Daily Economy Watch keeps an eye on events that affect your hard asset portfolio. View archives.
Dollar scores on Fed view
-- The dollar headed for weekly gains against the euro and the yen as improving economic data backed speculation the Federal Reserve will remove stimulus this year. The greenback rose for a fifth day yesterday against a basket of peers after data showed manufacturing in the Philadelphia region grew at the fastest pace in seven months. Other figures showed the number of Americans filing for unemployment insurance payments hovered near a seven-year low, while an index of leading indicators next week is forecast to rise. Australia’s dollar headed for its worst week since January. Currency volatility sank to an almost seven-year low.
“The jobless claims and Philadelphia Fed reports were both good, and the dollar was bid on the back of that,” said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. “If U.S. jobs numbers stay positive, the Fed will probably continue to taper at the current pace.” Financial markets in the U.S., U.K., Germany, Hong Kong, Singapore, Australia and New Zealand are among those that are closed for a holiday today. See full story.
Factory, jobless data add to optimism
-- New claims for jobless benefits hovered near their pre-recession levels last week and manufacturing in the Mid-Atlantic region accelerated in April, suggesting an upswing in economic activity after a brutally cold winter. Coming on the heels of fairly bullish data on retail sales and industrial production, Thursday's reports also hinted job growth may be picking up slightly. "The data add further evidence to the notion that the economy has exerted positive momentum at the start of the second quarter," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
Initial claims for state unemployment benefits ticked up 2,000 to a seasonally adjusted 304,000 for the week ended April 12, the Labor Department said, but stayed close to a 6-1/2 year low touched the prior week. In a separate report, the Philadelphia Federal Reserve Bank said its business activity index increased to 16.6 this month from 9.0 in March. April's reading was the highest in seven months and beat economists' forecasts for a rise to 10.0. See full story.
Yellen: FOMC committed to accommodation
-- Janet Yellen, in her first speech to a Wall Street audience since becoming Federal Reserve chair, emphasized her commitment to support the recovery even as full employment comes into view. Outlining a disciplined policy framework she uses, Yellen told investors to pay attention to shortfalls in both inflation and the jobless rate for signals on the Federal Open Market Committee’s decisions on the policy rate. “The larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the federal funds rate is likely to be maintained,” Yellen said in a speech in New York.
“This approach underscores the continuing commitment of the FOMC to maintain the appropriate degree of accommodation to support the recovery,” she said. Yellen, in her third month as Fed Chair, is encouraging investors to look at the flow of economic data to judge when the benchmark interest rate is likely to rise above zero after the Fed dropped a link to a specific level of unemployment. At the same time, she indicated that the economy needs continued support from the central bank. “Thus far in the recovery and to this day, there is little question that the economy has remained far from maximum employment,” she said. See full story.
Inflation accelerates in March
-- Consumer prices accelerated in March as Americans paid a bit more for food and rent, adding to signs that demand is improving in the world’s largest economy. The consumer-price index climbed 0.2 percent after increasing 0.1 percent in February, a Labor Department report showed today in Washington. Over the past year, costs rose 1.5 percent following a 1.1 percent gain in February that was the smallest in four months. Rents may continue to climb as more households, who are just starting to recover from the collapse in home prices, forgo ownership and instead turn to leasing properties. Sustained gains in sales would give companies pricing power, easing Federal Reserve concerns that inflation remains too far below its 2 percent goal.
“The overall picture is that inflation has stopped falling and is on a gradual uptrend,” said Thomas Costerg, an economist at Standard Chartered Plc in New York, who correctly projected the gain in CPI. “To some extent, today’s numbers relieve fears about the U.S. slipping into deflation,” or a prolonged drop in prices that hurts borrowers and profits. See full story.
