Daily Economy Watch keeps an eye on events that affect your hard asset portfolio. View archives.
U.S. gains 175,000 jobs in February
-- The U.S. generated 175,000 jobs in February despite harsh winter weather, suggesting the economy has not slowed as much as a recent spate of indicators appear to show. The unemployment rate, meanwhile, edged up to 6.7% from 6.6% to mark the first increase in 14 months. Yet the rate rose because more people entered the labor force in search of jobs, which is usually a sign that they think more work is available. What’s more, employment likely would have been stronger if not for the weather. The number of people who said they could not make it to work surged above 600,000 last month, twice as many as is normally the case in February.
The better-than-expected headline number on jobs lifted U.S. stocks in early action and paves the way for the Federal Reserve to continue to withdraw stimulus from the economy. Economists surveyed by MarketWatch expected an increase of 140,000 nonfarms. “Today’s report should provide some relief for those concerned that a more sustained slowdown might be underway,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. Yet the latest jobs report also contained some worrisome signs. Hiring in the health-care industry has sharply tapered off and the number of hours that people work each week fell again and touched the lowest level in three years. The decline in hours worked in February was largely because of poor weather, but the workweek is still several ticks below the post-recession peak last achieved in November. See full story.
Euro hits two-month high on ECB view
-- The euro rallied to a two-month high against the dollar after European Central Bank President Mario Draghi said inflation is expected to rise gradually, damping bets policy makers will introduce further monetary stimulus. The 18-nation currency advanced versus all except one of its 16 major counterparts as the central bank predicted economic growth will accelerate. The yen dropped to a five-week low versus the greenback after an advisory panel said Japan’s Government Pension Investment Fund no longer needs to focus on domestic bonds. The dollar fell versus most of its major peers before a nonfarm payrolls report tomorrow that is forecast to show jobs growth in February trailed last year’s average.
“A large part of the market was expecting some form of action from the ECB today, or some indication that monetary easing would be coming in the very near future,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a phone interview. “We didn’t get either of those things, which is why the euro is trading higher across the board.” The euro gained 0.9 percent to $1.3857 at 3:19 p.m. in New York after rising to $1.3873, the highest level since Dec. 27. The shared currency jumped 1.7 percent to 142.81 yen, the biggest advance since Sept. 19. The yen slid 0.8 percent to 103.07 per dollar after tumbling to 103.17, the weakest since Jan. 29. See full story.
Services sector at four-year low
-- Growth in the U.S. services sector slowed in February, coming in below forecasts as the employment index fell into contractionary territory for the first time in more than two years, an industry report showed on Wednesday. The Institute for Supply Management said its services sector index fell to 51.6 last month, the worst read for the index since February 2010 as bad weather impacted business activity. The results were below the January read of 54, as well as analyst expectations for a read of 53.5.
February marked the 50th straight month the index was above 50, the level that separates expansion and contraction, though the pace of growth was well below the seven-year high of 57.9 hit in August. The employment index dropped in February to 47.5 from 56.4, falling below 50 for the first time since December 2011. It was the lowest read for the subindex since March 2010. The gauge of business activity fell to 54.6 from 56.3 in January and was below expectations for a read of 55.1. On a positive note, the new orders index rose to 51.3 in February from 50.9 in January. See full story.
Treasury yields surge as Ukraine cools
-- Treasury prices sank Tuesday, sending yields soaring, as investors shifted away from safe assets alongside cooling tensions in Ukraine. Russia recalled members of its military that had been participating in war games near the Ukraine border on Tuesday, which eased investor fears that Russia would step up its movement into Ukraine following its entrance into the Crimean region. Nonetheless, Russian President Vladimir Putin said he reserves the right to use force in Ukraine. On that news, Treasury prices slid alongside the U.S. dollar, gold, and oil. Stocks surged back to record highs.
“Things are cooling off,” said Chris Keith, senior vice president and fixed-income manager at Adviser Investments. “The Treasury market has given back all that it has gained yesterday and then a lot more than that.” The 10-year Treasury note yield, which rises as prices fall, jumped 9 basis points on the day to 2.699%, more than reversing Monday’s drop. The 30-year bond yield rose 9 basis points to 3.649%, and the 5-year note yield rose 7.5 basis points to 1.536%. See full story.
