Saturday 31 July 2010

US economy slows, Japanese industrial output falls, eurozone inflation rises

The US second quarter GDP report shows that the economy is beginning to slow. Bloomberg reports:

The U.S. economy slowed in the second quarter as a scarcity of jobs eroded consumer spending, leaving the rebound dependent on a surge in business investment.

Gross domestic product grew at a 2.4 percent annual pace, less than forecast, after a 3.7 percent first-quarter gain that was larger than previously estimated, according to Commerce Department data issued today in Washington...

Other US data, though, were mixed.

The Institute for Supply Management-Chicago Inc.’s business barometer rose to 62.3 this month, exceeding the median forecast of economists surveyed which anticipated the measure would drop to 56. The June reading was 59.1 and figures greater than 50 signal expansion.

The Thomson Reuters/University of Michigan final index of consumer sentiment declined to 67.8 this month from 76 in June. A preliminary measure issued earlier this month was 66.5.

Earlier reports showed that Japan's economy may also be facing a slowdown. From AFP/CNA:

Japan's unemployment rate ticked higher while production of automobiles and electronic gadgets slipped in June, data showed Friday, in a mixed picture for the world's second-largest economy.

Unemployment rose to 5.3 per cent in June, rising by 0.1 percentage points from the previous month and higher than market expectations of 5.1 per cent, in an indication of the headwinds that Japan's fragile economic recovery faces.

Industrial output fell 1.5 per cent in June from the previous month, missing market expectations of a 0.l per cent rise...

Japan's core consumer price index fell 1.0 per cent in June from a year earlier, marking the 16th straight month of decline as deflation continues to drag on recovery...

But in a sign domestic demand may be picking up, average household spending in June was 0.5 per cent higher on-year and 2.9 per cent higher than in May.

Unlike Japan, the euro area has largely managed to stave off deflation. From Bloomberg:

European inflation accelerated to the fastest pace in more than 1 1/2 years on rising energy costs and unemployment held at the highest in almost 12 years.

Euro-area consumer prices rose 1.7 percent from a year earlier in July after increasing 1.4 percent in June, the European Union statistics office in Luxembourg said today. That’s the fastest inflation since November 2008 and in line with the median forecast of 33 economists in a Bloomberg News survey. The jobless rate remained at 10 percent for a fourth month in June, the statistics office said in a separate report. That’s the highest since August 1998.

Friday 30 July 2010

Euro area economic sentiment rises

The euro area's recovery appears to be back on track. From Bloomberg:

European confidence in the economic outlook rose to the highest in more than two years in July and German unemployment declined for a 13th month as exports sustained a recovery in the region.

An index of executive and consumer sentiment in the 16 euro nations increased to 101.3 from 99 in June, the European Commission in Brussels said today. That’s the highest since March 2008. The number of people out of work in Germany fell a seasonally adjusted 20,000 to 3.21 million, the lowest since November 2008, the Federal Labor Agency said.

In contrast, confidence in the UK appears to have fallen in July. From Reuters:

Consumer morale fell to its lowest in almost a year in July as worries about the impact of government spending cuts drove expectations for the next 12 months to their lowest since the deepest point of the recession.

The GfK/NOP Consumer Confidence Index fell three points to -22, its lowest since last August and below analysts' forecasts for a more modest decline to -20.

In more bad news for the UK, credit and housing data released on Thursday were also weak. Reuters reports:

Mortgage approvals fell more than expected in June and overall lending stalled, Bank of England figures showed on Thursday, suggesting the housing market will continue to soften in the coming months.

The central bank said mortgage approvals -- a gauge of house prices around six months down the line -- numbered 47,643 in June, falling from a downwardly revised 49,461 in May and below forecasts for a reading of 49,000.

Net mortgage lending growth eased to 665 million pounds in June from May's downwardly revised 838 million pounds, below forecasts for a 1.0 billion pound rise.

The figures support recent evidence which indicates the housing market is running out of steam after strong house price rises last year, and come after mortgage lender Nationwide reported a 0.5 percent drop in house prices this month.

With the data flow around the world still providing a mixed picture of the economic outlook, central banks will be cautious about removing policy accommodation. Earlier on Thursday, the Reserve Bank of New Zealand raised interest rates again but announced a moderation in the pace of future rate increases. Bloomberg reports:

New Zealand’s central bank raised interest rates for a second straight month and signaled it plans to slow the pace of future increases, sending the nation’s currency to its lowest level in a week.

“Further removal of monetary policy stimulus is appropriate,” central bank Governor Alan Bollard said in a statement in Wellington today after boosting the official cash rate by a quarter percentage point to 3 percent. “The pace and extent of further cash rate increases is likely to be more moderate than was projected in the June statement.”

Thursday 29 July 2010

US durable goods orders fall

US economic data on Wednesday were mixed. Reuters reports:

New orders for long-lasting manufactured goods fell unexpectedly for a second straight month in June, posting the largest drop since August in a sign economic recovery cooled in the second quarter.

However, the Commerce Department report on Wednesday showed cash-flush businesses continued to invest in equipment. That implied underlying demand remained intact with firms exhibiting confidence in the moderate economic recovery...

Durable goods orders dropped 1.0 percent after falling 0.8 percent in May, surprising financial markets that had expected a 1.0 percent increase. Durable goods include big-ticket items such as cars and planes.

But orders for non-defense capital goods excluding aircraft, a proxy for business spending, unexpectedly rose 0.6 percent after increasing by an upwardly revised 4.6 percent in May. Markets had expected a flat reading...

A separate report from the Federal Reserve showed U.S. economic activity was still rising but at a subdued rate...

The Mortgage Bankers Association said on Wednesday that demand for loans to buy homes rose for the second straight week last week to the highest level since the end of June, but hovered just above 13-year lows.

Meanwhile, the euro area continues to face tight lending conditions. From Bloomberg on Wednesday:

European banks continued to tighten credit standards for companies and households in the second quarter as the sovereign debt crisis impaired their access to funding, the European Central Bank said.

“The downward trend in the net tightening of credit standards on loans to enterprises, which came to a halt in the first quarter of 2010, was reversed in the second quarter, increasing from 3 percent to 11 percent,” the Frankfurt-based central bank said in its quarterly Bank Lending Survey today. “Looking forward, euro-area banks anticipate credit standards on loans to enterprises to tighten somewhat in the third quarter”...

Loans to households and companies in Europe grew at the fastest pace in 20 months in June, a report showed yesterday. The ECB expects the 16-nation euro-region economy to expand 1 percent this year and 1.2 percent in 2011.

Wednesday 28 July 2010

UK retail sales grow, US consumer confidence falls, Indian interest rates rise

There was good news from UK retailers on Tuesday. From Reuters:

British retail sales grew at their fastest pace in three years in July, and retailers were their most upbeat in 6 years about the prospects for August, a survey by the Confederation of British Industry showed on Tuesday.

The CBI's monthly distributive trades survey's reported sales balance jumped to +33 in July from -5 in June, beating analysts' forecast for a reading of zero, as discounting, the World Cup soccer tournament and warm weather boosted sales.

