.7% as the number of people employed rose by 308,000, according to the household survey.

Severe snowstorms during the survey week may have depressed the payroll count, but the Bureau of Labor Statistics said it could not quantify the impact...

The February employment report was better than expected, as economists surveyed by MarketWatch had forecast a drop of 90,000. They expected the unemployment rate to rise to 9.8%.

In another sign that the US economy is recovering, consumer credit has begun rising. Bloomberg reports:

Borrowing by U.S. consumers unexpectedly rose in January for the first time in a year, led by auto and student loans, a sign Americans are gaining confidence in the economy.

Consumer credit increased $5 billion, or 2.4 percent at an annual rate, the Federal Reserve said today in Washington. Borrowing dropped $4.6 billion in December, more than first estimated. The figures track credit card debt and non-revolving loans, including those for automobile purchases.

ECB and BoE leave rates unchanged

Both the ECB and BoE left interest rates unchanged on Thursday, with the former continuing a gradual exit from the crisis measures. Bloomberg reports:

European Central Bank President Jean-Claude Trichet phased out some of the emergency tools used to fight the financial crisis and said it would be inappropriate for the International Monetary Fund to give help to Greece.

Trichet said the ECB will tighten the terms of its three- month market operations next month by returning to the pre- crisis practice of offering the funds at a variable rate. In its main seven-day operations and the one-month tenders, the ECB will keep lending banks as much money as they need at its benchmark rate until at least Oct. 12. The ECB left the key rate at a record low of 1 percent today...

The Bank of England earlier today kept its bond-purchase program on hold for a second month and left its main interest rate unchanged at 0.5 percent amid a gradual economic recovery.

The ECB today lifted its economic outlook for 2011, forecasting growth of around 1.5 percent after 0.8 percent expansion this year. Trichet said inflation pressures are likely to remain “subdued.” The ECB, which tries to keep increases in prices just below 2 percent, expects inflation to average 1.2 percent in 2010 and 1.5 percent in 2011.

Meanwhile, the data from the US on Thursday were mixed. Again from Bloomberg:

Fewer Americans than expected signed contracts to purchase previously owned homes in January, indicating the extension of a tax credit is doing little to lure buyers.

The index of purchase agreements, or pending home sales, dropped 7.6 percent after a revised 0.8 percent increase in December, the National Association of Realtors announced in Washington...

Factory orders rose 1.7 percent in January, boosted by a surge in commercial aircraft bookings, according to Commerce Department data that also showed less demand for computers and machinery.

Reports from the Labor Department today showed initial jobless claims fell from a three-month high, while productivity rose in the fourth quarter. Claims dropped 29,000 last week to 469,000.

Productivity, a measure of employee output per hour, rose at a 6.9 percent annual rate in the final three months of last year. Labor costs dropped 5.9 percent, more than anticipated.

US services sector accelerate

The recovery in the US economy may be becoming less dependent on manufacturing. From Bloomberg on Wednesday.

Service industries in the U.S. accelerated in February more than anticipated, indicating the economic expansion may soon create jobs following the worst employment slump in the post-World War II era.

The Institute for Supply Management’s index of non- manufacturing businesses, which covers almost 90 percent of the economy, increased to 53 from 50.5 in January. Last month’s reading was the highest since October 2007 and exceeded all estimates of 73 economists surveyed by Bloomberg News.

Other reports on Wednesday also showed improvement in the economy.

The Fed, in its Beige Book business survey, called the improvement in economic activity this year “modest”...

Companies cut an estimated 20,000 jobs in February, in line with forecasts and the smallest drop in two years, data from ADP Employer Services also showed today. The decrease reflected reductions at construction companies as manufacturers and service providers added to payrolls...

A separate report from the job placement firm Challenger, Gray & Christmas Inc. showed employers in February announced the fewest job cuts in more than three years. Planned firings fell 77 percent last month from a year earlier, the Chicago-based firm said today.

In the euro area, however, services slowed in February. From Bloomberg on Wednesday:

Europe’s service and manufacturing industries expanded for a seventh month in February as companies stepped up output to meet reviving global demand.

