Daily Economy Watch keeps an eye on events that affect your hard asset portfolio. View archives.
Producer prices flat in August
-- U.S. producer prices were flat in August, pointing to muted inflation pressures that should allow the Federal Reserve to bide its time as it considers when to raise interest rates. The Labor Department said on Tuesday falling gasoline and food prices restrained its producer price index for final demand last month. Prices received by the nation's farms, factories and refineries had edged up 0.1 percent in July.
"The Fed has more time to allow monetary policy to work its way through the economy before feeling the need to raise rates," said Jay Morelock, an economist at FTN Financial in New York. Economists had expected producer prices to gain 0.1 percent last month. In the 12 months through August, they increased 1.8 percent, accelerating a bit from the 1.7 percent rise in the year through July. The report came as Fed officials gathered for two-day policy meeting. They have held benchmark rates near zero since late 2008, but are seen inching toward an increase around the middle of next year. See full story.
China growth weakens in August
-- Data showing that the Chinese economy quickly lost steam in August caused some economists on Monday to trim their 2014 growth forecasts for the country. UBS shaved its full-year forecast to 7.2 percent from 7.3 percent. Barclays Capital reduced its projection to 7.2 percent from 7.4. ING cut its forecast to 7.4 from 7.5 percent. Over the weekend, data showed factory output grew at its weakest pace in nearly six years in August while weaker readings in investment, retail sales and imports revealed a picture of an economy struggling to gain momentum despite recent stimulus steps.
"Our downward revision is based on our belief of a shift in the government's attitude and it is now less focused on achieving the 7.5 percent growth target," analysts at Barclays said in a note. The slowdown in the data also indicated banks are getting cautious about lending, especially with the backdrop of mounting pressure on company balance sheets and an entrenched slowdown in the property sector, a key engine for economic growth. See full story.
U.S. stocks snap 5-week advance
-- The U.S. stock market closed lower on Friday as rising Treasury yields and the prospect of next week’s Fed rate meeting made investors cautious.
The S&P 500 retreated from record high levels throughout the week amid speculation that the Federal Reserve may signal the arrival of interest-rate increases sooner than expected.
Kristina Hooper, U.S. investment strategist at Allianz Global Investors, said that near-term small selloff in September and October is not surprising. “Retail sales data were positive and suggest the economy is growing steadily. But there is trepidation among investors, ahead of next week’s Fed meeting and whether the Fed will change the language over the timing of the interest-rate increases,” Hooper said.
For the full story please use this link: http://www.marketwatch.com/story/us-stocks-futures-flat-consumers-in-the-spotlight-2014-09-12?link=MW_home_latest_news
Treasury Auctions Attract Most Foreign Demand Since February
-- Treasury auctions this week attracted the strongest demand since February from a class of investors that includes foreign central banks as the plunge in European yields spurred demand for higher-returning U.S. debt.
International investors have been flocking to Treasuries since speculation the European Central Bank was moving closer to buying bonds drove yields in the region to historic lows this month and turmoil in Ukraine enhanced the refuge appeal. The gap between U.S. 10-year note yields and comparable securities from Group of Seven countries widened to 0.83 percent, close to the highest since June 2007.
For the full story please use this link: http://www.bloomberg.com/news/2014-09-11/treasury-auctions-attract-most-foreign-demand-since-february.html
Pound Climbs Scots May Stay in U.K.
-- The pound jumped from the lowest level in 10 months after an opinion poll showed fading support for Scotland’s bid for independence from the U.K.
The dollar reached the strongest against the yen since 2008 and rose versus the euro as traders raised bets the Federal Reserve will increase interest rates in mid-2015. Switzerland’s franc slumped to a one-year low against the dollar and dropped versus the euro after the Wall Street Journal reported negative interest rates remain an option for the Swiss National Bank. The ruble dropped as European officials considered sanctions against Russia.
For the full story please use this link: http://www.bloomberg.com/news/2014-09-10/euro-falls-as-wsj-reports-swiss-say-neative-rates-an-option.html
French rival Greeks for pessimism
-- The French have become almost as pessimistic as the Greeks as Europe struggles with a persistent lack of job prospects, according to a Pew Research Center poll that paints a gloomy picture of the world economy. Forty-eight percent of French people surveyed said they expect the economic situation to deteriorate over the next 12 months, second only to the Greeks, with 53 percent, among the 44 nations polled. In Greece, Italy and Spain, more than 90 percent of respondents said the current situation is bad, a view held by 88 percent in France.