It was also three times better than retailers themselves had expected. And stores expected sales growth to strengthen further next month, with an expected sales balance for August of +45 -- the highest since June 2004.

However, the outlook for US retailers may have dimmed. From Bloomberg:

American consumers lost confidence in July, shaken by mounting concern over jobs and wages that threatens to constrain the economic recovery.

The Conference Board’s sentiment index fell to 50.4, below the median forecast of economists surveyed by Bloomberg News and the lowest level in five months, figures from the New York-based private research group showed today...

Housing data continue to be positive though.

Home prices in 20 cities climbed 4.6 percent in May from the same month last year, exceeding the median forecast of economists surveyed and the biggest 12-month gain since August 2006, a report from S&P/Case-Shiller also showed. Home sales plunged following the April 30 contract-signing expiration of a government incentive worth up to $8,000, raising the risk that property values will slacken in coming months.

Rising prices, though, is something that India would prefer to have less of, as the central bank made clear on Tuesday. From AFP/CNA:

India's central bank hiked its main interest rates on Tuesday for the fourth time this year in a fresh attempt to tame the highest inflation among the Group of 20 economic powers.

India's annual wholesale price index, the main cost-of-living measure, stood at 10.55 percent in June, well above the central bank's preferred 5.5-percent level, putting pressure on governor D. Subbarao to act...

The Reserve Bank of India (RBI) opted for a 25-basis-point increase in its repo rate, the rate at which it lends to commercial banks, and a 50-basis-point rise for the reverse repo, the rate the RBI pays to banks for deposits.

The rates now stand at 5.75 percent and 4.50 percent respectively.

Tuesday 27 July 2010

Rise in US new home sales helps stocks erase year's losses

A report on Monday showed that new home sales in the United States in June were at their second lowest on record but stock prices, including those for homebuilders, were up by the end of the day.

The Census Bureau reported that sales of new single-family houses in June were at a seasonally adjusted annual rate of 330,000. This was the second lowest rate since records began in 1963.

However, June sales were 23.6 percent above the downwardly-revised May rate of 267,000. It was also better than the median projection of 310,000 obtained from a Bloomberg survey of forecasters.

Also importantly, the number of new houses for sale continued to decline, falling to 210,000 at the end of June on a seasonally adjusted basis. Combined with the jump in home sales, the new home supply fell to 7.6 months of sales in June from the upwardly-revised 9.6 in May.

The new home supply provides an indication of future demand for homebuilding. The surge in May had appeared ominous when it was announced last month.

However, the subsequent decline in June suggests that the May spike was the result of a one-time reaction to the expected expiry of a government tax credit for home purchases causing sales to plunge that month. The underlying trends in new home sales and supply are probably more favourable and supportive of an eventual, albeit gradual, recovery in home construction and the housing sector in general.

Investors apparently took the optimistic view. US stocks rose on Monday, with the Standard & Poor's 500 Index rising 1.1 percent to 1,115.01 and the Dow Jones Industrial Average rising 1.0 percent to 10,525.43. Homebuilders did well, as did transportation stocks after FedEx raised its earnings forecast.

Monday's gains mean that the Dow Jones Industrial Average is now back in positive territory for the year, having risen 0.9 percent since the end of 2009. The S&P 500 is essentially flat for 2010.

In pushing stocks up on Monday, investors downplayed other data that showed that the nearer-term outlook for the US economy may not be so bright.

A report from the Chicago Federal Reserve on Monday showed that its National Activity Index fell to –0.63 in June from +0.31 in May. Three of the four broad categories of indicators that make up the index, including production, made negative contributions in June.

The weakening in economic activity looks likely to continue in the near term, at least in Texas. The Dallas Federal Reserve reported on Monday that its general business activity index fell sharply to -21 in July from -4 in June. The report said that while the production index rose from -2 to 5, indicating output expanded in July, the new orders and growth rate of orders indices fell deeper into negative territory.

Still, investors have probably already discounted the near-term weakness for the economy, so the data on new home sales, which is indicative of the longer-term outlook for the economy, would understandably have been seen as a positive.

Monday 26 July 2010

June trade data show Japanese economy is slowing

Today brought another indication that the Japanese economy is slowing.

The Finance Ministry reported today that exports rose 27.7 percent in June from a year earlier. This was higher than the median estimate of a 23.5 percent increase derived from a Bloomberg survey of economists but slower than the 32.1 percent rise in May. June's exports were 1.8 percent lower than May's on a seasonally-adjusted basis.

Imports rose 26.1 percent in June from a year earlier. This was slower than the 33.4 percent rise in May. June's imports were 4.4 percent lower than May's on a seasonally-adjusted basis.

The bigger fall in imports resulted in the trade balance rising to 687 billion yen in June, 41.1 percent higher than a year earlier. On a seasonally-adjusted basis, the June trade surplus jumped 42.4 percent from the previous month.

Today's trade data add to other recent evidence that the Japanese economy is slowing.

Last week, the Cabinet Office published its updated composite indices to show that the leading index declined for the second consecutive month in May to 98.6 from 101.7 in April while the coincident index declined in May to 101.2 from 101.3 in April, its first decline since the economy emerged from the recession last year.

Saturday 24 July 2010

Europe reports strong economic data, little bank stress

Friday's economic data came mainly from Europe and they were mostly positive. From Bloomberg:

U.K. gross domestic product rose 1.1 percent in the three months through June, almost twice as fast as the 0.6 percent gain predicted by economists in a Bloomberg News survey, the Office for National Statistics said in London today. In Munich, the Ifo institute said its business climate index, based on a poll of 7,000 executives, jumped to 106.2 this month, confounding expectations of a decline.

And the bank stress test showed only seven banks failing. From Bloomberg:

Seven of the 91 European Union banks subject to stress tests failed with a combined capital shortfall of 3.5 billion euros ($4.5 billion), stirring concern the evaluations were too lenient.

Hypo Real Estate Holding AG, Agricultural Bank of Greece SA and five Spanish savings banks have insufficient reserves to maintain a Tier 1 capital ratio of at least 6 percent in the event of a recession and sovereign-debt crisis, lenders and regulators said today.

Analysts don't seem to be too impressed by the test though.

“The amount of capital needed is much lower than the market expected,” said Mike Lenhoff, London-based chief strategist at Brewin Dolphin Securities Ltd., whose parent company oversees $33 billion. “The amount does seem quite trivial considering the concerns about losses from the sovereign crisis.”

Part of the reason the amount of capital needed was lower than analysts predicted may be because the evaluations took into account potential losses only on government bonds the banks trade, rather than those they are holding to maturity. That means the tests ignored the majority of banks’ holdings of sovereign debt...

“The long awaited stress tests do not seem to have been that stressful after all,” said Gary Jenkins, an analyst at Evolution Securities Ltd., in a note. “The most controversial area surrounds the treatment of the banks’ sovereign debt holdings.”