A composite index based on a survey of euro-area purchasing managers in both industries remained at 53.7 last month, the same as in January, London-based Markit Economics said today...

An index of services, which account for the largest part of the euro-region economy, dropped to 51.8 in February from 52.5 in the previous month, Markit said today. A gauge of manufacturing rose to 54.2 from 52.4 in January.

Other negative news in the euro area on Wednesday included a 0.3 percent fall in retail sales in January.

The UK, however, reported a rebound in the services sector. From Reuters:

The services sector bounced back faster than expected in February to record its strongest expansion in more than three years, a survey showed on Wednesday...

The four-point jump in the CIPS/Markit services PMI index -- to 58.4 from 54.5 -- more than reversed January's fall and took the index to its highest level since January 2007...

Recent evidence on the economy has been mixed. Retail sales fell sharply at the start of the year, depressed by a rise in VAT and unusually heavy snowfall, but many forward-looking indicators have been more upbeat.

A survey by the Nationwide Building Society on Wednesday showed British consumer confidence hit a two-year high in February and REC/KPMG figures showed a further pick-up in Britain's job market last month.

Japan also saw improvement in service activity in February, although it remains in contraction based on the Japan Nomura services purchasing managers' index reading of 44.6 in February, up from 43.4 in the previous month.

Also contracting recently is Japanese capital spending. From Bloomberg today:

Japanese businesses cut spending for an 11th quarter even as their earnings rebounded, signaling a revival in exports remains insufficient to prompt investment that would spur the recovery.

Capital spending excluding software fell 18.5 percent in the three months ended Dec. 31 from a year earlier, the Finance Ministry said today in Tokyo. Sales declined and profits doubled.

RBA raises interest rate

The Reserve Bank of Australia raised interest rates on Tuesday. Bloomberg reports:

Australia’s central bank resumed raising interest rates after a one-meeting pause, judging that faster-than-anticipated economic growth will allay concerns that European deficits may roil global confidence.

Reserve Bank of Australia Governor Glenn Stevens increased the benchmark overnight cash rate target to 4 percent from 3.75 percent in Sydney today, as forecast by 14 of 19 economists in a Bloomberg News survey. The rest saw no change. Stevens said rates should be closer to “average,” which he last week signaled may be 75 basis points higher than today’s new level...

The announcement came hours after the government reported retail sales climbed 1.2 percent in January from December, exceeding the forecasts of all 19 economists in a Bloomberg News survey. A separate report showed home-building approvals fell in January, affected by the Reserve Bank’s rate increases and a reduction in government grants to first-time buyers.

The Bank of Canada, though, left rates unchanged. Bloomberg reports:

The Bank of Canada kept its benchmark interest rate at a record low today, and said that inflation and economic output have been higher than policy makers expected, signaling rate increases in coming months.

The target rate for overnight loans between commercial banks remained at 0.25 percent, where it’s been since April, as predicted by all 22 economists surveyed by Bloomberg. The bank also repeated a pledge to leave it unchanged through June unless the “current” inflation outlook shifts.

Low inflation in the euro area means that interest rates are also not expected to be raised by the ECB soon. From Bloomberg:

European inflation slowed in February after rising unemployment and a weakening recovery prompted households to scale back spending.

Consumer prices in the 16-nation euro region rose an estimated 0.9 percent from a year earlier after increasing 1 percent in January, the European Union statistics office in Luxembourg said today. Producer prices fell 1 percent in January from a year earlier, the smallest decline in a year, the statistics office said in a separate report.

There will also be no rate increases soon in Japan, despite continuing signs of recovery. From AFP/CNA:

Japan's jobless rate slipped back below five per cent in January, data showed Tuesday, but the government voiced concern that Toyota's recall crisis and deflation could threaten the export-led recovery...

Unemployment fell to a better-than-expected 4.9 per cent from a revised 5.2 per cent the previous month, Tokyo said, while a separate report said there were 46 job offers for every 100 job seekers, up from 43 in December...

