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U.S. data point to slowing growth
-- U.S. consumer spending rose modestly in October and a measure of business spending plans fell for a second straight month, suggesting some slowing in the pace of economic growth. But other data on Wednesday showed consumer confidence approaching a 7-1/2-year high in November, a reminder of the economy's relative resilience in the face of faltering global demand. "Momentum is weakening in the fourth quarter. While there is no reason to be pessimistic, it curbs some of the enthusiasm we had seen after the strong growth of the past two quarters," said Thomas Costerg, an economist at Standard Chartered Bank in New York.
The soft figures suggest anemic wage growth continues to weigh on spending, which economists thought would get a lift from falling gasoline prices. Income increased 0.2 percent in October after a similar gain in September. In another report, the department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, declined 1.3 percent in October for a second straight month. The drop in so-called core capital goods orders points to an ebbing in the robust pace of spending on equipment in the second and third quarters, and suggests the economy is not fully immune to Japan's recession and cooling growth in China and Europe. See full story.
Consumer confidence retreats in November
-- One month after hitting its highest level in seven years, consumer confidence unexpectedly retreated in November, a sign that consumers are less optimistic about the U.S. economy as the holiday shopping season begins, the Conference Board reported Tuesday. An overall gauge of consumer confidence fell to 88.7 in November from 94.1 in October, the New York-based research group said. The drop erased all of October’s gain and left the index at its lowest level since June.
The decline in November was primarily due to reduced optimism about the short-term outlook, said Lynn Franco, director of economic indicators at the Conference Board. “Consumers were somewhat less positive about current business conditions and the present state of the job market; moreover, their optimism in the short-term outlook in both areas has waned,” Franco said. See full story.
GDP in Q3 likely to be lowered
-- The U.S. probably didn’t grow quite as fast in the third quarter as originally estimated, but that’s unlikely to prevent the economy from posting another solid performance in the waning months of 2014. Economists polled by MarketWatch predict gross domestic product will be shaved to 3.3% from 3.5% when the government updates its third-quarter figures for the first time. The revised GDP report will be issued Tuesday at 8:30 a.m. Eastern.
Milder growth in exports and business investment are seen as primary reasons for the downward revision. Consumer spending, on the other hand, still appears to have been fairly firm in the third quarter and a bevy of reports point to an increase in household purchases in the last three months of the year. Consumer spending drives more than two-third of U.S. economic activity. See full story.
China’s central bank cuts interest rates
-- China cut lending rates for the first time in more than two years, in an acknowledgment that its piecemeal efforts to bolster its flagging growth have failed. The People’s Bank of China said it cut its benchmark one-year loan rate by 0.4 percentage point to 5.6%. The last time China cut lending rates was July 2012. The PBOC also cut its benchmark one-year deposit rate by 0.25 percentage point to 2.75% and gave banks greater flexibility in setting deposit rates, allowing them to offer interest of 1.2 times the benchmark rate instead of 1.1 times. Such a move could help banks attract deposits, potentially giving them the ability to lend more.
The surprise move by the People’s Bank of China on Friday comes amid wide expectations that the world’s No. 2 economy could miss its annual growth target — set this year at about 7.5% — for the first time since the late 1990s. Growth in investment, factory production, exports and retail sales all slowed in October. The economy grew by 7.3% year-over-year in the third quarter, its slowest pace in more than five years. Still, Beijing had refrained from more drastic measures such as an across-the-board lending-rate cut like Friday’s move or a massive spending binge like the one that spurred growth following the 2008 global financial crisis. See full story.
U.S., Eurozone, China sound growth warnings
-- Surveys sounded warning bells for the global economy on Thursday as euro zone businesses grew less quickly than any forecaster expected, and China and U.S. factories lost momentum. The downbeat data, alongside evidence of further price-cutting, will add to calls for more policy action from the European Central Bank, while the first drop in Chinese manufacturing output for six months will heap similar pressure on authorities in Beijing. "It does reinforce the case for quantitative easing from the European Central Bank," said Alan Clarke, European economist at Scotiabank, of the euro zone PMIs.
