Economic recovery continues

The latest economic reports from Europe, the United States and Japan indicate that the recovery in these economies probably continued at the beginning of the third quarter.

In Europe, a report from the European Commission on Monday showed that growth appears to be holding up so far in the third quarter. The European Commission reported that its Economic Sentiment Indicator continued to improve in August in both the European Union as a whole and the euro area specifically. The indicator rose by 0.6 to 102.7 in the EU and by 0.7 to 101.8 in the euro area. In both the EU and the euro area, the indicator has now risen for four consecutive months.

For all the worries of a double dip in the United States, growth in its economy has also probably held up, at least at the beginning of the third quarter. Also on Monday, the Commerce Department reported that personal consumption expenditures rose 0.4 percent in July or 0.2 percent after adjusting for inflation.

However, the picture from the income data is less encouraging. Disposable personal income increased by 0.2 percent in July but fell by 0.1 percent after adjusting for inflation. Personal income excluding current transfer receipts, generally considered a better indication of the underlying income growth trend, was flat for the second consecutive month after accounting for inflation.

At least Japan, which had reported the weakest second quarter growth rate among the major industrialised economies, had better news to report today. The Ministry of Economy, Trade and Industry reported that industrial production, which had fallen by a sharp 1.1 percent in June, rebounded slightly in July, rising by 0.3 percent. According to the ministry's survey of production forecasts, the recovery is expected to accelerate in August with production rising by 1.6 percent before settling back to a 0.2 percent increase in September.

So while the latest economic reports are not exactly painting an unambiguously optimistic picture, they do indicate that the global economic recovery was probably maintained at the beginning of the third quarter.

BoJ expands loan programme

The Bank of Japan announced additional stimulus measures on Monday. AFP/CNA reports:

The Bank of Japan decided at an emergency policy meeting Monday to expand its funding programme introduced in December in an effort to safeguard a fragile recovery threatened by a strong yen...

The bank said it would offer around 10 trillion yen (118 billion dollars) in six-month loans in addition to the 20 trillion yen of an existing three-month loan programme that started in December.

In another policy move in Asia, South Korea announced measures to boost its housing market. Again from AFP/CNA:

South Korea's government Sunday announced measures to ease curbs on mortgage lending to counteract a slump in the housing market.

Under the plan, jointly announced by several agencies including the land and finance ministries, the government will temporarily roll back some restrictions introduced in the mid-2000s to curb soaring prices.

Limits for some borrowers will be lifted until next March, giving banks the power to decide how much they can lend to homebuyers.

In Singapore, however, policy makers are trying to cool the housing market. CNA reports:

The government said Monday that it will increase the holding period for imposition of Seller's Stamp Duty (SSD).

The SSD will be raised from the current one year to three years.

Another measure will impact those who have more than one outstanding housing loan.

Property buyers who already have one or more outstanding housing loans at the time of the new housing purchase will have to pay more money upfront.

UK and US GDP revised in opposite directions

UK second quarter GDP growth has been revised up. Reuters reports:

Britain's economy grew at its fastest pace for nine years in the second quarter, an unexpected revision to official data showed on Friday, but economists said a sharp slowdown was still on the cards.

Strong construction activity caused the Office for National Statistics to boost its initial estimate of 1.1 percent GDP growth for the three months to June to 1.2 percent, against expectations for an unchanged reading.

In contrast, US second quarter GDP growth has been revised down. Bloomberg reports:

The economic recovery in the U.S. weakened in the second quarter more than previously estimated, highlighting the risks of a prolonged slackening in growth.

The world’s largest economy grew at a 1.6 percent annual pace, exceeding the median forecast of economists surveyed by Bloomberg News and down from an estimate of 2.4 percent issued last month, revised figures from the Commerce Department showed today in Washington.

Meanwhile, consumer sentiment improved slightly in August.

The Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 68.9 in August from 67.8 the prior month. The index averaged 89 in the five years leading up to the recession that began December 2007. The gauge was projected to rise to 69.6, unchanged from a preliminary reading issued earlier this month, according to the median forecast of 65 economists in a Bloomberg News survey.

Investor sentiment, though, improved considerably on Friday. Again from Bloomberg:

Stocks and commodities surged while Treasuries retreated after Federal Reserve Chairman Ben S. Bernanke pledged to safeguard the recovery and economic growth slowed less than estimated in the second quarter.

The Standard & Poor’s 500 Index rose 1.7 percent to 1,064.59 at the 4 p.m. close in New York, paring its third straight weekly decline to less than 0.7 percent. Ten-year Treasury yields, which slid to a 17-month low this week, surged 17 basis points to 2.65 percent. Oil rose for a third day, helping send the Reuters/Jefferies CRB Index of commodities up 1.2 percent. The yen weakened against all 16 major counterparts as Japanese Prime Minister Naoto Kan planned to stem its rally.

Bernanke said the U.S. central bank will do all that it can to ensure a continuation of the recovery, including “unconventional measures.” The 1.6 percent growth in U.S. gross domestic product in the second quarter surpassed the median economist estimate in a Bloomberg survey and tempered concern the economy will relapse into recession.

Economic data flow takes a turn for the better

On Thursday, the euro area reported better loan growth in July. From Bloomberg:

Loans to households and companies in Europe grew at the fastest pace in 13 months in July after the economic recovery gathered steam.