U.S. retail sales jump in March
-- U.S. retail sales recorded their largest gain in 1-1/2 years in March in a decisive sign the economy is bouncing back from its weather-induced slumber. Monday's upbeat report was the latest to indicate growth was set to accelerate in the second quarter after an unusually cold and snowy winter hobbled activity early in the year. "It shows there is an underlying current of strength in the economy despite the drag from the severe winter weather," said Robert Dye, chief economist at Comerica in Dallas.
The Commerce Department said retail sales increased 1.1 percent last month, the biggest gain since September 2012, with receipts rising in nearly all categories. February's increase was raised to 0.7 percent from a previously reported 0.3 percent. Economists had expected retail sales, which account for a third of consumer spending, to advance only 0.8 percent last month. See full story.
Wholesale prices rise sharply in March
-- U.S. producer prices rose in March at the fastest rate in nine months, owing largely to higher costs experienced by clothing retailers, grocers and wholesalers of chemical goods, the government said Friday. The producer price index advanced a seasonally adjusted 0.5% after falling slightly in February, the Labor Department said . That’s the largest increase since last June and surpassed the 0.1% estimate of economists polled by MarketWatch. The wholesale cost of services surged 0.7% — the biggest spike in more than three years — to push the index higher.
Yet the cost of goods was flat, as a 1.1% increase in wholesale food was offset by a 1.2% drop in the price of energy. Excluding the volatile categories of food and energy, so-called core producer prices jumped 0.6% last month. The spike in prices pushed the year-over-year increase in U.S. wholesale costs to 1.4% from just 0.9% in February. That’s the highest rate since last August. See full story.
Fed to change rate guidance
-- Federal Reserve policymakers were unanimous in wanting to ditch the thresholds they had been using to telegraph a policy tightening, according to minutes of a meeting last month that shed little new light on what might prompt an interest-rate rise. Minutes of the U.S. central bank's March 18-19 policy-setting meeting, Janet Yellen's first as chair, did not reveal any discussion of keeping rates near zero for a "considerable time," as the Fed mentioned in a policy statement issued after the meeting. "(A)ll members judged that ... it was appropriate to replace the existing quantitative thresholds at this meeting," the minutes said.
"Almost all members judged that the new language should be qualitative in nature and should indicate that, in determining how long to maintain the current (low) federal funds rate, the Committee would assess progress, both realized and expected, toward its objectives of maximum employment and 2 percent inflation." In the end, the Fed decided to drop its unemployment and inflation thresholds, and instead said it would wait a considerable time after ending a bond-buying program before finally raising rates. See full story.
Job openings hit six-year high
-- U.S. job openings jumped to their highest in six years in February and there was a significant decline in layoffs, more signs of a steadily improving labor market. Job openings, a measure of labor demand, increased 299,000 to a seasonally adjusted 4.17 million, the Labor Department said in its monthly Job Openings and Labor Turnover Survey on Tuesday. That was the highest level since January 2008. Hiring advanced 1.6 percent and layoffs tumbled 4.9 percent. Even more encouraging, more people are quitting their jobs, a sign of confidence in the labor market.
"The report is upbeat and dovetails with the improved February and March payroll data," said Ray Stone, an economist at Stone & McCarthy Research Associates in Princeton, New Jersey. "The improvement in job openings foreshadows somewhat faster payroll growth in the months immediately ahead." Job growth averaged about 195,000 per month in February and March, with the unemployment rate holding at near a five year low of 6.7 percent over that period. The report is one of the indicators being closely watched by Federal Reserve Chair Janet Yellen and other policymakers at the U.S. central bank to gauge the health of the jobs market. See full story.
Draghi’s $1.4 trillion question lingers
-- When Mario Draghi flies to the U.S. this week, he’ll leave a 1 trillion-euro ($1.4 trillion) question mark hanging over Europe. While the European Central Bank president and other ECB policy makers can use the International Monetary Fund meetings in Washington to reiterate their willingness to use quantitative easing, they may be unable to say much on its design. That suspense risks setting investors up for disappointment, according to economists at UniCredit SpA and Deutsche Bank AG.