In China, the world's second biggest economy, the HSBC/Markit manufacturing PMI reading showed a drop to a six-month low of 50.0 in November. The factory output sub-index fell to 49.5, its first contraction since May. The U.S. manufacturing sector growth also slowed in November, falling to its lowest rate since January while a gauge of new orders also fell for a third straight month, an industry report showed on Thursday. See full story.
Fed worries about inflation expectations
-- Many Federal Reserve policy makers last month said they should be on the lookout for signs of a decline in expectations for inflation, minutes of their meeting show. “Many participants observed the committee should remain attentive to evidence of a possible downward shift in longer-term inflation expectations,” according to a record of the Oct. 28-29 Federal Open Market Committee meeting released today in Washington. “Some of them noted that if such an outcome occurred, it would be even more worrisome if growth faltered.”
Fed Chair Janet Yellen and her colleagues last month focused on improvements in the labor market when they announced an end to their stimulative bond purchases. They also said that the risk of inflation remaining persistently below their goal had ebbed. The minutes show the members “continued to expect inflation to move back to the committee’s 2 percent target over the medium term as resource slack diminished in an environment of well-anchored inflation expectations.” Consumer prices as measured by the Fed’s preferred gauge have slowed to a gain of 1.4 percent in September from a year earlier and have remained below the target for 29 consecutive months. See full story.
Wholesale inflation up, trend muted
-- U.S. producer prices unexpectedly rose in October, but the underlying trend continued to point to a benign inflation environment that could bolster the Federal Reserve's resolve to keep interest rates very low a bit longer. The Labor Department said on Tuesday its producer price index increased 0.2 percent, driven by a jump in prices for services, after slipping 0.1 percent in September.
However, the so-called core PPI, which excludes food, energy and trade services, edged up only 0.1 percent after dipping 0.1 percent in the prior month. "There is no inflation pressure building that could cause the Fed to want to move earlier in terms of their (rates) lift off," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.The U.S. central bank has kept its short-term rates near zero since December 2008, and most economists expect the first rate hike in mid-2015. See full story.
Philly Fed survey trims Q4 growth
-- Economists trimmed their forecasts for U.S. economic growth in the fourth quarter but slightly raised their expectations for the balance of 2014 on an improved outlook for the labor market. Analysts see the economy growing at an annual rate of 2.7 percent in the current quarter, according to the Philadelphia Federal Reserve's quarterly survey of 42 forecasters, released on Monday. In last quarter's survey, growth for this quarter was forecast at 3.1 percent.
First-quarter 2015 growth was forecast at 2.8 percent, down from the estimate of 3.1 percent in August's survey, though full-year growth for 2014 was forecast at 2.2 percent, up from the previous estimate of 2.1 percent. Inflation is expected to stay low, with year-on-year core consumer price inflation, which strips out food and energy costs, averaging 1.7 percent in the fourth quarter, down from the previous estimate of 2.1 percent. First-quarter core CPI was seen at 1.9 percent, down from the previous estimate of 2.1 percent. See full story.
Oil rises as OPEC pressured to act
-- Brent advanced on speculation that the drop in prices below $80 a barrel for the first time in four years increases the likelihood that OPEC will curb output. West Texas Intermediate rose in New York. Futures gained as much as 2.8 percent in London and 1.8 percent in New York. OPEC ministers have stepped up their diplomatic visits before the group’s Nov. 27 meeting, potentially seeking a consensus on how to react to oil prices that have plunged to a four-year low. Prices may slide further in the coming months as the market enters a period of weaker demand, the International Energy Agency said today.
Oil has collapsed into a bear market after leading members of the Organization of Petroleum Exporting Countries resisted calls to cut production and the U.S. shale boom lifted output to the highest level in three decades. Brent is heading for its eighth weekly decline, the longest retreat since the contract began trading in 1988. “Brent falling below $80 yesterday and WTI falling below $74 has certainly gotten the attention of OPEC,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. See full story.
China slowdown deepens in October
-- China’s slowdown deepened in October as policy makers refrained from economy-wide stimulus, with industrial output and investment trailing estimates. Factory production rose 7.7 percent from a year earlier, the second weakest pace since 2009, a government report showed today. Investment in fixed assets such as machinery expanded the least since 2001 from January through October, and retail sales gains also missed economists’ forecasts last month.