Loans to the private sector rose 0.9 percent from a year earlier after growing an annual 0.5 percent in June, the European Central Bank in Frankfurt said today. That’s the strongest increase since June 2009. M3 money supply, which the ECB uses as a gauge of future inflation, increased an annual 0.2 percent in July, the same rate recorded in the previous month.

US data on Thursday showed that jobless claims fell last week. Reuters reports:

New U.S. jobless claims fell more than expected last week but were too high to signal a shift in a weak labor market that is constraining economic growth...

Initial claims for state unemployment benefits fell 31,000 to a seasonally adjusted 473,000 last week, better than market expectations for a drop to 490,000...

The claims report also showed the number of people still receiving benefits after an initial week of aid fell 62,000 to 4.46 million in the week ended August 14...

Separately, the number of U.S. homes headed for foreclosure fell in the second quarter for the first time since the housing slump began in 2006, but improvements may be fleeting as the number of newly delinquent homeowners rose, the Mortgage Bankers Association said.

Today, we have Japan reporting that it remains stuck in deflation. From Bloomberg:

Japan’s consumer prices fell for a 17th month and household spending rose less than forecast, driving stocks lower on concern that the nation’s economic recovery is faltering.

Consumer prices excluding fresh food declined 1.1 percent in July from a year earlier, the statistics bureau said today. Household spending rose 1.1 percent, lower than economists’ estimates for a 1.5 percent gain...

However, that is not stopping the job market from recovering.

Labor data were one of the few bright spots out of today’s reports. The economy added 210,000 jobs in July from a month earlier, the most since January, the government said. The job- to-applicant ratio rose to 0.53 in July, meaning there are 53 job openings for every 100 candidates, the most since March 2009, according to a separate report released today.

US and Japanese economic data weak but German business confidence rises

US economic data released on Wednesday were weak. Bloomberg reports:

Orders for durable goods in the U.S. increased less than forecast in July and sales of new homes unexpectedly dropped, increasing the risk of a renewed recession in the world’s largest economy.

Bookings for goods made to last at least three years rose 0.3 percent, figures from the Commerce Department showed today in Washington. Excluding transportation equipment, demand fell by the most in more than a year. Purchases of new dwellings fell 12 percent to an annual pace of 276,000, the weakest since data began in 1963, figures from the same agency showed.

Earlier on Wednesday, Japan had reported further weakening in its exports. From Bloomberg:

Japan’s export growth slowed for a fifth month in July, adding to risks in an economy under threat from the yen’s surge to a 15-year high against the dollar.

Overseas shipments advanced 23.5 percent in July from a year earlier, less than June’s 27.7 percent gain, the Finance Ministry said in Tokyo today. The median estimate of 18 economists surveyed by Bloomberg News was for a 21.8 percent increase. From a month earlier, exports fell 1.4 percent, the third monthly drop.

Germany remains a bright spot in the world economy though. Again from Bloomberg:

German business confidence unexpectedly increased for a fourth month in August to a fresh three-year high, suggesting the economy may not lose as much momentum as some economists forecast.

The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, rose to 106.7 from 106.2 in July. Economists expected a drop to 105.7, according to the median of 36 forecasts in a Bloomberg News survey.

Eurozone industrial orders rise, US existing home sales plunge

European economic indicators released on Tuesday were positive.

Bloomberg reports that industrial orders in the euro area rose in June.

European industrial orders rose more than economists forecast in June as strengthening global growth helped fuel the region’s fastest expansion in four years in the second quarter.

Orders in the 16-nation euro area increased 2.5 percent from May, when they jumped 4.1 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast orders to rise 1.5 percent, the median of 17 estimates in a Bloomberg News survey showed. In the year, June industrial orders rose 22.6 percent after a 23 percent gain in May.

In addition, the National Bank of Belgium's business confidence index rose to minus 5.1 in August from minus 6.5 in July.

Europe's economic outlook, however, continues to be threatened by sovereign debt issues, the latest of which is a downgrade of Ireland's sovereign credit rating by Standard & Poor's. Bloomberg reports:

Ireland’s long-term sovereign credit rating was cut one step to AA- from AA by Standard & Poor’s, which cited the projected cost of supporting the nation’s financial sector.

“The negative outlook reflects our view that a further downgrade is possible if the fiscal cost of supporting the banking sector rises further, or if other adverse economic developments weaken the government’s ability to meet its medium- term fiscal objectives,” S&P said today in a statement.

On Tuesday, the spread between Irish and German 10-year bond yields had widened to a record 318 basis points.

In the US, the report of a sharp fall in existing home sales in July was the focus of attention. From Bloomberg:

Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery.

Purchases plummeted to a 3.83 million annual pace, the lowest in a decade of record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed today in Washington. Demand for single-family houses dropped to a 15- year low and the number of homes on the market swelled.

Eurozone growth moderates slightly in August

Monday's economic reports from Europe were mixed.

Reuters reports that growth in the euro area moderated in August.

The euro zone's economic recovery moderated only slightly in August and companies are more optimistic about the coming months despite a divergence in growth rates between countries, a survey showed on Monday.

The Eurozone Flash Composite Purchasing Managers' Index (PMI), which gauges activity in thousands of services and manufacturing companies, fell in August to 56.1 from 56.7 in July, a slightly bigger fall than expected.

However, consumer confidence in the euro area improved in August. Again from Reuters:

Euro zone consumer confidence showed a steady improvement in August, figures from the European Commission showed on Monday, although the longer term prospects for the region's growth remain uncertain.