Treasurys soar on Ukraine safety bid
-- Treasurys benefited from a global flight to safety Monday as escalating violence in Ukraine added to investor fears. Russian movement into Ukraine’s Crimean peninsula intensified Monday, with Ukraine saying Russian forces are demanding the surrender of two Ukrainian warships. Russia said no ultimatum was issued. Investors fled risky assets and piled into safe investments, with Treasurys rising alongside gold, oil, and the U.S. dollar, while stocks broadly sank . The 10-year Treasury note yield, which falls as prices rise, was down 5.5 basis points on the day to 2.605%, its lowest since early February, according to Tradeweb.
“At this point it’s all about what’s going on in Ukraine. It’s a safe haven bid more so than anything else driving equities down and risk off as investors buy the quality of Treasurys,” said Larry Milstein, managing director of government and agency trading at R.W. Pressprich & Co. The gains for Treasurys come amid vows from the U.S. and its European allies Sunday to punish Russian President Vladimir Putin for authorizing the occupation of the Crimean Peninsula. The U.S. began canceling economic and trade initiatives with Russia, and was searching for other retribution, according to The Wall Street Journal. See full story.
Consumer sentiment rises in February
-- Consumer confidence in the U.S. improved in February from a month earlier as more consumers grew optimistic about the outlook for the economy. The Thomson Reuters/University of Michigan final index of sentiment rose to 81.6 this month from 81.2 in January. The median estimate in a Bloomberg survey of economists called for the measure to hold at its preliminary reading of 81.2.
Sustained sentiment indicates spending may pick up after bad winter weather across much of the U.S. caused some Americans to stay close to home rather than shop. Wage growth and more hiring would help further brighten spirits and give consumers the wherewithal to increase their purchases. “We need companies to start expanding and hiring people and that will raise consumer confidence.” Yelena Shulyatyeva, U.S. economist at BNP Paribas in New York, said before the report. “Consumer spending will continue on same pace and grow modestly throughout the year.” See full story.
Jobless Claims climb to one-month high
-- More Americans than forecast filed applications for unemployment benefits last week, a sign the labor market is improving in fits and starts. Jobless claims increased by 14,000 to 348,000 in the week ended Feb. 22, exceeding all forecasts in a Bloomberg survey and the highest level in a month, from 334,000 in the prior period, a Labor Department report showed today in Washington. A Labor Department spokesman said no states were estimated and there was nothing unusual in the data.
Cold temperatures and winter storms have damped progress in the housing and labor market, indicating growth slowed in the first two months of the year. More seasonable weather will probably help the world’s largest economy rebound in coming months, leading to further gains in employment. Another report today showed orders for durable goods fell less than forecast in January, a sign manufacturing was beginning to emerge from the harsh winter weather that blanketed the nation. See full story.
Home sales jump 9.6% in January
-- Sales of new U.S. single-family homes surged to a 5-1/2-year high in January, possibly easing concerns of a sharp slowdown in the housing market. The Commerce Department said on Wednesday that sales jumped 9.6 percent to a seasonally adjusted annual rate of 468,000 units, the highest level since July 2008. December's sales were revised up to a 427,000-unit pace from the previously reported 414,000-unit rate. Economists polled by Reuters had forecast new home sales, which are measured when contracts are signed, falling to a 400,000-unit pace in January.
Sales in the Northeast soared 73.7 percent to a seven-month high, while the South recorded a 10.4 percent rise in transactions to a more than five-year high. These regions along with the Midwest have experienced unusually cold weather that has been blamed for holding back economic activity. Sales tumbled 17.2 percent in the Midwest last month, while rising 11 percent in the West. New homes are a small segment of the housing market, which lost momentum in the second half of last year following a run-up in mortgage rates and a shortage of properties for sale. See full story.
Consumer confidence falls in February
-- Americans feel better about the current health of the economy but they are less certain conditions will improve much in the next six months, according to a survey that tracks the mood of consumers. The consumer confidence index fell to 78.1 in February from 79.4 in January, the Conference Board said Tuesday. The decline resulted entirely from reduced expectations for the months ahead. How consumers assess the economy right now reached its highest level in nearly six years. Economists polled by MarketWatch had expected the index to fall to 80.1 from an originally reported 80.7 in January.
The drop in overall consumer confidence stemmed from sharp decline in the so-called expectations index that asks Americans whether they think the economy will be the same, better or worse in six months. The index slid to 75.7 from 80.8, the lowest level since October. Consumers grew more concerned about the outlook for “business conditions, jobs, and earnings,” Lynn Franco, director of economic indicators at The Conference Board. Read Consumer Confidence Index here. See full story.