Cynicism over the stress test aside, markets were generally positive on Friday. From Reuters:

Global stocks rose on Friday on solid corporate earnings while the euro gained against the dollar after fewer-than-expected European banks failed stress tests.

Safe-haven assets such as gold and U.S. Treasuries dropped after European regulators reported that only seven of 91 banks failed the tests, which were designed to show the impact of Europe's sovereign debt crisis on its financial institutions.

Friday 23 July 2010

Economic data provide positive surprises

The gloomy trend in the economic news flow saw a respite on Thursday.

Japan kicked off the day by reporting an unexpected 0.2 percent increase in its all industry activity index in May.

The euro area followed up by reporting an unexpected acceleration in services and manufacturing growth, with the Markit composite index rising to 56.7 in July from 56.0 in June. Also, industrial orders unexpectedly rose by 3.8 percent in May while consumer confidence rose to a 26-month high in July.

In the UK, retail sales rose by a greater-than-expected 0.7 percent in June and the economy is now expected to grow in the second quarter at its fastest pace in three years.

US data were more downbeat but still provided some positive surprises. The Conference Board's index of leading economic indicators fell by a less-than-expected 0.2 percent in June while existing home sales fell by a less-than-expected 5.1 percent in June.

Marring the day somewhat was a rise in initial jobless claims to a higher-than-expected 464,000 last week. Continuing claims, though, fell 223,000 to a lower-than-expected total of 4.49 million in the week ended July 10.

Strong corporate earnings reports rounded off the generally positive data flow on Thursday and helped stocks post good gains, the S&P 500 rising 2.25 percent by the end of the day.

Thursday 22 July 2010

US mortgage applications rise, chance of housing slump ending

Some relatively good news for the US housing market on Wednesday. From Reuters:

U.S. mortgage applications jumped last week as demand for loans to purchase homes rose for the first time in five weeks, the Mortgage Bankers Association said on Wednesday.

In addition, demand for home refinancing loans hit the highest level in 14 months as interest rates reached their lowest in at least 20 years, the industry group said...

The Mortgage Bankers Associations said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, increased 7.6 percent for the week ended July 16.

Indeed, among global housing markets, the US housing market is among those with the best chance to end its slump, according to a paper by Agustín S. Bénétrix, Barry Eichengreen and Kevin H. O’Rourke.

The world's current economic problems started when housing bubbles burst in several advanced economies. Economic recovery without housing market recovery is unlikely to be sustained. This column presents new research on the probability of housing slumps ending. There is at least a one-in-eight chance of housing slumps in the three big economies (US, Japan and Germany) ending imminently, but there is nothing approaching the same probability elsewhere. If things turn out as projected here, we may be about to have a test of the locomotive theory – whether the big economies can pull along their smaller brethren – both for housing markets and generally.

Of course, the one-in-eight chance means that an imminent end to the housing slump remains a low-probability event, which is possibly why Fed chairman Ben Bernanke was unwilling to raise hopes too much for the economy in his testimony to Congress on Wednesday. From The New York Times:

The chairman, Ben S. Bernanke, said Wednesday that the recovery was continuing at a modest pace, though with a “somewhat weaker outlook”...

In presenting the Fed’s semiannual monetary policy report to Congress, Mr. Bernanke said that it would take “a significant amount of time” to restore the 8.5 million jobs lost in the United States in 2008 and 2009, and that “the economic outlook remains unusually uncertain.”

Wednesday 21 July 2010

Period of sovereign default just beginning

Michael Pettis writes mostly about China in his China Financial Markets blog. However, recently, he has put up several good posts about sovereign debt. The latest is here. An excerpt:

[A]lthough I am not smart enough to tell you who will or won’t default (I have my suspicions however), based on my historical reading and experiences, I think there are two statements that I can make with confidence. First, we have only begun the period of sovereign default.

The major global adjustments haven’t yet taken place and until they do, we won’t have seen the full consequences of the global crisis...

The second statement I think I can make with some confidence is that there is no threshold debt level that indicates a country is in trouble. Many things matter when evaluating a country’s creditworthiness.

As a rule anything that increases the chance of a sustained mismatch between earnings and debt servicing undermines the creditworthiness of the borrower. But what really matters is not the expected outcome so much as the probability of an extreme outcome. The expected variance, in other words, is more important than the mean expectation, which is another way of saying that a country with less debt and more variance can be a lot riskier than a country with more debt and less variance.

Meanwhile, notwithstanding the warning from Pettis, sovereign debt concerns eased a little on Tuesday for some of the problem European countries. From Bloomberg:

Spain, Ireland and Greece auctioned almost 10 billion euros ($13 billion) of debt, while Hungary sold less than planned, as investors favored nations backstopped by the European Union’s 750 billion-euro aid package.

The yield premiums investors demand to hold the debt of the three euro-region nations, all covered by the EU lifeline, instead of benchmark German bonds fell following the sales, while the Hungarian yield spread with bunds rose. Prime Minister Viktor Orban’s government sold 35 billion forint ($157 million) of three-month bills, 10 billion forint less than planned.

Pettis, however, points out that real estate lending can be a source of sovereign debt problem because the debt burden is likely to soar "just when everything else is going wrong". Here, the news on Tuesday was not so good.

In the US, housing starts fell in June, according to Bloomberg.

Housing starts fell in June to the lowest level in eight months after the expiration of a U.S. government tax incentive caused sales to slump.

Work began on 549,000 houses at an annual rate last month, fewer than the median estimate of economists surveyed by Bloomberg News and down 5 percent from May, Commerce Department figures showed today in Washington.

The retreat following the end of government support shows it will be difficult for the industry that precipitated the recession to sustain a recovery. Mounting foreclosures will swell the supply of houses on the market and pressure prices, while prospective buyers shy away as a lack of jobs shakes confidence in the world’s largest economy.

However, it is China that could be storing up the next big real estate problem. From FT Alphaville:

‘Evaluating Conditions in Major Chinese Housing Markets,’ an NBER paper by Jing Wu, Joseph Gyourko and Yongheng Deng, is old-school by the way because it’s focused on land supply. From the abstract (emphasis ours):

Much of the increase in prices is occurring in land values. Using data from the local land auction market in Beijing, we are able to produce a constant quality land price index for that city. Real, constant quality land values have increased by nearly 800% since the first quarter of 2003, with half that rise occurring over the past two years. State-owned enterprises controlled by the central government have played an important role in this increase, as our analysis shows they paid 27% more than other bidders for an otherwise equivalent land parcel...

The magnitude of the increase in land values over the past 2-3 years in particular in Beijing is unprecedented to our knowledge. Not only do these increases post-date the Summer Olympics, but the recent price surges in early 2010 suggest a relationship to the Chinese stimulus package which itself is temporary. More broadly, the sharp rises in price-to-rent and price-to-income ratios since 2008 in Beijing and many of the other large coastal markets look to be very difficult to explain fundamentally.

Understandably then that, according to WSJ, the IMF has suggested that central banks take action to avoid asset bubbles.