The Commission's flash estimate of consumer optimism in the 16-country currency area rose to -11.7 this month from a revised 14.0 in July (previously reported as 14.1), the data showed. The figure puts the index at a 27-month high.

Across the whole 27 country European Union, sentiment improved to -11.4 from -13.8.

Meanwhile, US economic activity improved in July, according to the Chicago Fed's national activity index.

Led by improvements in production-related indicators, the Chicago Fed National Activity Index returned to its historical average of zero in July, up from –0.70 in June. Three of the four broad categories of indicators that make up the index improved from June, but only the production and income category made a positive contribution to the index in July.

The index’s three-month moving average, CFNAI-MA3, edged lower to –0.17 in July from –0.12 in June. July’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

US jobless claims jump, UK retail sales rise

Slowdown concerns in the US were heightened after Thursday's economic data. From Bloomberg:

Claims for U.S. jobless benefits jumped to the highest level since November and Philadelphia-area manufacturing shrank for the first time in a year, indicating the economy may be slowing faster than forecast.

The number of unemployment claims unexpectedly shot up by 12,000 to 500,000 in the week ended Aug. 14, Labor Department figures showed today in Washington...

Another report showed the index of leading indicators increased 0.1 percent in July after dropping 0.3 percent the prior month. The New York-based Conference Board’s gauge, which measures the economic prospects over the next three to six months, has shown a see-saw pattern over the past four months that indicates slower growth through the end of the year...

The Fed Bank of Philadelphia’s factory index fell to minus 7.7 this month, the lowest reading since July 2009, from 5.1 in July. Economists surveyed projected it would increase to 7. The area covers eastern Pennsylvania, southern New Jersey and Delaware.

There were also some weak data from the UK. From Reuters:

Lending to UK businesses fell for a fourth consecutive month in June and mortgage approvals hit their lowest in more than a year in July, data from the Bank of England showed on Thursday...

The Bank's Trends in Lending report showed the net monthly flow of lending to UK businesses contracted by 3.5 billion pounds in June, after May's 2.2 billion pound drop. The annual rate of decline held steady at 8.1 percent.

Mortgage approvals for house purchase made by Britain's six biggest lenders -- Santander, Barclays, HSBC, Lloyds, Nationwide and RBS -- dropped to 47,000 in July from 48,000 in June, its lowest since May 2009.

But there were also positives from the UK. Again from Reuters:

British retail sales volumes rose nearly three times faster than expected in July, and a surge in corporate tax receipts cut public borrowing sharply, data showed on Thursday, suggesting the recovery remains strong...

The Office for National Statistics said retail sales rose 1.1 percent on the month, the strongest growth since February and well above analyst forecasts for a 0.4 percent rise. On the year, retail sales rose 1.3 percent in volume terms, again above forecasts of a 0.6 percent rise...

The government's preferred measure of borrowing, on which its fiscal forecasts are based, "public sector net borrowing excluding financial sector interventions," came in at 3.8 billion pounds in July, down 2.3 billion pounds from a year ago.

And Reuters also reports that UK manufacturing continues to recover.

An index of British factory orders rose to its highest level in two years in August after overseas demand rebounded from a dip in July, the CBI's monthly industrial trends survey showed on Thursday.

The Confederation of British Industry survey's total order book balance rose in line with expectations to -14 this month, up from -16 in July.

US housing remains weak but industrial production rebounds

A report on Monday showing that the National Association of Home Builders/Wells Fargo Housing Market Index fell one point to 13 in August had already told us that the US housing sector remains weak.

Tuesday's data confirmed that weakness but a rebound in industrial production in July suggests that the US economy maintained its recovery trend at the beginning of the third quarter. From Reuters:

New U.S. home building rose at a much weaker pace than expected in July and permits hit a 14-month low, though sturdy growth in industrial output implied the economy has enough strength to keep growing...

Housing starts rose 1.7 percent to a seasonally adjusted annual rate of 546,000 units, the Commerce Department said, but below market expectations for a 560,000-unit pace.

New building permits, which give a sense of future home construction, dropped 3.1 percent to a 565,000-unit pace last month, the lowest level since May 2009. Financial markets had expected a 580,000-unit rate.

Separately, industrial output jumped 1 percent last month after slipping 0.1 percent in June, the Federal Reserve said. Output gains were seen across the board, with automotive products surging 8.8 percent.

In a third report showed prices paid at the farm and factory gate rose 0.2 percent last month, pulled by higher prices for food and consumer goods, the Labor Department said.

The rise in producer prices in July was the first in four months, suggesting that inflation is not a problem for the US economy. The same cannot be said of inflation in the UK. From Reuters:

British inflation slowed in July as expected but stayed far above the 2 percent target, forcing Bank of England Governor Mervyn King to explain the overshoot in an open letter to the government for the third time this year.

The Office for National Statistics said the annual CPI rate eased to 3.1 percent from June's 3.2 percent -- the lowest since February but the eighth consecutive month that it has exceeded the Bank's 2 percent target.

Japan's economy barely grows in second quarter

Japan's economic growth rate in the second quarter came in disappointingly low. Reuters reports:

Japan's economic growth slowed to a crawl in the second quarter and analysts see more weakness ahead, adding to policymakers' headaches as they grapple with deflation and a rise in the yen that threatens an export-reliant recovery...

Japan's quarterly gross domestic product growth of 0.1 percent translates to annualized expansion of 0.4 percent, well below the median market forecast of 2.3 percent and the United States' 2.4 percent annualized growth in the same quarter.