The government has kept to targeted steps to shore up the economy this year, rather than a broader response such as nationwide interest-rate cuts, to avert a repeat of a buildup in debt from the record 2008-2009 credit surge. With the focus instead on structural changes, leaders have discussed lowering their economic growth target for 2015. “The data highlights downward pressure,” said Dariusz Kowalczyk, senior economist at Credit Agricole SA in Hong Kong. “It will encourage further monetary easing.” See full story.
Fed's Rosengren calls for higher inflation
-- The Fed should fight low inflation as vigorously as it would a too rapid run-up in prices or risk the same sort of prolonged slow growth plaguing Japan and Europe, Boston Federal Reserve bank president Eric Rosengren said on Monday. Rosengren, in remarks at Washington and Lee University devoted to the potential costs of inflation that remains stuck below the Fed's two percent target, said the Fed's own credibility was at stake. Failure to get inflation to target, he said, raised the risk that investors and consumers would slip into deflationary thinking, changing their spending and investment patterns in ways that would further undermine growth.
"Japan’s experience and now Europe’s current situation both indicate that indifference to very low inflation rates can generate a significant loss of confidence in the ability of a central bank to hit its inflation goal," Rosengren said, noting that low bond yields globally indicate investors have "little expectation" the Fed and other major central banks will be successful in lifting prices. "The Federal Reserve must respond as vigorously to inflation that is too low as we have, historically, when inflation has been too high," he said. The lack of any clear uptick in inflation has become a central concern - enough so that some Fed officials have even discussed the possible need for further rounds of monetary stimulus. See full story.
Ifo: Germany on brink of recession
-- Germany is teetering on the brink of a recession due to weakness in major emerging trading partners, the head of the influential Ifo economic research institute said on Monday, four days before the release of third quarter gross domestic product data. "It is going to be really close," Hans-Werner Sinn told Reuters in an interview, saying that surveys by the Ifo institute pointed more toward a recession.
"We have an economic crisis in the so-called BRIC countries, Russia anyway, but also Brazil, and now China is weakening slightly as well," Sinn said when asked on the reasons for the bleak prospects. The United States economy is the only bright spot on the horizon, but this will not suffice to galvanize the global economy, Sinn added. The German economy had a strong start to 2014 but contracted in the second quarter and fears are now rife of another fall in the third - amounting to a technical recession. See full story.
China factory prices decline again
-- China’s factory-gate prices fell for a record 32nd month in October and consumer prices remained subdued, raising pressure on policymakers to bolster the world’s second-largest economy as disinflation spreads. The producer-price index dropped 2.2 percent from a year earlier, the National Bureau of Statistics said in Beijing today, compared with the median projection of a 2 percent decline in a survey of analysts by Bloomberg News. Consumer prices rose 1.6 percent and the rate was unchanged from the prior month and matched economists’ estimates.
China’s economy, burdened by overcapacity and weak domestic demand, is headed for the slowest full-year growth in more than two decades. Lower oil and metals prices are cutting costs at the factory gate, allowing China’s exporters to reduce prices and adding to deflationary pressures globally. “China’s domestic demand remained soft and dis-inflationary risks are on the rise on the back of falling global commodity prices,” said Chang Jian, chief China economist at Barclays Plc in Hong Kong. “Subdued inflation offers room for more PBOC easing, but broad-based monetary easing will more likely to be triggered by disappointing growth numbers, which we will likely see in the coming months.” See full story.
Majority of new jobs pay below average wage
-- The U.S. is becoming an engine of job creation once again, but it’s more like a four-cylinder instead of an eight-cylinder one. The 214,000 gain in new jobs in October marked the ninth straight month in which net hiring topped 200,000. The last time that happened was in 1994. Yet only about 40% of the new jobs created in October were in fields that pay above the average hourly U.S. wage of $24.57. That’s down from 60% in September.