... The IMF, in a paper released Tuesday, urged central banks to use tougher regulation to head off asset bubbles, including tighter capital requirements for banks, limits to banks' use of short-term loans and tougher collateral requirements for loans they make.

The IMF also said financial regulators would have to use their judgment about whether to take more specific actions, and have the independence to enforce their efforts.

But in cases where that isn't sufficient, central banks may have to use interest-rate policy to "lean against asset bubbles," the IMF staff said. For instance, "the combination of rising asset prices and rapid credit growth may warrant a higher policy rate," the IMF paper said.

Perhaps the Bank of Canada had the latter in mind as it raised interest rates on Tuesday despite the prospect of slower growth ahead. From Reuters:

The Bank of Canada raised its key interest rate on Tuesday, as expected, but warned the domestic and global recovery will be slower than it had previously forecast, suggesting any further hikes may be gradual.

The central bank became the first in the Group of Seven advanced economies last month to raise rates from the emergency lows introduced during the global financial crisis. It took a second step on Tuesday, lifting the rate 25 basis points to 0.75 percent...

But the hawkish stance on rates contrasted sharply with the dovish outlook in the accompanying statement, leaving markets in suspense about the bank's next move. It shaved its growth forecast for the Canadian economy this year to 3.5 percent from 3.7 percent and said Europe's bid to wrestle down sovereign debt would pinch the pace of the global rebound.

Tuesday 20 July 2010

US home-builder confidence and eurozone construction output fall

Home-builder confidence in the US fell again in June. Bloomberg reports:

Builders in the U.S. turned more pessimistic in June than expected, signaling housing demand may be slowing even more than anticipated after a government tax credit expired.

The National Association of Home Builders/Wells Fargo confidence index dropped to 17 from 22 in May, lower than all estimates of economists surveyed by Bloomberg News and the biggest decrease since November 2008, data from the Washington- based group showed today. Readings lower than 50 mean more respondents said conditions were poor.

Recovery in the eurozone construction sector also seems to be stalling. From Businessweek:

European construction output dropped for a second month in May, led by declines in Germany.

Construction in the 16-nation euro region fell 1 percent from April, when it decreased 0.3 percent, the European Union’s statistics office in Luxembourg said today. From a year earlier, output in May dropped 6.3 percent after falling 5.7 percent in April.

Meanwhile, Bloomberg reports that UK real-estate agents are losing confidence in the strength of house prices.

Britain’s housing-market recovery has shown signs of slowing this year as the RICS balance dropped from a three-year high in November to its lowest in 11 months in June. That signals values are set to fall later this year, said KBC Peel Hunt housing analyst Robin Hardy. Home sellers cut prices for the first time this year in July, Rightmove said yesterday.

House prices, however, are probably already too high in China. From AFP/CNA:

A typical Beijing flat costs about 22 times average incomes in the city, state media said Monday, highlighting the challenge China faces providing affordable housing amid a property boom.

Monday 19 July 2010

Inflation abates

Last week's inflation reports indicate that inflation is abating in the major economies.

In the United States, consumer prices fell in June by 0.1 percent, the third consecutive month of decline. Consumer prices rose 1.1 percent in the 12 months to June, down from 2.0 percent in the 12 months to May.

In the euro area, consumer prices were unchanged in June compared to May. From a year earlier, consumer prices rose 1.4 percent, less than the 1.6 percent increase in May.

In China, the year-on-year rate of change in consumer prices declined to 2.9 percent in June from 3.1 percent in May.

In the United Kingdom, the annual rate of consumer price inflation fell to 3.2 percent in June from 3.4 percent in May.

So in all the major economies that released inflation data last week, the inflation rate for June was lower than that for the previous month.

Does this mean that inflation is dead? It is probably too early to say for sure. Headline inflation can be quite volatile.

In the previous cycle, for example, US headline inflation appeared to have hit a peak in early 2003. However, after declining for about a year, the annual inflation rate resumed its uptrend.

Then in 2005, inflation again appeared to have a hit a peak, but again, after declining for about a year, it resumed its uptrend before hitting its ultimate cycle peak in 2008.

Historically, inflation usually begins a sustained decline only after industry capacity utilisation has hit a peak and is already on the decline. In the current cycle, industry capacity utilisation has not reached an obvious peak, suggesting that the recent decline in inflation could be temporary.

Having said that, last week, a Federal Reserve report showed that the recovery in US industry capacity utilisation may have stalled, the utilisation rate remaining unchanged in June from the previous month at 74.1 percent. Industrial production rose just 0.1 percent in June and manufacturing output actually contracted 0.4 percent.

Furthermore, the outlook for manufacturing is poor, with a likelihood of further declines in output ahead (see "US manufacturing recovery may be about to end"). With industry capacity utilisation still well below its 1972-2009 average of 80.6 percent, a contraction in manufacturing activity would only exacerbate the resource slack and eventually put downward pressure on prices in general.

So while the experience from the last cycle shows that we cannot rule out another upturn in inflation in the near term, the longer-term outlook is for inflation to remain subdued.

Saturday 17 July 2010

US consumer confidence and stock market plunge

US consumer confidence fell sharply in July. Bloomberg reports:

Confidence among U.S. consumers tumbled in July to the lowest level in a year, heightening the risk of a slowdown in economic growth.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 66.5, the lowest since August and less than the most pessimistic forecast of economists surveyed by Bloomberg News...

The estimates for the confidence measure ranged from 71 to 78, according to the survey of 62 economists. The 9.5-point decline from June’s final reading of 76 was the biggest since October 2008.

Investors reacted negatively.

Stocks dropped, wiping out a weekly advance, as revenue at Bank of America Corp., Citigroup Inc. and General Electric Co. fell short of analyst estimates. The Standard & Poor’s 500 Index dropped 2.9 percent to close at 1,064.88 in New York. The S&P Consumer Discretionary Index, which includes Home Depot Inc. and Comcast Corp., fell 3.5 percent.

Another report showed that consumer prices fell in June.

A report from the Labor Department showed consumer prices fell 0.1 percent in June, a third consecutive decrease. The decrease brought the gain in the cost of living over the past 12 months down to 1.1 percent from 2 percent in the year ended May.

Costs of goods and services excluding food and energy were up 0.2 percent, more than forecast and the biggest gain since October.

US stocks were not the only ones faring badly on Friday.

Earlier in the day, Japanese stocks had also suffered a similarly large fall, the Nikkei 225 falling 2.9 percent to 9,408.36. Japan's tertiary index fell 0.9 percent in May.

Friday 16 July 2010

BoJ raises forecast, China slows, US manufacturing contracts

The Bank of Japan raised its growth forecast as it left interest rates unchanged on Thursday. AFP/CNA reports:

Japan's central bank kept its key lending rate unchanged at 0.1 per cent on Thursday, as widely expected, and raised its growth forecast for the current fiscal year to 2.6 per cent.

"Japan's economy shows further signs of moderate recovery," the Bank of Japan said in a statement, adding however that overcoming deflation and returning to sustainable growth remained a "critical challenge".