That followed revised 4.4 percent annualized growth in the first quarter, when both exports and a stimulus-driven recovery in consumption contributed to overall growth.

The Reuters report noted that China's economy may have overtaken Japan's in the second quarter.

The latest figures put China ahead of Japan as the world's second-largest economy for the quarter on a nominal dollar basis, said Keisuke Tsumura, a parliamentary secretary at the Cabinet Office...

Japan's second-quarter GDP before seasonal adjustments totaled $1.2883 trillion against China's second-quarter unadjusted GDP of $1.3369 trillion, he said.

Not to rub salt into the wound, but in terms of growth rate, Japan has also been overtaken by the other major developed economies.

Real GDP growth
	2009		2010
	Q3	Q4	Q1	Q2
United States	0.4	1.2	0.9	0.6
Japan	0.1	1.1	1.2	0.1
Germany	0.7	0.3	0.5	2.2
France	0.3	0.6	0.2	0.6
United Kingdom	-0.3	0.4	0.3	1.1
Italy	0.4	-0.1	0.4	0.4

European economy accelerates in second quarter

European economic growth turned out surprisingly strong in the second quarter. Reuters reports:

European economic growth accelerated sharply in the second quarter of 2010 as Germany's best performance since reunification more than made up for the struggles of Spain, Ireland and recession-ravaged Greece.

A forecast-beating surge in German gross domestic product combined with a solid if less impressive rise in France to push the aggregate GDP growth rate of the 16-country euro zone to 1.0 percent from the previous quarter and past that of the United States, which is showing signs of flagging.

US data on Friday were relatively mixed. Bloomberg reports:

Sales at U.S. retailers rose less than forecast and consumer confidence held near an eight-month low, indicating the economic slowdown will persist into the second half of 2010.

Purchases in July climbed 0.4 percent, led by autos and gasoline, figures from the Commerce Department in Washington showed today. A preliminary sentiment index for August rose to 69.6 from 67.8 the prior month, according to data from Thomson Reuters/University of Michigan...

Excluding autos, gasoline and building materials, which are the figures used in calculating gross domestic product, sales dropped 0.1 percent in July after a 0.3 percent rise the prior month...

The consumer-price index increased 0.3 percent, the most in a year and exceeding the 0.2 percent gain projected by the median forecast of economists surveyed. A gauge excluding volatile food and fuel costs, the so-called core rate, increased 0.1 percent, as projected...

Another report today showed inventories climbed in June, led by gains at retailers that indicate companies may need to cut prices to clear out merchandise as demand slows. The 0.3 percent increase in the value of business stockpiles followed a revised 0.2 percent rise in May, the Commerce Department said.

Eurozone industrial production unexpectedly declines

Eurozone industrial production in June turned out disappointing. Bloomberg reports:

European industrial production unexpectedly declined in June, led by a drop in durable consumer goods such as furniture and home appliances.

Output in the economy of the 16 nations that use the euro dropped 0.1 percent from May, when it increased 1.1 percent, the European Union’s statistics office in Luxembourg said today. Economists had projected a gain of 0.6 percent, the median of 32 forecasts in a Bloomberg survey showed. From a year earlier, June output gained 8.2 percent.

Still, the June year-on-year gain in eurozone industrial ouput isn't bad at all when compared with supposedly high-growth India. Again from Bloomberg:

India’s industrial production rose at the slowest pace in 13 months in June, adding to evidence that Asian economies are weakening.

Output at factories, utilities and mines rose 7.1 percent after a revised 11.3 percent gain in May from a year earlier, the statistics department said in New Delhi. The expansion was less than the estimates of all but two of 21 economists in a Bloomberg News survey.

Another country showing a decline in industrial production in June was Japan. The Ministry of Economy, Trade and Industry's final report on June industrial production showed a 1.1 percent fall from May. This, though, was better than the preliminary estimate of a 1.5 percent decline.

Japanese capital spending appears to be increasing again though. On Wednesday, Japan had reported a 1.6 percent rise in core private sector machinery orders in June. However, this followed a 9.1 percent fall in May. For the April-June quarter, this indicator rose by just 0.3 percent and is forecasted to rise by 0.8 percent in the July-September quarter.

Stocks, bond yields fall

It looks like the Fed move on Tuesday provided little lasting lift to stock markets. From Bloomberg on Wednesday:

Stocks plunged, sending the MSCI World Index to its biggest drop since June, and Treasuries led a rally in government bonds on concern that the U.S. economic recovery is faltering. The dollar surged the most in 19 months against the euro.

The MSCI measure slid 2.8 percent at 4:50 p.m. New York time, the biggest decline since June 29. The Standard & Poor’s 500 Index sank 2.8 percent, and the Dow Jones Industrial Average retreated 265.42 points, or 2.5 percent, to 10,378.83. The two- year Treasury yield fell as much as 3 basis points to a record low of 0.4892 percent. Gilts extended gains after the Bank of England cut its forecast for growth. The dollar gained up to 2.4 percent, the most since Jan. 6, 2009, to $1.2864 per euro.

Economic data released on Wednesday added to the slowdown concerns.

In the US, exports stalled in June. Bloomberg reports:

The U.S. trade deficit unexpectedly widened in June by a record $7.9 billion as imports rose and shipments abroad declined.

The $49.9 billion gap was the biggest since October 2008 and followed a $42 billion shortfall in May, Commerce Department figures showed today in Washington...