As President Francois Hollande struggles to lift the country out of its economic malaise, France faces the sputtering growth and high unemployment that has dogged countries across the euro zone since the crisis. The European Central Bank last week announced a new round of measures to jump-start activity, while at the same time postponing a fight with Germany over whether it should buy government bonds. “Amid an uneven global economic recovery, publics around the world remain glum,” the Pew poll said. “In most nations, people say their country is heading in the wrong direction and most voice the view that economic conditions are bad.” See full story.
China trade surplus hits record
-- China’s trade surplus climbed to a record in August as exports rose on the back of increased shipments to the U.S. and Europe, while imports fell for a second month as a property slump hurt domestic demand. Exports increased 9.4 percent from a year earlier, the Beijing-based customs administration said today, compared with the 9 percent median estimate in a Bloomberg survey. Imports unexpectedly dropped 2.4 percent, leaving a trade surplus of $49.8 billion.
Divergent directions for exports and imports show China is some way from providing the global growth boost that IHS Inc. this month forecast will see it eclipse the U.S. economy in 2024. Languishing domestic demand underscores risks to the government’s economic-growth target this year of about 7.5 percent as home prices and construction fall, boosting chances of additional stimulus. See full story.
Job growth falls to eight-month low
-- U.S. employers hired the fewest number of workers in eight months in August and more Americans gave up the hunt for jobs, providing a cautious Federal Reserve with more reasons to wait longer before raising interest rates. Nonfarm payrolls increased 142,000 last month after expanding by 212,000 in July, the Labor Department said on Friday. The jobless rate fell one-tenth of a percentage point to 6.1 percent, but that was partly because people dropped out of the labor force.
"Fed Chair Janet Yellen will be able to use the weakness to hold off hawks who would like to raise rates soon," said Diane Swonk, chief economist at Mesirow Financial in Chicago. Data for June and July were revised to show 28,000 fewer jobs created than previously reported. In addition, manufacturing saw no job growth and retail payrolls declined for the first time since February. See full story.
Draghi adds $900 billion in ECB aid
-- Mario Draghi signaled at least 700 billion euros ($906 billion) of fresh aid for his moribund economy and left a fight with Germany over sovereign-bond purchases for another day. Pledging to “significantly steer” the European Central Bank’s balance sheet back toward the 2.7 trillion euros of early 2012 from 2 trillion euros now, the ECB president today announced a final round of interest-rate cuts and a plan to buy privately owned securities. His mission: to revive inflation in the 18-nation euro area.
Fully-fledged quantitative easing as deployed in the U.S. and Japan wasn’t enacted amid a split on the 24-member Governing Council, with Bundesbank President Jens Weidmann opposing the new stimulus and others seeking more. The latest round of measures pushed the euro below $1.30 for the first time since July 2013 and sent European bond yields negative. See full story.
Beige Book shows moderate expansion
-- The U.S. economy expanded at a "moderate" pace across much of the nation in recent weeks, with the auto industry showing strong growth and banking conditions improving, the Federal Reserve said on Wednesday. In its Beige Book report of anecdotal information on business activity collected from contacts across the nation, the central bank said six of its 12 districts reported economic growth as "moderate."
Labor market conditions, as measured by hiring trends, were reported to be relatively unchanged from generally modest rates in most districts, the Fed said.But the Fed said nearly all the districts reported difficulties finding certain types of skilled labor, citing information technology, truck drivers and construction workers as some of the occupations with shortfalls. "Overall, price pressures remained largely unchanged," it added. See full story.
ISM index signals robust growth
-- Gains in manufacturing boosted the U.S. expansion in August, led by a surge in orders for plastics and metals that powered the world’s largest economy past a global slowdown. The Institute for Supply Management’s index unexpectedly climbed to 59, the highest level since March 2011, from July’s 57.1, beating all forecasts in a Bloomberg survey of economists. The orders gauge was the strongest in a decade, the Tempe, Arizona-based group reported today.
American factories are benefiting from a rebound in auto sales and stronger business spending on new plants and equipment that are helping industries rise above the political tensions weighing on Europe. Faster wage growth is now needed to sustain the advance and broaden household purchases beyond automobiles. “The manufacturing sector is just on fire right now,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, whose ISM forecast at 58.5 was the highest in the Bloomberg survey. “You’ve got increased demand for workers, and the more people working, and the more money they are making, the more money they’ll spend.” See full story.