U.S. economy worse in January
-- Data released Monday morning signaled that an underperforming U.S. economy got worse in January, hit by production-related weakness. According to a gauge of the national economy from the Federal Reserve Bank of Chicago, activity in January posted below-average growth for a second month, hitting negative 0.39, the lowest result in six months. The gauge takes 85 economic indicators into account, covering areas such as production, jobs and consumer spending. Negative values signal a below-average rate of economic growth, a zero reading means that the economy is growing at its historical trend rate, and positive values signal faster-than-average growth.
While the monthly data can be volatile, a trend for the Chicago Fed’s gauge also shows weakening. The three-month moving average was 0.1 in January, the lowest result in four months. But don’t worry about a contracting economy yet. The average in January was above a key reading of negative 0.7. Once the average drops below negative 0.7 following a period of growth, then the chances are higher that a recession has started, according to the Chicago Fed. News of a faltering economy will sound familiar to those who followed reports in recent weeks that signaled a sputtering housing market, and weakness for retail sales and manufacturing. Elsewhere Monday, a February gauge of the U.S. service sector hit the lowest level in four months, with slower growth for jobs. See full story.
Home sales slowest in more than a year
-- The pace of existing-homes sales dropped in January to the slowest rate in more than a year, starting 2014 with a whimper, according to data released Friday. Sales of existing homes fell 5.1% in January to a seasonally adjusted annual rate of 4.62 million, the slowest pace since July 2012, the National Association of Realtors reported Friday. Sales have trended down since the summer, hit by declining affordability and low inventory. Unusually poor weather may have also a played a role in January’s drop, NAR said.
Sales dropped across the U.S., with the rate down 7.3% in the West, 7.1% in the Midwest, 3.5% in the South and 3.1% in the Northeast. Friday’s home-sales data follow reports earlier this week that pointed to a slowdown for the housing market’s recovery. The government reported that construction on new U.S. homes tumbled 16% in January to the slowest rate since September.
China factory data show slowdown
-- A Chinese manufacturing slowdown fueled speculation that President Xi Jinping’s officials will switch focus in coming months from taming credit growth and financial risks to supporting economic expansion. A factory gauge for February fell to a seven-month low, HSBC Holdings Plc and Markit Economics said yesterday. Barclays Plc said yesterday that the central bank had turned “more supportive” as the overnight loan rate sank to the lowest level in 10 months. Investors are focused on financial stresses in the world’s second-biggest economy after the near-default last month of a high-yield trust product and as economists forecast the nation’s slowest expansion in 24 years. While the government has cooled credit growth, a record 2.58 trillion yuan ($425 billion) of new financing in January highlighted the challenges that remain.
“It’s relatively difficult to pursue two policy goals at the same time,” said Ding Shuang, the senior China economist with Citigroup in Hong Kong. “On the one hand, China needs to delever and on the other hand it needs to ensure a certain level of growth.” Ding said that the government will move to support growth if a slowdown “challenges” its bottom line of a 7 percent expansion. Last year, the economy grew 7.7 percent. The preliminary reading of 48.3 in the manufacturing index was less than the 49.5 median estimate in a Bloomberg News survey of economists. A number below 50 indicates contraction. See full story.
New-home starts dive 16%
-- Construction on new U.S. homes tumbled 16% in January to a seasonally adjusted annual rate of 880,000, with drops for single-family homes and apartments, according to government data released Wednesday. Particularly poor weather hit construction last month, according to economists polled by MarketWatch, who had forecast a starts rate of 945,000 for January, compared with an originally estimated rate of 999,000 for December. On Wednesday, the U.S. Commerce Department upwardly revised December’s starts rate to 1.05 million. U.S. stocks were weighed down Wednesday morning by the weak housing data.
Construction on new U.S. homes has pulled back since soaring in November to the fastest pace since 2008. January’s rate was the lowest since September, and was down 2% from the year-earlier period. “We believe this setback will prove to be temporary and activity will rebound in the months ahead. More clarity on the future path of interest rates alongside stronger housing demand should prove supportive for future construction, with housing starts expected to hit 1.2 million mark by year end,” said Ksenia Bushmeneva, an economist with TD Economics. The starts rate fell in three of four U.S. regions last month, plunging 68% in the Midwest to a record low, and falling 17% in the West and 13% in the South. Meanwhile, the starts rate rose 62% in the Northeast. See full story.