Exports decreased to $150.5 billion in June from $152.4 billion, reflecting fewer shipments of semiconductors, computers and steelmaking materials. Imports rose in June to $200.3 billion from $194.4 billion, led by telecommunications equipment, automobiles and record consumer goods.

The Chinese stock market, however, was among the few that actually rose on Wednesday despite the economy also showing signs of slowing. From Bloomberg:

China’s stocks rose, with the benchmark index rebounding from the biggest decline in six weeks, as a slowdown in industrial output growth and new lending spurred speculation the government will ease monetary policy...

The Shanghai Composite Index rose 12.22, or 0.5 percent, to close at 2,607.5. The gauge swung between gains and losses more than 10 times amid concern that rising consumer prices will limit policy makers’ ability to lift lending and property curbs. The CSI 300 Index advanced 0.6 percent to 2,850.21...

Industrial production rose 13.4 percent from a year earlier, the statistics bureau said in Beijing today. Output slowed as the government cracked down on real-estate speculation, curbed credit and closed factories to meet energy-efficiency targets.

Chinese banks extended 532.8 billion yuan ($78.7 billion) of new local-currency loans last month, the central bank said on its website today. That compared with the median forecast of 600 billion yuan in a Bloomberg News survey of 23 economists. In June, the amount was 603.4 billion yuan.

M2, the broadest measure of money supply, grew 17.6 percent from a year earlier, the data showed. The economists’ median forecast was 18.5 percent. In June, the gain was 18.5 percent...

Inflation quickened to 3.3 percent, the fastest in 21 months, boosted by a low year-earlier base for comparison and rising food costs, according to the statistics bureau.

Urban fixed-asset investment rose 24.9 percent in the first seven months of 2010 from a year earlier, the statistics bureau said today. That compared with economists’ median estimate of 25.3 percent and a 25.5 percent gain for January-through-June.

Retail sales grew an annual 17.9 percent in July, compared with 18.3 percent in the previous month, the bureau said. Economists had estimated an 18.5 percent increase.

Fed delays stimulus exit

Bloomberg reports the latest decision from the FOMC on Tuesday:

Federal Reserve officials made their first attempt to bolster the economy in more than a year, saying they will maintain their holdings of securities to stop money from draining out of the financial system.

The central bank will reinvest principal payments on mortgage assets it holds into long-term Treasuries after judging that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement after meeting today in Washington.

The FOMC decision helped stocks trim losses for the day and pushed bond yields lower, investors no doubt remembering that markets made a bottom the last time the Fed moved in a similar direction.

The Standard & Poor’s 500 Index fell 0.6 percent to 1121.06 in New York after dropping as much as 1.4 percent. Yields on 10- year Treasuries fell 7 basis points, or 0.07 percentage point, to 2.76 percent after declining below 2.75 percent for the first time since April 2009...

The Fed’s last move in favor of easier policy came in March 2009, when policy makers agreed to buy $300 billion of Treasuries and more than double planned mortgage-debt purchases to $1.45 trillion while starting a pledge to keep the benchmark rate close to zero for an “extended period.”

The conclusion of the Bank of Japan's monetary policy meeting earlier on Tuesday was not as eventful. Bloomberg reports:

Bank of Japan Governor Masaaki Shirakawa indicated the nation’s recovery has been resilient to the yen’s advance, supporting his board’s decision to keep policy unchanged today.

“We are well aware that the yen’s strength is a downside risk for corporate sentiment,” Shirakawa told reporters after the bank kept the benchmark rate at 0.1 percent and maintained the current size of its credit programs for lenders at a meeting in Tokyo today. “On the other hand, we have to assess the currency’s effect on the economy in a well-balanced manner.”

While the BoJ ponders the impact of the yen's strength, the lack of strength in a neighbour's currency will likely continue to be of concern to others as China's trade surplus expanded again in July. From AFP/CNA:

China's trade surplus ballooned to 28.7 billion dollars in July as exports hit a record high, government data showed Tuesday, which is likely to intensify pressure on Beijing for a stronger yuan.

Despite a slower growth in exports, the nation posted its biggest trade surplus since January 2009 as the value of China's overseas shipments reached a monthly record 145.52 billion dollars in July, customs authorities said...

Exports grew 38.1 percent from the same period a year ago, slower than in June, when they were up 43.9 percent as steelmakers and other raw material producers accelerated shipments before the government scrapped tax rebates on some products last month...

Imports gained 22.7 percent year-on-year to 116.79 billion dollars in July, marking a sharp slowdown in the pace of growth from June, when imports rose 34.1 percent.

Euro area reports positive data

The news from the euro area continues to be good.

Bloomberg reports that German exports rose in June.

German exports rose more than economists forecast in June as the global recovery helped bolster an export-led expansion in Europe’s largest economy.

Sales abroad, adjusted for working days and seasonal changes, rose 3.8 percent from May, when they increased a revised 7.9 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 1.5 percent, the median of 11 estimates in a Bloomberg News survey shows. Imports rose 1.9 percent from May, when they jumped 13.7 percent.

And investors in the euro area have become much more confident, according to another Bloomberg report.

European investor confidence surged to the highest in more than 2 1/2 years in August as demand from emerging economies brightened the outlook, the Sentix research institute said.