The mediocre nature of many new jobs and slow wage growth are perhaps the biggest obstacle to a full-blown economic recovery. The biggest increase in hiring in October occurred at restaurants and bars, which added a seasonally adjusted 42,000 positions. Retailers hired 27,000 workers. Temps accounted for 15,000 jobs. Transport — think package deliverers — took on 13,000 new employees. All these industries pay less than the national average. Some of the new jobs are also unlikely to last long. Restaurants and retailers, for example, tend to beef up staff ahead of the holidays and slim down after New Year’s. See full story.
Draghi reinforces ECB stimulus momentum
-- Mario Draghi sought to restore the faith of investors in the European Central Bank’s ability to revive its ailing economy. Under pressure to show he can spur inflation, and to narrow divisions among policy makers over how to do so, the ECB president said officials will buy assets for at least two years to boost their balance sheet by as much as 1 trillion euros ($1.2 trillion), and will study further stimulus. He stressed that the ECB is on a different path from the Bank of England and U.S. Federal Reserve, which have stopped purchases.
The euro and Treasuries dropped as traders concluded that with the economic outlook deteriorating, Draghi may be preparing to expand its measures as soon as next month. Corporate and government-agency bonds may be the next target before officials contemplate more-controversial sovereign debt. The euro area’s central bankers met today in Frankfurt amid claims that Draghi often acts without the backing of them all, and just days after the Bank of Japan ramped up its own stimulus campaign. The question for investors is how much more he can do to boost an economy that risks sliding into its third recession in six years and where inflation is close to becoming deflation. See full story.
Dollar extends multi-year highs
-- The dollar rose on Wednesday, extending multi-year highs after Republicans in mid-term elections won control over both chambers of the U.S. Congress for the first time since 2006, lifting investor expectations for more pro-business policies. Chances for less political gridlock boosted the greenback with hopes that this might spur an economic recovery in which the U.S. unemployment rate has fallen to 5.9 percent. The dollar extended its months-long run to hit a seven-year high against the Japanese yen. The euro slid to a 26-month low against the greenback and the Australian dollar collapsed nearly 2 percent.
Bank of Japan Governor Haruhiko Kuroda said the central bank is ready to do more to hit its 2 percent price goal and boost the economy. He stressed the BOJ will do whatever it takes to hit the target in two years and vanquish nearly two decades of grinding deflation. The euro slid to a fresh low of $1.2458, before stabilizing around $1.2483, down 0.50 percent on the day. The euro's struggles continued a day ahead of a European Central Bank meeting on Thursday. Investor expect the central bank to hold off on fresh policy action despite more evidence of a struggling economy. See full story.
Weak U.S. exports point to slower growth
-- The U.S. trade deficit unexpectedly widened in September as exports hit a five-month low, a sign that slowing global demand could undercut economic growth in the fourth quarter. The Commerce Department said on Tuesday the trade gap increased 7.6 percent to $43.03 billion, ending four straight months in which the deficit had narrowed. "We expect a stronger dollar and weaker growth abroad, most notably in Europe, will take a greater toll on the trade balance and overall growth in the economy," said Diane Swonk, chief economist at Mesirow Financial in Chicago.
September's shortfall was bigger than the $38.1 billion gap the government had assumed in is estimate of third-quarter GDP last week, when it said the economy expanded at a 3.5 percent annual rate, with trade adding 1.3 percentage points. Economists, who had expected a $40.00 billion trade gap in September, said the wider deficit could cut as much as a half a percentage point off that growth estimate. That would come on top of a reduction of about two-tenths of a point due to weak construction spending data released on Monday, they said. The government will publish revisions to third-quarter GDP later this month. In another report, the Commerce Department said orders for factory goods fell for a second straight month in September. See full story.
China manufacturing falls to 5-month low
-- A gauge of China's manufacturing activity fell to a five-month low in October, despite a series of government support measures aimed at aiding growth, suggesting that more help may be needed to boost the world's second largest economy. Analysts said factory data released Saturday kicked off the fourth quarter of the year on a surprisingly weak note and revealed particular problems among smaller and midsize companies. "We can expect more targeted [support] measures and the government may have to step in more forcefully," said Andrew Polk, economist at the Conference Board.