Draghi can expect intense scrutiny of the policy option he divulged on April 3, with the pressure heightened by the revelation that the ECB has simulated an anti-deflation QE program deploying as much 1 trillion euros in bond purchases. Even so, Executive Board member Yves Mersch and Governing Council member Jens Weidmann signaled that there is plenty still to be discussed, and Governing Council member Ewald Nowotny indicated that purchases may focus on private securities rather than public debt. “All this talk about QE has gotten markets rather excited,” Erik Nielsen of UniCredit wrote in a note yesterday. “I am sure the ECB -– like most of us -– is happy about this, but action is not imminent. What happens when markets realize that this was all just a semi-public discussion of the toolbox - – and not what will happen, unless we get an emergency?” See full story.
Dollar falls after jobs data
-- The dollar fell against the yen Friday after the employment report showed the U.S. added fewer jobs in March than had been expected, prompting some traders to delay expectations for when the Federal Reserve could hike rates. The U.S. created 192,000 jobs last month and the unemployment rate remained at 6.7%, according to Labor Department data. Economists polled by MarketWatch had expected gains of 200,000 jobs. The report revised higher employment gains for February and January by 37,000 jobs in total.
Expectations for the first rate hike were pushed out by a meeting in the wake of the jobs report. The ICE dollar index, which pits the greenback against six rivals, was at 80.457 versus 80.454 late Thursday. The report was “not so strong to stoke fears that the Fed will accelerate the normalization of policy,” said Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. See full story.
U.S. trade deficit to weigh on Q1 GDP
-- The U.S. trade deficit unexpectedly widened in February as exports hit a five-month low, suggesting first-quarter growth could be much weaker than initially anticipated. Despite the trade setback, the economy remains on track to regain momentum as the year progresses. Other data on Thursday showed activity in the services sector accelerating in March after being hampered by unusually cold weather. "At this point, it appears that growth will struggle to top one percent" in the first quarter, said Peter D'Antonio, an economist at Citigroup in New York.
The Commerce Department said the deficit on the trade balance increased 7.7 percent to $42.3 billion, the largest since September last year. The inflation-adjusted gap widened to $50.1 billion from $48.5 billion in January. Economists, who had expected the deficit to narrow to $38.5 billion, said trade could slice off as much as half a percentage point from first-quarter gross domestic product. It added about a percentage point to fourth quarter GDP. See full story.
ADP says 191,000 jobs added in March
-- Companies boosted payrolls in March by the most in three months, adding to evidence the job market is recovering from a blast of harsh winter weather, a private payrolls report showed. The 191,000 increase in employment followed a revised 178,000 gain in February that was stronger than initially estimated, according to the ADP Research Institute in Roseland, New Jersey. The median forecast of economists surveyed by Bloomberg called for a 195,000 advance. The figures show companies are gaining confidence demand will strengthen from earlier in the year when colder-than-normal temperatures and snowstorms prompted Americans to cut back. Further gains in employment and wage growth will help set the stage for a pickup in household spending, which accounts for almost 70 percent of the economy.
ADP’s numbers have missed the mark in tracking government jobs figures over the past couple of months. The group’s initial estimates showed a 127,000 gain in employment for January followed by a 139,000 February increase. That compared with the Labor Department’s initial estimate of a 142,000 gain in January private payrolls and a 162,000 increase in February. See full story.
U.S. factory activity picks up
-- U.S. factory activity rose in March, with production posting its biggest increase since the recession ended in the latest indication the economy was regaining its footing after a brutal winter. An unusually cold and snowy winter chilled activity early in the year and signs of a thaw should boost hopes of a strong bounce back in economic growth in the second quarter. "Winter is over. The economy is looking more positive today and overall business conditions continue to show improvement," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
The Institute for Supply Management said on Tuesday its index of national factory activity rose to 53.7 last month from a reading of 53.2 in February. Though it was below economists' forecast for a 54.0 reading, March marked the second month of gains. Readings above 50 indicate expansion in the sector, which accounts for about 12 percent of the economy. See full story.