An index measuring sentiment in the 16-nation euro region increased to 8.5 from minus 1.3 in July, Limburg, Germany-based Sentix said in an e-mailed statement today. That’s the highest since December 2007. A gauge of current business conditions climbed to 16.5 from 2 in the previous month, while a sub- indicator of expectations increased to 0.75 from minus 4.5.

Just outside the euro area, though, the UK reported weaker house prices and retail sales. From Reuters:

The Royal Institution of Chartered Surveyors' house price balance fell to -8 in the three months to July -- the first negative reading in a year -- from a downwardly revised +8 in the three months to June...

A survey from the British Retail Consortium, meanwhile, showed the value of sales last month was just 0.5 percent higher than a year ago on a like-for-like basis, less than half the 1.2 percent growth recorded in June.

Meanwhile, there was more evidence on Monday that China is cooling. Bloomberg reports that property price appreciation has slowed.

China’s property prices climbed at the slowest pace in six months in July as the government clamped down on speculation to prevent asset bubbles and keep housing affordable.

Prices in 70 major cities climbed 10.3 percent from a year earlier, the statistic bureau’s newspaper, China Information News, reported today. That was less than an 11.4 percent increase in June and the median estimate of 10.5 percent in a Bloomberg News survey of eight economists.

AFP/CNA reports that auto sales in China have also slowed.

Growth in China's auto sales slowed in July from the previous month, an industry group said Monday, as demand for vehicles in the world's biggest market continued to soften.

Total vehicle sales rose 14.4 percent year-on-year to 1.24 million units in July, the first time this year that the growth rate was below 20 percent, the China Association of Automobile Manufacturers said on its website.

Weak trade and other data point to Japanese slowdown

Japan's economy probably slowed in the second quarter and today's report on the balance of payments provided additional evidence of it.

The Finance Ministry reported today that exports rose 29.2 percent in June from a year earlier, less than the 33.8 percent rise in May. June's exports were 0.6 percent lower than May's on a seasonally-adjusted basis.

Imports rose 29.6 percent in June from a year earlier, less than the 37.8 percent rise in May. June's imports were 5.7 percent lower than May's on a seasonally-adjusted basis.

The bigger fall in imports resulted in the trade balance rising to 769 billion yen in June, 26.6 percent higher than a year earlier. However, a fall in the income surplus resulted in the June current account surplus falling 18.2 percent from the previous year to 1,047 trillion yen.

The Cabinet Office's economy watchers survey findings also released today provided a mixed picture. The survey's diffusion index for current conditions rose to 49.8 in July, recovering to its peak in April after two consecutive months of decline. However, the diffusion index for future conditions fell for a third consecutive month to 46.6 from 48.3.

The Cabinet Office's composite indices released on Friday had also indicated that economic growth was probably maintained in the second quarter but could weaken in subsequent quarters. The coincident index rebounded to its post-recession peak of 101.3 in June after having dipped to 101.2 in May. The leading index rose to 98.9 in June from 98.6 in May. However, the latter remains below its March and April levels of 101.9 and 101.7 respectively.

The Organisation for Economic Co-operation and Development's composite leading indicators (CLI) released on Friday also indicated a likelihood of a slowdown in Japan. The OECD reported that the CLI for Japan rose by just 0.1 in June to 103.1, the same rate as in May but below the rate of increase in prior months. A decline in the CLI for the OECD area as a whole by 0.1 to 103.4 certainly will not help the export-dependent Japanese economy.

According to Bloomberg's survey of economists, the Japanese economy is expected to grow at an annualised rate of 2.1 percent in the second quarter after having grown at a 5.0 percent rate in the first quarter.

Employment falls in US and Canada but economic data more positive elsewhere

The US employment report on Friday was disappointing. Reuters reports:

Overall non-farm payrolls fell 131,000 last month, the Labor Department said on Friday, the second straight monthly decline as temporary government jobs to conduct the decennial census dropped by 143,000.

Private employment, a better gauge of labor market health, rose a modest 71,000 after gaining just 31,000 in June. The government revised payrolls for May and June to show 97,000 fewer jobs than previously reported.

Canada also unexpectedly lost jobs in July, employment falling by 9,300 in July, the first decline this year, following a 93,200 increase in June. The jobless rate rose to 8 percent from 7.9 percent.

The economic data elsewhere were somewhat more positive.

In Japan, the composite indices turned positive in June after having declined in May. The coincident index rose to 101.3 in June from 101.2 in May while the leading index rose to 98.9 from 98.6.

The data from Europe released on Friday were mixed but still mostly positive. From Reuters:

The Bank of Spain highlighted a divide between strength in Europe's largest economies and a less impressive rebound in the currency zone's laggards, estimating the Spanish economy grew by an anaemic 0.2 percent in the second quarter...

Italian GDP grew by 0.4 percent from the first quarter but the euro zone as a whole is expected to have expanded by 0.6 percent or more in the second quarter, suggesting much stronger growth from the likes of Germany...

German industry output dropped by 0.6 percent on the month in June but following sharp rises in April and May, was up 5.4 percent over the second quarter as a whole, the biggest quarterly gain since German reunification in 1990...

France's trade deficit fell more than expected in June as exports hit their highest level in nearly two years helped by higher trade with China.

In the UK, industrial production unexpectedly fell 0.5 percent in June but this was mainly due to an early start to seasonal oil field maintenance. Manufacturing output rose 0.3 percent in June, the same as in May.

BoE and ECB leave rates unchanged

The Bank of England left interest rates unchanged on Thursday.