China's official Manufacturing Purchasing Managers' Index dropped to 50.8 in October from 51.1 in September, according to the China Federation of Logistics and Purchasing, which issues the data with the National Bureau of Statistics. China's economic growth has been sluggish this year, pulled down by a weak property sector and tight credit conditions. Some analysts have questioned whether growth will reach the government's target of about 7.5% this year. Growth slipped to 7.3% year-to-year in the third quarter from 7.5% in the second quarter and 7.7% for all of last year. The third quarter pace was the slowest since the first quarter of 2009. See full story.
BOJ shocks markets with more easing
-- BOJ Governor Haruhiko Kuroda portrayed the board's tightly-split decision to buy more assets as a preemptive strike to keep policy on track, rather than an admission that his plan to reflate the long moribund-economy had derailed. But some economists wondered if pushing even more money into the financial system would be effective as long as consumer confidence continues to worsen and demand remains weak.
"It's clearly a big surprise given Kuroda's repeated insistence that policy was on track and assorted politicians have been warning about the negative side of a weak yen currency," said Sean Callow, a currency strategist at Westpac. "We salute the BoJ for admitting that they weren't going to reach their goals on inflation or GDP, though we do note that the new policy equates to about $60 billion of quantitative easing per month. This perspective does raise the question of just how much impact monetary policy is having." See full story.
Trade, defense buoy U.S. economy
-- A smaller trade deficit and surge in defense spending buoyed U.S. economic growth in the third quarter, but domestic demand slipped, hinting at some loss of momentum. Gross domestic product grew at a 3.5 percent annual pace, the Commerce Department said on Thursday. However, the pace of growth in business investment, housing and consumer spending slowed from the second quarter. "The report was broadly constructive, but with weakness emerging in housing and consumption spending, we expect the pace of growth to slip further in the fourth quarter," said Millan Mulraine, deputy chief economist at TD Securities in New York.
Despite decelerating from the second quarter's robust 4.6 percent growth rate, it was the fourth quarter out of five that the economy has expanded at or above a 3.5 percent clip. The data came one day after the Federal Reserve ended its asset purchasing program and said there was sufficient underlying strength in the economy to continue whittling away at unemployment. The dollar rose against a basket of currencies on the growth data, and U.S. stocks gained. Prices for U.S. Treasury debt also were trading higher. See full story.
Fed ends QE3, sends upbeat signals
-- The Federal Reserve voted on Wednesday to end its bond-buying stimulus program commonly known as QE3 and sent several upbeat signals to markets that it was not worried about global weakness, low inflation or a wobble in financial markets. In the statement, the Fed left unchanged its pledge that rates would remain near zero for a “considerable time.” But it qualified the statement, saying that if the economy improves faster than expected, than the first rate hike could come sooner than anticipated.
The statement also made a major change to the Fed’s view on labor markets. Instead of seeing “significant underutilization” in the labor market, which was in the September statement, the Fed now said that underutilization in labor resources “is gradually diminishing.” On inflation, the U.S. central bank dismissed concern with the drop in inflation expectations seen in financial markets. It said that surveys of longer-term inflation expectations have “remained stable.” It said that low inflation has been held down by low energy prices and “the likelihood of inflation running persistently below 2% has diminished somewhat since early this year.” See full story.
Dollar declines after weak data
-- The dollar fell on Tuesday on disappointing U.S. durable goods and home price data ahead of a Federal Reserve policy meeting. Given recent signs of slowing in U.S. business activity and with inflation below the Fed's 2 percent target, analysts and traders widely expect the U.S. central bank to telegraph it would be unlikely to raise rates before mid-2015, although it will likely end its third round of quantitative easing. The Federal Open Market Committee, the Fed's policy-setting group, begins a two-day meeting on Tuesday and is scheduled to release a statement at 2 p.m. EDT Wednesday.
"The data definitely missed expectations, but the market is still treading water until after the FOMC meeting," said David Rodriguez, quantitative strategist at DailyFX in New York. The U.S. Commerce Department said orders for big-ticket items such as airplanes fell 1.3 percent in September following an 18.3 percent plunge in August. Analysts had expected a 0.5 percent rise last month. On the real estate front, S&P and Case-Shiller reported their index of home prices in 20 U.S. cities fell 0.1 percent in August, contrary to an expected 0.1 percent rise. See full story.