Weak data puts cracks in weather theory
-- U.S. homebuilder confidence suffered its largest one-month drop ever in February, heightening concerns that recent signs of weakness in the economy reflect deeper problems than the severe weather that has gripped much of the country. The National Association of Home Builders said on Tuesday its Housing Market Index plunged by 10 points to 46 in February, with a majority of builders seeing market conditions as poor. "This report will keep alive concerns in the markets that the weakening in the data recently is not just due to weather," said Jim O'Sullivan, an economist at High Frequency Economics in Valhalla, New York.
Worries over the outlook for the economy have grown since reports showed weak hiring across the economy in December and January, when much of the country experienced unusually frigid temperatures. Now signs of economic weakness are persisting into February. Another report on Tuesday showed a gauge of manufacturing in New York state slowed in February. See full story.
Dollar falters as risk appetite wanes
-- The dollar lost ground against the Japanese yen and other major currencies on Monday, as recent weakness in Japan equities hurt investors’ risk appetite and disappointing U.S. data triggered concerns for a slowing economic recovery. Against the yen, the dollar dropped to ¥101.56 from ¥101.81 late Friday, even as the Nikkei Average managed to end with a 0.6% gain Monday. “Since the beginning of the year, the Nikkei has fallen approximately 12%, and this has made it incredibly difficult for dollar/yen to rally,” BK Asset Management managing director Kathy Lien said in a note.
However, analysts also suspect Japan’s central bank might take more aggressive action on the back of disappointing economic data in the fourth quarter, which might affect investors’ appetite for the yen. The dollar also edged lower against other rivals as investors digested mixed U.S. economic data released recently, including a 0.3% drop in industrial production, unchanged consumer sentiment in February, and an unexpected fall of 0.4% in retail sales in January, which has sparked some concerns that the U.S. economic recovery is losing steam.See full story.
Factories fall most since 2009
-- Factory production in the U.S. unexpectedly declined in January by the most since May 2009, adding to evidence severe winter weather weighed on the economy. The 0.8 percent decrease at manufacturers followed a revised 0.3 percent gain the prior month that was weaker than initially reported, figures from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey of economists called for a 0.1 percent advance. Total industrial production dropped 0.3 percent even as utility output climbed the most in almost a year. Assembly lines slowed last month as colder weather tempered production, the Fed said, showing a pause in the momentum of an industry that’s helped bolster the economy. A pickup in capital spending and faster hiring that drives consumer purchases will be needed to spur production gains.
“Our assumption is that this is a temporary soft patch,” said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford Connecticut, who called for a 0.2 percent drop in factory output. “You’ve had pretty moderate growth in manufacturing, and I think in all likelihood that’s what’s going to repeat in 2014. It’s important not to overreact to the weakness that you’re seeing now.” The decline in overall industrial production was the biggest since April 2013. Estimates of the 87 economists surveyed by Bloomberg ranged from a decrease of 1.4 percent to a gain of 0.7 percent. See full story.
Retail sales fall unexpectedly
-- Sales at U.S. retailers declined in January by the most since June 2012 amid bad weather and uneven progress in the labor market, signaling the economy was off to a slow start in 2014. The 0.4 percent decrease followed a revised 0.1 percent drop in December that was previously reported as an increase, according to Commerce Department figures released today in Washington. Jobless claims unexpectedly climbed last week, other data showed. Economists at Goldman Sachs Group Inc., Credit Suisse and Morgan Stanley were among those reducing tracking estimates for first-quarter growth.
“It’s not looking good for consumer spending,” said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, and the top sales forecaster over the last two years, according to data compiled by Bloomberg. “Even if you have some modest improvement in the pace of employment growth, that’s not enough to generate a huge improvement in income.” More Americans than forecast filed applications for unemployment benefits last week, Labor Department figures showed today. Jobless claims increased by 8,000 to 339,000 in the week ended Feb. 8. The median projection in a Bloomberg survey of economists called for 330,000 claims. See full story.
China trade data strenghtens in January
-- China surprised markets with a thumping trade performance in January as import growth hit a six-month high, drawing some skepticism about the data but still allaying fears of a deepening economic malaise.Analysts who had expected the long Lunar New Year holiday to drag on January's trade warned that the figures may be inflated by fake trade transactions, where traders forge deals to sneak cash into the country past capital controls.The value of China's total exports climbed 10.6 percent in January from a year earlier, the Customs Administration said on Wednesday, more than five times market forecasts for a 2 percent rise.