So did the European Central Bank. From Bloomberg:

European Central Bank President Jean- Claude Trichet said Europe is recovering faster than forecast and money markets are improving, paving the way for the ECB to phase out liquidity tools used to fight the financial crisis.

“The available data for the third quarter are better than expected,” Trichet told reporters in Frankfurt today after the ECB’s Governing Council kept its benchmark rate at a record low of 1 percent. “The market is functioning a little bit better.” The ECB’s main rate is still “appropriate,” he said, indicating officials see no immediate need to tighten policy.

Much of the better-than-expected data that Trichet mentioned have come from Germany and Thursday brought more such data. Again from Bloomberg:

German factory orders surged more than twice as much as economists forecast in June as the global recovery gathered strength and European companies increased investment.

Orders, adjusted for seasonal swings and inflation, rose 3.2 percent from May, when they dropped a revised 0.1 percent, the Economy Ministry in Berlin said today. Economists forecast a 1.4 percent gain after an initially reported 0.5 percent decline the previous month, according to the median of 23 estimates in a Bloomberg News survey. From a year earlier, orders climbed 24.6 percent, adjusted for working days.

In contrast, Thursday's US economic data turned out to be disappointing. From Bloomberg:

More Americans than projected filed applications for unemployment insurance last week, indicating firings remain elevated as the recovery moderated.

Initial jobless claims climbed by 19,000 to 479,000 in the week ended July 31, the most since April and exceeding the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The number of people receiving unemployment benefits dropped, while those getting extended payments rose...

Retailers in the U.S. reported July sales gains that missed analysts’ estimates as consumers reduced spending before the back-to-school season.

Sales at 30 chains climbed 3 percent, less than the 3.2 percent average of analyst projections, Retail Metrics Inc. said. It marked the fourth straight month that sales have trailed estimates. J.C. Penney Co. sales fell 0.6 percent, short of expectations for a 3.5 percent gain.

US private sector shows tepid job growth, services accelerate

The US job market is still making a weak recovery. Reuters reports:

Companies hired more workers in July but the gains are too slow to reduce unemployment and spur the economy significantly, reports showed on Wednesday...

U.S. private employers added 42,000 jobs in July, payrolls processor ADP Employer Services reported, slightly more than economists forecast but still a tepid figure...

A separate report on Wednesday showed the number of planned layoffs at U.S. firms rose 6.0 percent in July, marking the third straight month of increased layoffs, though downsizing activity appears to be slowing.

But activity in the services sector accelerated in July.

In its report on activity in the services sector, which dominates the U.S. economy, the Institute for Supply Management said its services index rose to 54.3 in July from June's 53.8, showing unexpectedly stronger growth. But the reading for backlog orders dipped to 52.0 from 55.5 in June.

Eurozone services sector activity also accelerated in July. Bloomberg reports:

A composite index based on a survey of euro-area purchasing managers in both industries rose to 56.7 from 56 in June, London-based Markit Economics said today...

An index of euro-area services, which account for about 60 percent of the region’s gross domestic product, rose to 55.8 in July from 55.5 in the prior month, Markit said. The July reading was below the 56 estimated earlier...

Eurozone retail sales, however, stagnated in June. Again from Bloomberg:

European retail sales were unchanged in June as households cut spending in Germany and France.

Sales in the 16-nation euro area showed no increase from May, when they rose 0.4 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast sales to remain unchanged, the median of 19 estimates in a Bloomberg News survey showed. From a year earlier, June retail sales gained 0.4 percent after rising 0.6 percent in May.

Unlike its counterparts in the US and the euro area, the UK services sector slowed in July. Reuters reports:

Britain's services industry grew at its slowest rate in 13 months in July, a survey showed on Wednesday, as worries about spending cuts weighed on confidence, raising fears about the strength of economic recovery...

The Markit/CIPS services PMI headline activity index fell to 53.1 last month from 54.4 in June, its lowest level since June 2009 and below economists' forecasts for an unchanged reading.

US consumer spending and income flat in June

US June economic data released on Tuesday turned out worse than expected. Bloomberg reports:

Consumer spending, pending home sales and factory orders were all weaker than projected in June, showing the U.S. recovery lost momentum heading into the second half of the year as employment stagnates.

Household purchases, which account for about 70 percent of the economy, were unchanged from May, according to figures from the Commerce Department issued today in Washington...

Incomes also stagnated in June, failing to increase for the first time since September, compared with a 0.2 percent gain projected by the survey median. Wages and salaries in June fell 0.1 percent, the first drop since September...

... The number of contracts to purchase previously owned houses fell 2.6 percent in June, indicating demand kept unraveling after the expiration of a homebuyer tax credit...

Even manufacturing, which led the world’s biggest economy out of the economic slump, is cooling. Orders placed with factories declined 1.2 percent, more than double the 0.5 percent drop projected by the median forecast of economists surveyed.

July auto sales looked better though, rising 5 percent from a year ago to just over 1 million vehicles, according to Autodata Corp.

Stocks surge as most manufacturing PMIs fall

The global economy may be slowing but that is not curbing risk appetite among investors. From Reuters:

Global stocks surged to a 2-1/2 month high and the euro hit a three-month high on Monday as better-than-expected growth in the U.S. manufacturing sector and encouraging corporate earnings spurred the appetite for risky assets.

The euro neared $1.32 for the first time since early May, with the single currency picking up steam after it broke a key technical level...