Consumer sentiment bounces in August
-- A gauge of consumer sentiment rose this month, reversing a drop in July, as views on the current economy brightened, according to data released Friday. The University of Michigan/Thomson Reuters consumer-sentiment index hit a final August reading of 82.5, compared with a final July level of 81.8. Economists polled by MarketWatch had expected a final reading of 80.1 for August, compared with a preliminary result of 79.2. Economists follow readings on confidence to look for clues about consumer spending, the backbone of the economy. For context, the consumer-sentiment gauge averaged 86.9 over the year leading up to the recession.
Of note, while consumers’ views on current economic conditions rose this month, their expectations declined, according to the UMich report. That finding echoes separate data released earlier this week showing that a consumer-confidence gauge from the Conference Board bumped up this month to the highest level in seven years, even as the outlook on the upcoming economy slightly worsened. Elsewhere Friday, the government reported that consumer spending fell 0.1% in July — the first drop in six months — as income growth slowed down. The consumer-spending report echoes other recent data that showed July’s retail sales, which are a major chunk of consumer spending, were the weakest in six months. See full story.
Risks rise for German economy
-- German unemployment unexpectedly rose in August as a stagnating euro-area recovery and tension with Russia darkened the outlook for Europe’s largest economy. The number of people out of work climbed a seasonally adjusted 2,000 to 2.901 million in August, the Nuremberg-based Federal Labor Agency said today. Economists forecast a decline of 5,000, according to the median of 30 estimates in a Bloomberg News survey. The adjusted jobless rate was unchanged at 6.7 percent, the lowest level in more than two decades.
Germany’s economy shrank last quarter and the strength of any rebound is critical for the 18-nation euro area. The region’s stalling recovery and weakest inflation since 2009 has prompted European Central Bank President Mario Draghi to signal that he could step in with quantitative easing. “The German economy is not in as good a shape as it was at the beginning of the year,” said Michael Holstein, an economist at DZ Bank AG in Frankfurt. “The labor market is still strong but if the economic outlook worsens further, we’ll see the effect on employment later in the year.” See full story.
CBO slashes growth forecast
-- The Congressional Budget Office on Wednesday raised its estimate of the federal government's budget deficit for the 2014 fiscal year by $14 billion to $506 billion. That would represent 2.9% of gross domestic product. The new estimate is largely a result of lower-than-expected revenues for the year.
In its updated 10-year budget and economic outlook, the nonpartisan agency also cut its estimate of gross domestic product growth for 2014 to 1.5% from 3.1%, "reflecting the surprising economic weakness in the first half of the year." The CBO last estimated the full-year deficit in April. The fiscal year runs from October through September. See full story.
Consumer confidence near seven-year high
-- U.S. consumer confidence rose in August to its highest level since October 2007 on improved feelings about the current state of the economy, according to a private sector report released on Tuesday. The Conference Board, an industry group, said its index of consumer attitudes rose to 92.4 from a downwardly revised 90.3 the month before. Economists had expected a reading of 89, according to a Reuters poll. July's reading was originally reported as 90.9.
"Consumer confidence increased for the fourth consecutive month as improving business conditions and robust job growth helped boost consumers' spirits," Lynn Franco, director of economic indicators at The Conference Board, said in a statement. The expectations index fell to 90.9 from a revised 91.9 figure, while the present situation index rose to 94.6, highest since February 2008, from 87.9. Consumers' labor market assessment improved. The "jobs hard to get" index fell to 30.6 percent from 30.9 percent the month before, while the "jobs plentiful" index rose to 18.2 percent from 15.6 percent. See full story.
Draghi pushes ECB closer to QE
Jackson Hole, WY
-- Mario Draghi just pushed the European Central Bank closer to quantitative easing. With euro-area data this week likely to show the weakest inflation since 2009, the ECB president used a high-powered central-banking conference in Jackson Hole, Wyoming, to warn that investor bets on prices have “exhibited significant declines.” Stocks rose, the euro fell and bond yields dropped to record lows today as the comments fanned speculation the ECB is finally heading for a form of monetary stimulus it has long avoided.
Draghi previously said that a worsening of the medium-term inflation outlook would provide a reason for broad-based asset purchases. The Aug. 22 speech “was a major event and marked a turning point in ECB rhetoric,” said Philippe Gudin, chief European economist at Barclays Plc in Paris. “We think the recent economic developments have increased the chance of outright QE as the next step.” Draghi’s fear is that if inflation expectations keep falling, they’ll affect actual inflation as investors, consumers and companies pull back spending in anticipation of even weaker prices. That could tip Europe into a deflationary spiral that would be hard to reverse. See full story.