The value of imports also jumped 10 percent from a year ago as China bought record volumes of iron ore, crude oil and copper. That lifted import growth to its highest level since July, handily beating predictions for a 3 percent gain.The country's trade surplus rose to $31.9 billion, well above forecasts of $23.7 billion and December's $25.6 billion."We find this strong level of export growth puzzling," said Zhang Zhiwei, an economist at Nomura. "It is unclear to what extent the strong export data reflects the true strength in the economy." See full story.
Yellen stays the course
-- Janet Yellen, fresh from taking the helm of the Federal Reserve, made it clear on Tuesday she would not make any abrupt changes to U.S. monetary policy, saying the central bank was on track to keep reducing its stimulus even though the labor market recovery was far from complete. In her first public comments since becoming Fed chief earlier this month, Yellen said the central bank must keep its eye on the "unusually high" incidence of long-term unemployment and the "exceptionally high" proportion of Americans who can find only part-time work as it plots a tricky reversal of its very accommodative policy stance. "By a number of measures our economy is not back, the labor market is not back, to normal," she told the U.S. House of Representatives' Financial Services Committee.
Fielding sharp questions from some Republican lawmakers, Yellen emphasized continuity with the policy approach taken by her predecessor, Ben Bernanke. Under Bernanke, the Fed bought trillions of dollars in bonds to drive borrowing costs lower and encourage investment, swelling its balance sheet to more than $4 trillion. In December, it announced it was starting to scale back its support in a nod to a drop in unemployment and stronger economic growth. While the U.S. unemployment rate has fallen by 1.5 percentage points since the latest bond-buying program began in 2012, at 6.6 percent it remains "well above levels" the Fed sees as consistent with maximum sustainable employment, Yellen said. See full story.
Eurozone recovery at a crawl
-- The euro zone probably notched up a third quarter of growth at the end of 2013 in a recovery that has yet to convince Mario Draghi as he considers more stimulus. With gross domestic product forecast by economists to have risen just 0.2 percent in the three months through December after climbing 0.1 percent in the prior quarter, the European Central Bank president has cited that data due this week as a focus of officials. They are preparing forecasts and a menu of possible policy measures for their decision in March.
Euro-region GDP data will be published on Feb. 14 at 11 a.m. in Luxembourg, part of a marathon of releases that begin with France’s report at 7:30 a.m. in Paris followed by data for Germany, the region’s largest economy, half an hour later. For the euro area, all 41 economists in a Bloomberg News survey predict growth, with forecasts ranging from 0.1 percent to 0.4 percent expansion. “The economic recovery is slow but it won’t be derailed,” said Robert Wood, an economist at Berenberg Bank in London and a former Bank of England official. “What we’re seeing is a gradual exit from the euro crisis as the pain of fiscal adjustment eases and confidence returns.” See full story
Economy adds 113,000 jobs in January
-- The U.S. added 113,000 jobs in January and the unemployment rate fell to another post-recession low, but the pace of hiring appears to have slowed over the past few months, according to new government figures. The second straight disappointing employment report suggests that unusually cold and snowy weather in the past two months is not the chief cause of a slowdown in job creation. In December, the economy added just 75,000 jobs, a meager gain that many economists had initially blamed on bad weather. One worrisome sign is a sudden freeze in hiring in health care, one of the nation’s fastest growing industries over the past two decades. Health-care providers cut jobs for the first time on record, raising questions about whether the rollout of Obamacare is roiling the industry.
Government also eliminated the most jobs in 15 months, with the U.S. Post Office accounting for a large chunk of the decline. The nation’s unemployment rate, meanwhile, dropped to 6.6% from 6.7% in December, the Labor Department said Friday. That’s the lowest level since October 2008, and in a good sign, the decline occurred because more people found jobs and not because the labor force shrank again. See full story.
Jobless claims decrease by 20,000
-- Applications for U.S. unemployment benefits fell for the first time in three weeks as employers retained workers to meet demand. Jobless claims dropped by 20,000 to 331,000 in the period ended Feb. 1, the Labor Department reported today in Washington. The median forecast of economists surveyed by Bloomberg called for a decrease to 335,000.
The decline in dismissals shows employers are confident demand for goods and services will hold up at the same time fiscal restraints ease. A pickup in the pace of hiring and wage growth would help fuel bigger gains in the consumer spending that accounts for almost 70 percent of the economy. “When you look at the labor market, job destruction has been very, very low,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. Brown projected claims to fall to 330,000. “It’s really been an issue of new hiring. That hiring, we think, is gradually picking up.” See full story.