Elsewhere, though, the story on Thursday was mostly about slowing economic growth.

AFP/CNA reports slower growth in China.

China said Thursday its economic growth slowed in the second quarter, as massive stimulus spending was scaled back and moves to rein in soaring property prices started to bite.

Gross domestic product in the world's third-largest economy maintained double-digit growth for the third quarter in a row, expanding 10.3 per cent in the three months to June, according to the National Bureau of Statistics.

But the figure marked a slowdown from the blistering 11.9 per cent growth in the first quarter and the 10.7 per cent in the last three months of 2009, after Beijing introduced a range of measures to avert economic overheating...

The nation's closely watched consumer price index, the main gauge of inflation, rose 2.9 per cent on year in June alone, compared with 3.1 per cent in the previous month, the statistics bureau said.

It was a similar picture in the US, with initial jobless claims falling last week but manufacturing contracting last month. Reuters reports:

Initial claims for state unemployment benefits dropped 29,000 to 429,000 last week, the lowest level in 23 months, as seasonal layoffs at factories eased, the Labor Department said. That was well below market expectations for a fall to 450,000.

In a second report, the department said producer prices fell 0.5 percent last month as gasoline prices dropped and food costs recorded their largest decline since April 2002....

The relatively good news on employment was overshadowed by a Federal Reserve report showing industrial production rose 0.1 percent last month, braking sharply from May's 1.3 percent advance. Manufacturing output declined 0.4 percent, snapping a three-month streak of gains.

That weakness probably persisted this month, with measures of factory activity in New York state and the mid-Atlantic region slowing sharply from June. Growth in New York state was the slowest in seven months, while expansion in the mid-Atlantic region retreated to levels last seen in August.

Thursday 15 July 2010

US retail sales fall, Europe maintains recovery, Asia looks hot

US retail sales fell again in June. Bloomberg reports:

Sales at U.S. retailers dropped in June for a second month, indicating the economic recovery dissipated heading into the second half of 2010.

Purchases decreased 0.5 percent, more than projected, after declining 1.1 percent in May, Commerce Department figures showed today in Washington. Excluding auto dealers, demand fell 0.1 percent, matching the median forecast of economists surveyed by Bloomberg News...

Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales rose 0.2 percent after a 0.2 percent decrease the prior month.

Other reports in the US on Wednesday also pointed to slowing growth.

Prices of goods imported into the U.S. fell in June by the most since January 2009, led by declines in costs of oil, business equipment and consumer goods, a report from the Labor Department also showed today. The 1.3 percent drop in the import price index was more than projected and followed a revised 0.5 percent decline in May.

A lack of inflation and the financial turmoil caused by the European debt crisis led the Federal Reserve last month to renew a pledge to keep interest rates near zero. Minutes of the meeting released today showed policy makers’ noted downside risks had increased, lowered growth forecasts for this year and reduced price estimates for 2010 though 2012.

Companies started bracing for slower growth when sales began retreating in May. Inventories rose 0.1 percent that month from April, the smallest gain this year, another Commerce Department report showed today. The increase in the value of stockpiles was smaller than the median forecast of economists surveyed by Bloomberg News and followed a 0.4 percent advance the prior month.

Meanwhile, eurozone data showed that growth was still being maintained in June with little threat of inflation. Bloomberg reports:

European inflation slowed in June and industrial production increased less than economists forecast in May as the economy struggled to gather strength.

Consumer prices in the 16-member euro region rose 1.4 percent from a year ago after increasing 1.6 percent in May, the European Union statistics office in Luxembourg said today. Industrial production rose 0.9 percent in May from the previous month, when it also increased 0.9 percent, a separate report showed today. Economists forecast output to rise 1.2 percent, the median of 27 estimates in a Bloomberg News survey showed.

UK data also show that the economic recovery is intact. Reuters reports:

The number of people claiming unemployment benefit in Britain fell to its lowest in more than a year in June, while the number of those in work jumped at its fastest in four years, suggesting recovery remains on track.

But figures from the Office for National Statistics also showed a marked slowdown in earnings growth, which should reassure the Bank of England that high inflation is not propelling pay demands and persuade it to keep policy loose.

Wednesday's figures showed the number of people claiming jobless benefit fell by a bigger-than-expected 20,800 in June, its fifth consecutive monthly fall and pushing the claimant count rate down to a 15-month low of 4.5 percent.

But while the US and Europe struggle to maintain growth, Asia is at risk of overheating.

In India, inflation keeps creeping higher. AFP/CNA reports:

India's double-digit inflation edged higher in June, touching an annual rate of 10.55 percent, official data showed Wednesday, stoking pressure for another interest rate hike this month.

The inflation increase, which comes ahead of the central bank's quarterly policy meeting on July 27, was mainly due to a rise late last month in fuel costs as well as an increase in food prices, the data showed.

Such is the pace of growth throughout Asia that even China's double-digit growth rate no longer looks exceptional, not when newly-industrialised Singapore can boast a higher growth rate. From CNA:

The Singapore government on Wednesday upgraded its 2010 economic growth forecast to a blistering 13 to 15 per cent, outstripping estimates of around 10 per cent growth in regional powerhouse China...

GDP growth in the first quarter was 16.9 per cent from a year ago, the Ministry of Trade and Industry (MTI) said, while second quarter expansion is estimated at 19.3 per cent...

On an annualised and seasonally adjusted basis, Singapore economy expanded 26.0 per cent in the April-June period. The manufacturing sector is estimated to have grown by 45.5 per cent year-on-year.

Strong economic growth throughout the region has emboldened Thailand's central bank to raise its benchmark interest rate for the first time since 2008 by 25 basis points to 1.5 percent.

Wednesday 14 July 2010

Japanese industrial production and consumer confidence up

There was good news for Japan on Tuesday. Industrial production for May has been revised up, RTTNews reports:

Japan's industrial production recorded a 0.1% monthly growth in May, final data from Ministry of Economy, Trade and Industry showed Tuesday. The initial estimate for May had showed a 0.1% fall in production. Compared to May 2009, industrial output surged 20.4%.

In further good news for Japan, consumer confidence rose in June. Bloomberg reports:

Japan’s household sentiment rose for a sixth month in June, a sign that the world’s second-largest economy is sustaining its expansion.

The confidence index climbed to 43.5 last month from 42.8 in May, the Cabinet Office said today in Tokyo. A number below 50 means pessimists outnumber optimists.

In contrast, consumer confidence in the UK fell in June. Reuters reports:

Consumer morale fell to its gloomiest level in a year in June, the Nationwide building society said on Wednesday, as the outlook for the economy and household finances darkened.

Nationwide's consumer confidence index dropped to 63 in June from 66 in May. Worse could lie ahead, given that the survey did not cover the period immediately after the Conservative-Liberal Democrat coalition's austerity budget on June 22.