Yellen says job market still in recovery
Jackson Hole, WY
-- Federal Reserve Chair Janet Yellen called for a "pragmatic" approach to U.S. monetary policy on Friday, amid calls by hawkish members of the central bank's policy committee for a quick rise in interest rates due to tightening labor markets and inflationary risks. In a speech at the Fed's annual central banking conference, Yellen laid out in detail why she feels the unemployment rate alone was inadequate to evaluate the strength of the jobs market and why the central bank needed to move cautiously on raising rates.
At the same time, she nodded to the concerns of some Fed officials who are growing uneasy with the sustained level of its monetary policy stimulus. "There is no simple recipe for appropriate policy," Yellen said, arguing for a "pragmatic" approach that gives officials room to evaluate data as it arrives without committing to a preset policy path. But, overall, it marked a defense of her basic premise that significant slack remained in the jobs market, even though she said the 2007-2009 financial crisis and recession damaged the economy and work force in ways that are not fully understood. See full story.
Housing, jobs data bolster outlook
-- U.S. home resales rose to a 10-month high in July and the number of Americans filing new claims for unemployment benefits fell last week, signaling strength in the economy early in the third quarter. The growth outlook was further buoyed by other reports on Thursday showing factory activity in the mid-Atlantic region hit its highest level since March 2011 in August while a gauge of future economic activity increased solidly last month. Home resales have now increased for four straight months after the housing market recovery stalled in the second half of 2013 following a run-up in mortgage rates.
"It goes some way in allaying fears about a relapse in the housing sector recovery, which until recently appears to have stagnated," said Millan Mulraine, deputy chief economist at TD Securities in New York. In a separate report, the Labor Department said initial claims for state unemployment benefits fell 14,000 to a seasonally adjusted 298,000 for the week ended Aug. 16. That pointed to a sustained improvement in labor market conditions. See full story.
Fed: job gains not yet enough
-- The Federal Reserve has been surprised by how quickly the U.S. labor market is healing but doesn't want to bring forward a planned rate hike until the recovery looks more convincing, according to minutes of its last policy meeting. Policymakers "generally agreed" improvements in the labor market over the last year had been "greater than expected," according to minutes of the central bank's July 29-30 meeting released on Wednesday. The Fed had said in its policy statement following the meeting that there was "significant" labor market slack, but the minutes showed many members of its policy-setting panel thought this characterization "might have to change before long."
"Labor market conditions had moved noticeably closer to those viewed as normal in the longer run," the minutes said. Still, most policymakers felt any change in their view on when to start raising rates "would depend on further information on the trajectories of economic activity, the labor market and inflation." The minutes also showed Fed officials had largely agreed on many elements of a framework for eventually raising rates from near zero, with almost all of them agreeing it would be appropriate to retain the overnight federal funds rate as their key target. See full story.
Consumer prices rise modestly
-- U.S. consumer prices barely rose in July as declining energy costs partially offset increases in food and rents, which could give the Federal Reserve ammunition to keep interest rates low for a while. The Labor Department said on Tuesday its Consumer Price Index edged up 0.1 percent last month after increasing 0.3 percent in June. In the 12 months through July, the CPI increased 2.0 percent after advancing 2.1 percent in June. Inflation pushed up a bit from March through June, but labor market slack, marked by tepid wage growth, is keeping a lid on price pressures. That could add to the view that the U.S. central bank will be in no hurry to raise its benchmark interest rate.
The Fed targets 2 percent inflation and it tracks an index that is running even lower than the CPI. The Fed last month said the risk of inflation running persistently below its target had diminished somewhat. It has kept its overnight lending rate near zero since December 2008 while nursing the economy back to health. Last month's gain in consumer prices was in line with economists' expectations. See full story.
Homebuilder confidence at seven-month high
-- Confidence among U.S. homebuilders rose in August to the highest level in seven months, showing the industry is making more headway after weakness earlier this year. The National Association of Home Builders/Wells Fargo sentiment measure climbed to 55 from 53 in July, the Washington-based group reported today. Readings above 50 mean more respondents said conditions were good. The median forecast in a Bloomberg survey of economists projected it would hold at 53.
Historically low mortgage rates and increased employment are bringing home purchases within reach of more Americans. Faster wage gains would help provide an additional push for the industry, which is struggling to lure first-time buyers beset by tougher credit conditions. “As the employment picture brightens, builders are seeing a noticeable increase in the number of serious buyers entering the market,” NAHB Chairman Kevin Kelly, a homebuilder from Wilmington, Delaware, said in a statement. “However, builders still face a number of challenges, including tight credit conditions for borrowers and shortages of finished lots and labor.” See full story.