Average household spending rose 1.7 per cent in January from a year earlier but that was down from 2.1 per cent in December, while the average monthly income of salaried households fell 0.5 per cent in real terms.

In fact, more fiscal stimulus could be on the way for Japan. Again from AFP/CNA:

Japan's lower house on Tuesday passed a record trillion-dollar budget for fiscal 2010, adding to the country's bulging public debt burden as Tokyo tries to stimulate a sluggish economic recovery.

The 92.3 trillion yen (1.0 trillion dollar) budget includes new child-care allowances, free public high school tuition and other measures promised by the centre-left government that took power in September.

Manufacturing expands in February

Data out on Monday show that manufacturing continues to drive the global economic recovery.

Bloomberg reports the latest US ISM and other economic numbers.

Manufacturers increased production and employment in February, signaling factories are leading the nation out of recession as the new year begins.

The Institute for Supply Management’s factory index fell to 56.5 from January’s 58.4, which was a five-year high, figures from the Tempe, Arizona-based group showed. The measure exceeded 50, signaling expansion, for a seventh straight month. The group’s jobs gauge rose to the highest level since January 2005...

Consumer spending, which accounts for about 70 percent of the economy, rose 0.5 percent in January, the fourth straight gain, figures from the Commerce Department showed...

Incomes rose 0.1 percent, the report also showed, less than anticipated and restrained by declines in interest and dividend payments. Wages and salaries climbed 0.4 percent, the most since April...

A third report today showed construction spending fell in January for a third straight month, led by declines in commercial projects.

The 0.6 percent decrease followed a 1.2 percent drop the previous month, Commerce Department figures showed. Commercial building fell 1.4 percent, swamping a 1.1 percent gain in home construction.

Manufacturing accelerated in the euro area. Bloomberg reports:

European manufacturing accelerated to the fastest pace in more than two years in February as reviving global demand boosted export orders.

A manufacturing index for the 16-member euro region increased to 54.2 from 52.4 in January, London-based Markit Economics said today. That’s above an initial estimate of 54.1 published on Feb. 19 and the highest since August 2007. Manufacturing accounts for about a quarter of the economy and a reading above 50 indicates expansion...

European companies may have to rely on emerging economies to bolster sales as rising unemployment and surging energy costs crimp domestic demand. Europe’s jobless rate remained at 9.9 percent in January from the previous month, the European Union statistics office in Luxembourg said today. That’s the highest in more than 11 years.

In the UK, the manufacturing PMI held at a 15-year high. Reuters reports:

The manufacturing sector expanded faster than expected in February, matching the previous month's 15-year high rate of growth and suggesting the economic recovery may be gathering pace, figures showed on Monday.

The CIPS/Markit manufacturing purchasing managers' index held at 56.6 last month, the same level as January, which was the strongest since October 1994. The index has now held above the 50.O mark, separating expansion from contraction, for five months.

China, however, showed falls in PMI numbers. Bloomberg reports:

China’s manufacturing grew at a slower pace in February, reducing the risk of overheating in the fastest-growing major economy.

A Purchasing Managers’ Index released by the government today slid to a one-year low. Another PMI, from HSBC Holdings Plc and Markit Economics, showed the weakest expansion in three months. A weeklong Chinese holiday last month may have affected the numbers...

Overall, the government’s index fell to a seasonally adjusted 52, the Federation of Logistics and Purchasing said today in an e-mailed statement in Beijing. That was less than 55.8 in January and the median 55.2 estimate in a Bloomberg survey of 15 economists. HSBC’s PMI declined to 55.8 from 57.4.

Last week, Japan had released an unchanged manufacturing PMI. From Reuters:

Japanese manufacturing activity was unchanged in February from the previous month in a sign that a rapid recovery in the sector is levelling off, a survey showed on Friday.

The Nomura/JMMA Japan Manufacturing Purchasing Managers Index (PMI) was 52.5 in February on a seasonally adjusted basis, unchanged from January.