Yellen strongly defends easy Fed policies
-- Federal Reserve Chair Janet Yellen gave a strong defense of the central bank's easy-money policies on Monday, saying its "extraordinary" commitment to boosting the economy, especially the still struggling labor market, will be needed for some time to come. In her first public speech since becoming Fed chair two months ago, Yellen cited the struggles of three American workers in backing the policies of low interest rates and continued bond-buying. She said there remains "considerable" slack in the economy and job market, a sign that further monetary stimulus can still be effective. "I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy-makers at the Fed," Yellen said at a community reinvestment conference.
The Fed, frustrated with the slow recovery from the 2007-2009 recession, has kept rates near zero for more than five years. It has said it will keep them there for a considerable time even after it ends a bond-buying program, which is to be wound down later this year. In a speech that sounded political at times, Yellen, long concerned with the hardships of the unemployed and under-employed, said the U.S. economy remains "considerably short" of the Fed's goals of maximum sustainable employment and stable inflation at 2 percent. See full story.
Consumer spending jumped in February
-- Consumer spending climbed in February by the most in three months as a pickup in incomes encouraged Americans to return to stores after a harsh winter held the economy back. Household purchases, which account for almost 70 percent of the economy, rose 0.3 percent after a 0.2 percent gain in January that was weaker than previously estimated, according to Commerce Department figures today in Washington. The increase matched the median forecast in a Bloomberg survey of economists. Incomes also advanced 0.3 percent.
The January revision to the spending data showed the economy suffered even more from the frigid weather at the start of the year than previously projected, prompting economists at JPMorgan Chase & Co. and RBS Securities Inc. to cut first-quarter growth forecasts. That underscores the need for bigger increases in employment to spur wage gains and purchases. “The February numbers are fine, but there was a big revision moving January down,” said Guy Berger, a U.S. economist at RBS Securities in Stamford, Connecticut, who correctly forecast the gain in spending. “That additional boost in employment that we’re probably going to see in March, and maybe one or two of the other spring months, is probably going to boost income growth.” See full story.
U.S. growth revised higher in Q4
-- The U.S. economy grew more rapidly in the fourth quarter than previously estimated as consumer spending climbed by the most in three years, showing the expansion had momentum heading into this year’s harsh winter. Gross domestic product grew at a 2.6 percent annualized rate from October through December, more than the 2.4 percent gain reported last month, figures from the Commerce Department showed today in Washington. The median forecast of 79 economists surveyed by Bloomberg called for a 2.7 percent increase.
Robust consumer spending on services, particularly health care, helped accelerate the expansion, a sign that this year’s slowdown is partly due to heavy snowfall and freezing temperatures. Retailers such as Macy’s Inc. are waiting for the weather to improve to get a clearer picture of the economy. “The economy is shaking off the negative impacts from the weather,” said Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who accurately forecast the growth in GDP. “We’re beginning to see signs that growth is going to gain some traction and strengthen and accelerate as the year progresses.” See full story.
U.S. durable goods orders rise
-- Orders for long-lasting U.S. manufactured goods rebounded in February, but a surprise drop in a gauge of planned spending on capital goods pointed to sluggish economic growth this quarter. The Commerce Department said on Wednesday orders for durable goods increased 2.2 percent, ending two straight months of declines. Durable goods are items like toasters and aircraft that are meant to last three years or more. However, orders for non-defense capital goods excluding aircraft unexpectedly fell 1.3 percent after rising 0.8 percent in January. This core capital goods measure is a closely watched proxy for business spending plans.
"First-quarter business investment looks to be soft, and it challenges some of the optimism surrounding the idea that capital expenditures were set to advance noticeably in 2014 from their 2013 pace," said Omair Sharif, senior economist at RBS in Stamford, Connecticut. Economic growth in the first quarter is expected to have slowed from the fourth quarter's annualized 2.4 percent rate, with the expansion held back by unseasonably cold weather and an effort by businesses to work through a pile of unsold goods. See full story.