Crude oil prices rose above $81 a barrel for the first time since early May, boosted by the weakness in the U.S. dollar, the upbeat data as well as an increased possibility of a tropical depression forming in the Atlantic.

Gold prices fell and government bonds were pressured as the improved investor sentiment dented the bid for safe havens...

The Dow Jones industrial average closed up 208.51 points, or 1.99 percent, at 10,674.45. The Standard & Poor's 500 Index gained 24.24 points, or 2.20 percent, at 1,125.84. The Nasdaq Composite Index rose 40.66 points, or 1.80 percent, at 2,295.36...

The MSCI world equity index rose 2.35 percent, reaching a two-and-a-half month high, while the Thomson Reuters global stock index gained 2.1 percent as investors built on last month's run-up. Emerging stocks rose 2.1 percent to a three-month high.

Bloomberg reports the better-than-expected economic data from the US on Monday.

The Institute for Supply Management’s manufacturing gauge dropped to 55.5 last month, exceeding the median forecast of economists surveyed by Bloomberg News, from 56.2 in June. Readings greater than 50 indicate growth. The group’s bookings gauge, considered a leading indicator, fell to a one-year low...

A report from the Commerce Department today also showed construction spending unexpectedly rose in June, boosted by a gain in government programs that made up for declines in private residential and commercial projects.

The 0.1 percent increase in outlays followed a revised 1 percent drop in May that was larger than previously estimated.

UK manufacturing also slowed, the Chartered Institute of Purchasing and Supply (CIPS) manufacturing PMI falling to 57.3 in July from 57.6 in June, but this was again better than forecasts for a reading of 57.0.

Manufacturing actually managed to accelerate in the supposedly-troubled euro area. From Bloomberg:

A gauge of manufacturing in the 16-nation euro region increased to 56.7 from 55.6 in the previous month, London-based Markit Economics said today. That’s a three-month high and above an initial estimate of 56.5 released on July 22. A reading above 50 indicates expansion.

However, the euro area was an exception among the world's biggest economies. AFP/CNA reports that China was also affected by the manufacturing slowdown.

The HSBC China Manufacturing PMI, or purchasing managers index, fell to 49.4 last month from 50.4 in June -- the first time it dropped below the neutral 50 threshold since March 2009, the bank said...

A separate survey published by a government agency on Sunday showed manufacturing activity slowed to 51.2 last month from 52.1 in June.

Last week, Japan had reported that its manufacturing PMI fell to a four-month low of 52.8 in July from 53.9 in June.

Economic reports show second quarter slowdown

Last week's economic data indicated that the world's major advanced economies are continuing to recover but at least the two largest slowed in the second quarter.

On Friday, the Commerce Department reported that real gross domestic product in the United States increased at an annual rate of 2.4 percent in the second quarter. This was lower than the first quarter growth rate of 3.7 percent, indicating that the world's largest economy has slowed.

The Commerce Department also reported revisions to prior quarters' GDP growth rates. The first quarter growth rate was revised up from 2.7 percent. However, the revisions to prior years showed that the recession was deeper than previously estimated as the economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009 instead of 3.7 percent based on previous figures.

Consumer spending, a key driver of the economy, failed to gain momentum in the second quarter. In fact, growth in real personal consumption expenditures actually slowed to a 1.6 percent annual rate from 1.9 percent in the first quarter.

Contrary to previous estimates, consumer spending has not fully recovered from the recession. Previous estimates had indicated that real personal consumption expenditures in the first quarter had surpassed the peak in the previous expansion cycle in the fourth quarter of 2007. The revised figures show that this was not the case, and even after further growth in the second quarter, real personal consumption expenditures remained lower than its previous peak.

The slowdown in the US economy could persist into the second half of the year.

On Wednesday, the Commerce Department had reported that durable goods orders fell 1.0 percent in June. This was the second consecutive month of decline for this indicator.

As durable goods orders is a leading indicator for the manufacturing sector as well as the economy as a whole, this developing trend is a cause for concern. Having said that, it is also a volatile indicator, so it is too soon to make any definite projections from the recent declines.

Last Friday had also provided a host of data on the world's second largest economy, Japan's.

Household spending in Japan rose 0.5 percent in June from a year before after having fallen in the previous two months. Further improvement in consumer spending could be held back as unemployment hit a seven-month high of 5.3 percent in June. However, the employment picture itself may be improving nevertheless as the job-to-applicant ratio rose to 0.52 in June, the most since March 2009.

Meanwhile, deflation in Japan is easing as the consumer price index excluding fresh food fell 1.0 percent in June compared to falls of 1.5 percent and 1.2 percent in April and May respectively.

Still, evidence of slowing in the economy came from a 1.5 percent fall in industrial output in June from the previous month. For the second quarter as a whole, industrial output was up 1.4 percent from the first quarter but this was the slowest rate of increase since the economy emerged from recession in the second quarter of 2009.

As for the euro area, despite the negativity surrounding Europe's sovereign debt problems, confidence in the economy appears to have held up well. Last Thursday, the European Commission reported that its economic sentiment indicator for the euro area rose to 101.3 in July from 99.0 in June, its second consecutive month of increase following a decline in May.

The decline in the economic sentiment indicator in May was only the second in the 16 months since the indicator hit a low in March 2009. The latter had presaged the end of the recession in the euro area.

With the increase in the economic sentiment indicator in the last two months, the upward trend in the indicator appears to have resumed, which would suggest that the eurozone economic recovery remains intact.