A mixed picture on inflation in the UK isn't helping confidence. Again from Reuters:

The Office for National Statistics said annual consumer price inflation eased to 3.2 percent last month from 3.4 percent in May, after prices rose 0.1 percent on the month. Inflation has been above the Bank's 2 percent target since December.

Many economists had anticipated a sharper decline and gilts fell and sterling rose on the news. Core inflation -- which strips out volatile energy and food prices -- unexpectedly rose to 3.1 percent, its joint highest on record, raising fears that price pressures are far more entrenched than previously thought.

Still, you can usually tell that global economic growth has been strong when the US trade deficit rises, as it did in May. From Bloomberg on Tuesday:

The trade deficit in the U.S. unexpectedly widened in May to the highest level since November 2008 as a gain in imports outpaced growth in exports.

The gap expanded 4.8 percent to $42.3 billion as U.S. companies imported more automobiles and consumer goods, Commerce Department figures showed today in Washington...

Exports from the U.S. to the rest of the world increased 2.4 percent to $152.3 billion, reflecting gains in industrial materials, business equipment and semiconductors. Imports rose 2.9 percent in May to $194.5 billion, led by an increase in demand for cars, pharmaceuticals, toys and clothing from abroad.

Tuesday 13 July 2010

China's property prices fall

It looks like China's property market is cooling. From Bloomberg:

China’s property prices snapped 15 months of gains and bank lending eased in June, indicating that curbs on credit may diminish inflation pressures even as record exports support growth.

Real-estate prices in 70 cities fell 0.1 percent from the previous month, the statistics bureau said in Beijing today. New lending of 603 billion yuan ($89 billion) was the least in three months, the central bank said in a report yesterday...

Meantime, China’s foreign-exchange reserves had their smallest quarterly gain since 2001, climbing $7.2 billion to $2.454 trillion, the report showed.

The fall in property prices in June was small but could be a sign of more to come as there appears to be no let-up yet in the government's efforts to cool the market. Again from Bloomberg:

China will “strictly” enforce housing policies such as lending rules to prevent speculative real estate investment, the Ministry of Housing and Urban-Rural Development reiterated in a statement yesterday on its website.

The ministry will increase the supply of affordable homes and the redevelopment of shanty areas, the statement said.

Monday 12 July 2010

Global economic indicators still point to slower growth

The past week provided more evidence that economic growth is slowing around the world.

On Friday, the Organisation for Economic Cooperation reported that its composite leading indicator for member countries increased by just 0.1 point in May, the tenth consecutive monthly deceleration.

OECD composite leading indicators
 Ratio to trend,
amplitude adjusted
Change from previous month
OECD area102.3102.9103.3103.6103.
United States101.3102.1102.7103.2103.
Euro area103.4103.8104.2104.5104.

Surveys of purchasing managers around the world showed that industry activity continued to increase in June. However, the rate of increase has slowed as the indices compiled by JPMorgan and Markit showed declines last month.

JPMorgan Global All-Industry Indices
New orders56.955.353.3
Input prices60.959.254.5

Declines in the purchasing managers indices in the United States contributed significantly to the decline in the global index. Last week, the Institute for Supply Management reported that its index of non-manufacturing businesses fell to 53.8 in June from 55.4 in May. The previous week, it had reported that the manufacturing PMI fell to 56.2 last month from 59.7 the month before.

In the euro area, Markit reported that its composite purchasing managers index fell to 56.0 in June from 56.4 in May after its index of services activity in the region fell to 55.5 from 56.2.

Industrial production data from the euro area last week looked better. German industrial production, for example, rose 2.6 percent in May, accelerating from 1.2 percent in April.

Nevertheless, industrial production could still slow. German factory orders declined 0.5 percent in May after having jumped 3.2 percent in April.

Over the past week, however, it was probably Japan that provided the greatest number of indications of slowing growth.

A Cabinet Office report last week showed that Japan's composite coincident index fell to 101.2 in May from 101.3 in April, the first decline since the economy began recovering last year. And lending weight to the OECD data on Japan, the Cabinet Office's own composite leading indicator fell to 98.7 in May, its second consecutive decline, from 101.7 in April.

The Cabinet Office's economy watchers survey showed that the diffusion index for current conditions fell to 47.5 in June, the second consecutive decline, from 47.7 in May. The diffusion index for future conditions fell to 48.3 from 48.7.

Core private-sector machinery orders, an indicator of corporate capital spending, fell 9.1 percent in May, more than reversing a 4.0 percent increase in April.

The current account surplus shrank 34.4 percent in May as exports, a key driver of economic growth, fell 0.5 percent from the previous month.

However, while economic growth is clearly slowing, at the moment, there is still little evidence that the global economy is heading back into recession soon. For example, most of the OECD's composite leading indicators are still rising.

This assessment could change though if the on-going rate of deceleration continues for a few more months.

Sunday 11 July 2010

China's exports jump 43.9 percent

Despite the large year-on-year increase, Chinese export growth actually slowed in June. AFP/CNA reports the latest trade figures from China.

China said Saturday its exports continued to soar in June, as demand for Chinese-made goods remained robust despite the European crisis and tepid US recovery.

The nation's overseas shipments of items including electronic gadgets, shoes and textiles, reached 137.4 billion dollars last month, up 43.9 percent from the previous year.

The pace of growth was slower than in May when exports surged 48.5 percent, but was better than most analysts had expected.

China posted a trade surplus of 20.02 billion dollars in June, up slightly from the month before, according to figures released by customs authorities.

The figure compared with a trade surplus of 19.53 billion dollars in May and 1.68 billion dollars in April.

Imports gained 34.1 percent year-on-year to 117.4 billion dollars, marking a slowdown from May when imports of raw materials and other products soared 48.3 percent.

Saturday 10 July 2010

South Korea raises interest rate

Asian economies have been among the strongest performers in recent quarters, and Asian central banks have been among the earliest to raise interest rates this cycle. Bloomberg reports the latest one, this time coming from South Korea.

The Bank of Korea raised its benchmark interest rate for the first time since the global crisis, joining counterparts across Asia in removing monetary stimulus as the region leads world growth. The won climbed.

Governor Kim Choong Soo boosted the seven-day repurchase rate to 2.25 percent from a record low 2 percent, the bank said in a statement in Seoul today. An increase was forecast by just four of 14 economists surveyed by Bloomberg News. Investors are already boosting bets on another move.

The won neared a two-week high as South Korea joined India, Malaysia and Taiwan in lifting rates in recent weeks, judging that Asia’s expansion will remain resilient to Europe’s debt crisis. The decision follows Kim’s assessment that growth may surpass the country’s trend rate, and a call by the government to wait until second-quarter data come later this month.

Sovereign debt woes will prevent the ECB from tightening monetary policy anytime soon, but eurozone economic data in recent days have actually been quite positive. Following Thursday's strong German industrial output data, France and Italy both also reported good industrial production growth on Friday. From Reuters:

In Italy, the euro zone's third largest economy, output rose 1.0 percent from the month before, data showed on Friday, the fifth consecutive gain and easily beating forecasts of a 0.5 percent increase.