Consumer confidence hits six-year high
-- Consumer confidence unexpectedly climbed in March to the highest level in six years, propelled by improved optimism about the economy’s prospects, signaling growth will strengthen after a weather-related slowdown. The Conference Board’s sentiment index rose to 82.3, the highest since January 2008 and exceeding all forecasts in a Bloomberg survey of economists, from 78.3 in February, the New York-based private research group said today. Other figures showed the housing market was having trouble gaining traction, in part because of harsh winter weather earlier this year.
“Signs of spring might be evident and might be getting people a little more optimistic that the future is going to be better,” said Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. As “these weather effects dissipate and we get payb ack, you’ll see confidence improve even more.”More Americans this month held out hope that employment opportunities will improve as the world’s largest economy gains momentum, which boosts the odds that spending will pick up. See full story.
China manufacturing slowdown deepens
-- China’s manufacturing industry weakened for a fifth straight month, according to a preliminary measure for March released today, deepening concern the nation will miss its 7.5 percent growth target this year. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics dropped to 48.1, compared with the 48.7 median estimate of 22 analysts surveyed by Bloomberg News and February’s final 48.5 figure. Numbers above 50 signal expansion. Chinese stocks rebounded from initial losses on speculation that weakening growth will prompt policy makers to reconsider their aversion to broad stimulus measures.
Leaders face a balancing act of reining in credit expansion that’s fueled the risk of loans going bad, while averting an economic slump that raises the odds of higher unemployment. “The old growth engine is losing steam,” said Chen Xingdong, chief China economist at BNP Paribas SA in Beijing, whose estimate of 48.0 was one of the three closest to the result. While a new engine is powering up, including opening up some industries dominated by state-owned enterprises, if its speed “can’t compensate for the loss of the old one, a third power is needed -- the power of policy,” said Chen, who previously worked for the World Bank. See full story.
China beige book: economy slowing
-- China’s economy slowed this quarter, with industries including retail and mining showing weaker revenue growth while loans through non-traditional channels became more expensive, according to a private survey. Even with the moderation, the labor market and wage growth were little changed from the previous quarter, according to the China Beige Book survey, published by New York-based CBB International. The report adds to signs that Premier Li Keqiang may face difficulties reaching an expansion target of 7.5 percent this year without stimulus. The State Council, or cabinet, said this week it will speed up construction projects and other measures to support the economy after data showed moderating growth in industrial production and investment.
“The pace of Chinese economic expansion has plainly slowed,” Leland Miller, president of survey publisher CBB International, said in a statement with Craig Charney, director of research and polling. “A weaker retail performance is the principal driver of the aggregate trend.” The report, modeled on the U.S. Federal Reserve’s Beige Book business survey, is based on responses from about 2,300 executives and 160 bankers from Feb. 10 to March 3, and 27 in-depth interviews conducted from March 10 to March 14. See full story.
Home sales fall to near 2-year low
-- Purchases of previously owned homes in the U.S. declined in February to the lowest level since July 2012, a sign the industry may be slow to recover. Contract closings on existing properties fell 0.4 percent to a 4.6 million annual rate, matching the median projection in a Bloomberg survey, figures from the National Association of Realtors showed today in Washington. Prices rose 9.1 percent from a year earlier, the group said.
The slowdown in sales since the middle of last year reflects a pickup in borrowing costs, declining affordability and, more recently, bad weather. Faster job growth that generates bigger income gains are needed to spur demand and allow housing to contribute more to the economy. “There are some headwinds out there,” said Robert Dye, chief economist at Comerica Inc. in Dallas, who correctly forecast the pace of sales. “Housing affordability has come down a bit as mortgage rates have come up from recent historic lows. The weather was a factor and we expect that to be turning around shortly.” See full story.