That followed even more impressive data from France, where output jumped 1.7 percent, helped by hot weather boosting demand for electricity, and from the euro zone's industrial powerhouse Germany, which on Thursday reported a surge of 2.6 percent.

Friday 9 July 2010

ECB and BoE leave rates unchanged as data turn positive

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

The European Central Bank left interest rates at a record low as rising market borrowing costs and the sovereign debt crisis threaten to derail the region’s economic recovery.

Policy makers meeting in Frankfurt today kept the benchmark rate at 1 percent, as predicted by all 55 economists surveyed by Bloomberg News. Separately, the Bank of England left its key rate at 0.5 percent...

Despite concerns about the eurozone economy, European Central Bank President Jean-Claude Trichet said at a press conference in Frankfurt after the ECB policy meeting that Europe’s economy is stronger than some investors think.

Indeed, European economic reports on Thursday were quite positive.

In Germany, exports jumped 9.2 percent in May and imports surged 14.8 percent while industrial production rose 2.6 percent.

In the UK, industrial production rose 0.7 percent in May, prompting the National Institute of Economic and Social Research to estimate that GDP grew 0.7 percent in the second quarter.

But the global economy in general has done better than expected in the first half of the year, leading the IMF to now upgrade its growth forecast for this year.

... Our forecast for world growth in 2010 is about 4½ %, a bit higher than our April forecast of around 4¼ %. This revision largely reflects the stronger activity during the first half of the year. Our forecast for 2011 is broadly unchanged, at about 4¼ %.

Thursday 8 July 2010

German factory orders and Japanese machinery orders fall in May

The US manufacturing recovery may be about to end but recent data suggest that growth in manufacturing elsewhere may also be weakening.

Yesterday, Bloomberg reported that German factory orders unexpectedly fell in May.

German factory orders unexpectedly fell for the first time in five months in May as demand for goods made in Europe’s largest economy waned across the 16- nation euro region.

Orders, adjusted for seasonal swings and inflation, declined 0.5 percent from April, when they rose a revised 3.2 percent, the Economy Ministry in Berlin said today. Economists had forecast a 0.3 percent gain for May, according to the median of 30 estimates in a Bloomberg News survey. From a year earlier, orders increased 24.8 percent.

Today, Japan reported a plunge in machinery orders. From AFP/CNA:

Japan's core private-sector machinery orders, a key indicator of corporate capital spending, fell more than expected in May, figures showed Thursday, amid caution over the nation's economic health.

The orders dropped 9.1 per cent in May from the previous month with firms holding back on business investment.

And that was not the only negative news out of Japan today.

A separate report Thursday showed that Japan's current account surplus in May shrank for the first time in 10 months, hit by slower export growth and a drop in income on overseas investment, the finance ministry said.

The surplus in the current account -- the broadest measure of trade with the rest of the world -- came to 1.21 trillion yen (13.7 billion dollars), down by 8.1 per cent from a year ago.

And from Reuters:

Japan's service sector sentiment index fell to 47.5 in June, a Cabinet Office survey showed on Thursday, down for two months in a row in a sign of slowing recovery in business confidence.

Wednesday 7 July 2010

Japan and US show signs of slower growth

Evidence continues to mount that the global economy is slowing.

In Japan, the leading and coincident indices declined in May. Bloomberg reports:

Japan’s broadest indicator of economic health dropped for the first time in 14 months, signaling the recovery is losing momentum after rebounding from the worst postwar recession.

The coincident index, a composite of 11 indicators including factory production and retail sales, fell to 101.2 in May from 101.3, the Cabinet Office said today in Tokyo. The result matched the median estimate of 16 economists surveyed...

The leading index, a composite of 12 indicators including stock prices and consumer confidence, fell to 98.7 in May, the second straight decline, today’s report showed. Economists expect Japan’s annualized quarterly growth will be below 2 percent at least until the middle of next year, according to median estimates.

In the US, service industries joined their manufacturing counterparts in reporting slower growth in June. Again from Bloomberg:

Service industries in the U.S. expanded in June at a slower pace than forecast, indicating the economy was beginning to cool entering the second half.

The Institute for Supply Management’s index of non- manufacturing businesses, which covers about 90 percent of the economy, fell to a four-month low of 53.8 from 55.4 in May. The June figure was less than the median forecast of 55 in a Bloomberg News survey. Readings above 50 signal expansion. Orders slowed for a third month and employment declined.

Tuesday 6 July 2010

Eurozone and China show signs of slower growth

Eurozone retail sales rose in May but it has been a slow recovery over the past year. From Bloomberg on Monday:

European retail sales rose in May as households in Germany, France and Spain stepped up spending.

Sales in the 16-nation euro area rose 0.2 percent from April, when they fell 0.9 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast a gain of 0.3 percent, the median of 19 estimates in a Bloomberg News survey showed. In the year, sales rose 0.3 percent.

And eurozone economic growth could be slowing further. Again from Bloomberg:

Growth in Europe’s services and manufacturingindustries slowed for a second month in June, adding to indications the recovery is losing momentum.

A composite index based on a survey of euro-area purchasing managers in both industries fell to 56 from 56.4 in May, London- based Markit Economics said today. That’s in line with an initial estimate published on June 23. A reading above 50 indicates expansion...

An index of services in the euro region fell to 55.5 from 56.2, today’s report showed. A gauge of euro-area manufacturing declined to 55.6 from 55.8 in the previous month, Markit said on July 1.

Even China is seeing signs of slowing. Bloomberg reports:

China’s auto sales grew at a slower pace in June and a services-industry index slid to a 15-month low, adding to signs that the economy leading the world recovery is cooling.

Passenger-car purchases rose 10.9 percent from a year earlier, down from May’s 25 percent gain, the China Automotive Technology & Research Center said today. The services-industry measure fell to 55.6 from 56.4, HSBC Holdings Plc and Markit Economics said in an e-mailed statement...

The Shanghai Composite Index fell 0.8 percent to close at a 15-month low, extending this year’s decline to 28 percent.

Monday 5 July 2010

US manufacturing recovery may be about to end

The United States economic recovery is becoming increasingly at risk as signs of slower manufacturing activity continue to accumulate.

On Friday, the Labor Department reported that the economy lost 125,000 jobs in June. The underlying employment situation is somewhat better though. Excluding the 225,000 temporary census workers, employment increased 100,000.

Still, manufacturing payrolls increased by just 9,000 in June. This is the smallest gain this year.

However, employment is at best a coincident indicator. Leading indicators tell an even more worrisome story.

Also on Friday, the Economic Cycle Research Institute reported that its Weekly Leading Index fell to 122.2 in the week ending 25 June from 122.9 the week before. The annualised growth rate of the index fell to minus 7.7 percent from minus 6.9 percent the week before.

Another report on Friday by the Commerce Department showed that manufacturing orders fell 1.4 percent in May, the biggest decline since March 2009. Slower manufacturing growth would be consistent with the slower growth in manufacturing employment reported by the Labor Department.

Corroborating evidence for slowing manufacturing activity came earlier last week from the Institute for Supply Management's report on manufacturing purchasing managers. The report showed that the manufacturing PMI fell to 56.2 in June from 59.7 in May, the second consecutive month of decline. The ISM's new orders index fell to 58.5 from 65.7.

The PMI remains above 50, which is generally considered to be the dividing line between expansion and contraction in manufacturing activity, so the June reading is probably indicating only slower growth.

However, John Hussman's article "Recession Warning" on 28 June showed that the growth rate of the ECRI's WLI has historically correlated strongly with the PMI. Hussman says in his article that the WLI growth rate has a lead time of about 13 weeks over the PMI.

Therefore, the recent decline in the former indicates that the PMI is also likely to deteriorate further. The WLI growth rate had been over 20 percent in January and was still at 12 percent at the beginning of May. It is now down to minus 7.7 percent. The big falls in the PMI appear to be ahead of us.

In fact, the decline in the WLI growth rate over the past few months has been so sharp that there appears to me to be a good chance that the PMI might fall below 50 within the next few months, indicating an outright contraction in manufacturing activity.

Considering that manufacturing has been a key driver of the recovery so far, a contraction in manufacturing activity would put the economy at risk of falling back into recession.

Indeed, in his article, Hussman goes on to say that because of other conditions already prevailing, including the behaviour of the yield curve, credit spreads, stock prices, and employment growth, "the US economy is most probably either in, or immediately entering a second phase of contraction".

Saturday 3 July 2010

US employment and factory orders fall, India raises interest rates

The US non-farm payrolls report on Friday confirmed concerns that the underlying employment trend remains weak. MarketWatch reports:

Total nonfarm payroll employment fell by 125,000 in June as the number of temporary census workers dropped by 225,000, according to the Labor Department. This is the first decline in nonfarm payrolls this year...

Private hiring edged up by a disappointing 83,000 in June from a revised 33,000 increase in May, originally reported as a 41,000 gain...

The nation's unemployment rate fell to a seasonally adjusted 9.5% in June from 9.7% in May, according to a separate survey by the government of 60,000 households...

But the decline wasn't particularly good news because it reflected 652,000 people dropping out of the labor force...

And to add to the concerns for the economy, manufacturing may be losing some of its earlier strength. Bloomberg reports:

Orders placed with U.S. factories declined in May more than forecast, a sign that manufacturing may be starting to cool.

The 1.4 percent decrease in bookings was the biggest since March 2009 and followed a revised 1 percent gain in April, the Commerce Department said today in Washington. Economists forecast orders would drop 0.5 percent, according to the median projection in a Bloomberg News survey.

Meanwhile, in the euro area, unemployment was unchanged in May. Again from Bloomberg:

European unemployment held at the highest in almost 12 years in May as the debt crisis made companies reluctant to add workers.

The jobless rate in the 16-nation euro area remained at 10 percent, the European Union’s statistics office in Luxembourg said today. That’s the highest since August 1998. The April figure was revised down from a previously reported 10.1 percent. Producer-price inflation accelerated to 3.1 percent in May from 2.8 percent in April, a separate release showed.

While high unemployment is the main concern in the US and Europe, high inflation is the concern in many emerging economies, including India. From AFP/CNA:

India's central bank on Friday hiked two key short-term interest rates by 25 basis points in a bid to tame double-digit inflation.

The Reserve Bank of India (RBI) said in a statement on its website that the decision was taken before its scheduled July 27 meeting "to contain inflation and anchor inflationary expectations going forward".

Governor D. Subbarao said the repo -- the lending rate to commercial banks -- has risen to 5.50 percent with immediate effect while the reverse repo -- the rate the central bank pays to banks for deposits -- is now 4.0 percent.

Friday 2 July 2010

Tankan improves but global manufacturing slows

Japanese business confidence improved in the last quarter. AFP/CNA reports:

Japanese business confidence has reached its highest level in two years, as the world's number two economy continues to recover from its worst slump in decades, the Bank of Japan said Thursday.

The index of sentiment among major manufacturers rose for a fifth straight quarter to one point in June from minus 14 in March, according to the central bank's closely watched Tankan survey of more than 11,000 firms...

Large manufacturers and non-manufacturers plan to boost capital spending by 4.4 per cent in the fiscal year that began in April, better than the 0.4 per cent decline forecast in March and a revised 17 per cent cut in the previous year.

The Tankan was about the only major economic indicator released on Thursday to show improvement though.

China reported slower manufacturing activity in June. Again from AFP/CNA:

The HSBC China Manufacturing PMI, or purchasing managers index, fell to 50.4 last month from 52.7 in May, the bank said...

A separate survey released by a government agency on Thursday showed manufacturing activity slowed to 52.1 in June from 53.9 in May.

In Europe, the Markit eurozone manufacturing PMI fell to 55.6 in June from 55.8 in May, confirming the earlier flash estimate, while the UK manufacturing PMI fell to 57.5 last month from 58.0 in May.

Data from the US also indicated a weaker economic outlook. Bloomberg reports:

The Institute for Supply Management’s manufacturing gauge fell more than forecast to 56.2 last month from 59.7 in May...

First-time filings for jobless benefits rose 13,000 last week to 472,000, the Labor Department said today...

The number of contracts to purchase previously owned houses plunged 30 percent in May, more than twice as much as forecast, after a homebuyer tax credit expired, the National Association of Realtors said today.

A separate report from the Commerce Department showed construction spending fell 0.2 percent in May, the first decline in three months, as homebuilders cut back and work on factories and transportation structures decreased.

Thursday 1 July 2010

European banks bring relief but US shows slower growth

There was relief in markets on Wednesday after European banks indicated that they may not be as desperate for ECB money as initially feared. Bloomberg reports:

German government bonds fell after the European Central Bank loaned institutions less money than some analysts expected, damping demand for safety and restoring optimism that the region will weather the sovereign-debt crisis.

The two-year German note snapped two days of gains after lenders asked the ECB for 131.9 billion euros ($162 billion) of three-month loans before a 12-month facility is repaid tomorrow. Barclays Plc estimated before the release that banks would ask for 250 billion euros to 300 billion euros, with a figure in the higher end of that range indicating institutions were still finding it hard to fund themselves. Germany also sold 4.94 billion euros of two-year securities today.

Economic data from the US continue to point to slower growth though. Reuters reports:

U.S. private employers added only 13,000 jobs in June, a report by payrolls processor ADP Employer Services showed on Wednesday, well below the 60,000 jobs economists had expected in a Reuters survey and below May's level...

The Institute for Supply Management-Chicago business barometer fell to 59.1 in June from 59.7 in May, and economists had forecast a June reading of 59.0. A reading above 50 indicates expansion in the regional economy.

In a less encouraging sign, applications to buy homes dropped 3.3 percent to hover just above 13-year lows, the Mortgage Bankers Association said, despite low borrowing costs and home prices average about 30 percent less than their peaks four years ago.