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U.S. trade deficit widens as exports sag
-- U.S. exports took a hit from an ailing global economy in August and imports from China surged, fueling the largest expansion of America's trade deficit in five months. The data released on Tuesday by the Commerce Department illustrates the U.S. economy's vulnerabilities to a strong dollar and weak demand in foreign markets, which could impose further caution on the Federal Reserve's plans to hike interest rates. The trade deficit swelled by 15.6 percent to $48.3 billion in August, according to data that is adjusted for seasonal factors. "Trade will remain a drag on the real economy until well into next year," said Steve Murphy, an economist at Capital Economics.
The declines are partly due to expectations of higher interest rates in the United States that have pushed the value of the dollar higher, reflecting the strength of America's economy relative to its trading partners. A stronger dollar makes U.S. goods less competitive abroad. Weaker demand abroad is also playing a role, and U.S. Treasury Secretary Jack Lew will ask policymakers from other countries gathering in Lima, Peru this week to stimulate their economies to kick-start global growth. The International Monetary Fund cut its global growth forecasts for the second time this year on Tuesday, citing weak commodity prices and a slowdown in China while warning that policies aimed at increasing demand were needed. See full story.
U.S. economy creates just 142,000 new jobs
-- The number of new jobs created in September slowed sharply for the second straight month, raising the specter that pace of hiring in the U.S. has tapered off amid fresh worries about a weaker global economy and political infighting in Washington. The economy added a seasonally adjusted 142,000 jobs in September, following an even smaller gain in the prior month, the Labor Department reported Friday. Economists polled by MarketWatch had expected a gain of 200,000 nonfarm jobs. The unemployment rate was unchanged at 5.1%, though more people dropped out of the labor force. The percentage of Americans in the labor force fell to the lowest level since October 1977.
The disappointing back-to-back employment reports — the worst pair in three years — suggests the labor market cooled off at the end of summer, putting in doubt whether the Federal Reserve raises interest rates at all in 2015. The Fed will meet again later this month to consider the first increase in its benchmark short-term rate since 2006. Employment gains for August and July, for example, were revised down by a combined 59,000. Hiring in August was even weaker than initially reported, with the government cutting its estimate to 136,000 from an original 173,000. The average hourly wage paid to American workers also fell a penny in September, once again confounding expectations that pay will rise because of the rapid decline in the unemployment rate over the past few years. The typical worker earned $25.09 an hour last month. See full story.
U.S. factories chilled by global economy
-- The pace of growth at U.S. factories slowed in September, a sign that the chill falling over the global economy could complicate the Federal Reserve's plans to raise interest rates. Other data on Thursday pointed to a tightening labor market and stronger spending on home construction, highlighting the split in the economy between strong domestic growth and weakness abroad. This is causing headaches at the Fed, which cited concerns last month about "global economic and financial developments" when it surprised much of Wall Street by holding off on hiking rates.
The Institute for Supply Management (ISM) said its index of national factory activity fell to 50.2, its lowest since May 2013 and just below the median forecast in a Reuters poll. While any reading above 50 indicates expansion in manufacturing, growth has slowed sharply over the last year as a strong dollar has crimped exports. More recently, a slowdown in China is dragging on global growth. The ISM's index for exports held steady at 46.5, marking a contraction in activity for the fourth straight month. The dollar drifted lower while yields on Treasury debt also declined. Wall Street stocks were trading lower. See full story.
Stocks bounce to worst quarter in 4 years
-- U.S. stocks closed sharply higher on Wednesday as investors sought bargains among beaten-down stocks and the recently battered biotechnology index bounced back on the last day of Wall Street's worst quarter since 2011. For much of the third quarter, global markets were rocked by fears of slowing growth in China and uncertainty over timing for a U.S. Federal Reserve hike of interest rates. Biotech had a seven-day selloff kicked off by drug price regulation worries. "I don't think there was a specific piece of news driving the market today. We got very oversold," said Brian Fenske, head of sales trading at ITG in New York. "When everybody gets bearish quickly, you tend to get these bounces."
For the quarter, the Dow fell 7.6 percent, the S&P lost 6.9 percent and Nasdaq fell 7.4 percent. For September, the Dow fell 1.5 percent while the S&P dropped 2.6 percent and Nasdaq fell 3.3 percent. The Fed has said it needs to see more improvement in the labor market and be confident that inflation will increase before raising rates for the first time since 2006. Inflation remains below the Fed's 2-percent target. Yellen said last week the central bank remained on track to raise rates this year. The Fed meets next on Oct. 27-28. Data on Wednesday showed the U.S. private sector added more jobs than expected in September, raising hopes for a strong reading in the government's payrolls report due Friday. See full story.
Consumer confidence near 8-year high
-- U.S. stock markets are in a slump, the world economy is weak and the Federal Reserve still isn’t ready to raise interest rates. But American consumers feel better than they have in years. A survey of consumer confidence rose in September to the second highest level since the end of the Great Recession, bettered only by a slightly higher reading in January. The privately run Conference Board said its index of consumer confidence climbed to 103.0 this month from 101.1 in August.
The one downer: The future expectations index fell slightly to 91.0 from 91.6, suggesting Americans are a bit more cautious about the next six months. “While consumers view current economic conditions more favorably, they do not foresee growth accelerating in the months ahead,” said Lynn Franco, director of economic indicators at board. See full story.
Stocks extend losses on China data
-- U.S. stocks extended their losses in afternoon trading on Monday and were set for their worst third quarter in four years as investors worried about the health of China's economy and its potential impact on the timing of a U.S. interest rate increase. The S&P 500and the Nasdaq composite were down more than 2 percent, while the Dow Jones industrial average fell about 1.5 percent. All 10 S&P sectors down. Healthcare stocks continued the decline that started last week after Democratic presidential candidate Hillary Clinton criticized drug pricing. The Nasdaq biotechnology index fell 3.8 percent as investors continued to flee the sector, following its worst week in seven years.
"The broad healthcare sector and China are hurting the market. It's time for risk-off and there's no place to hide," said Richard Weeks, managing director at HighTower Advisors in Vienna, Virginia. The Federal Reserve held off from raising rates at its September meeting, citing concerns about the health of the global economy, notably China, among other factors. Profits at Chinese industrial companies fell 8.8 percent, fresh data showed, pushing down shares of raw material producers and energy companies. Oil prices fell more than 2 percent. See full story.
Yellen: Fed on track for 2015 hike
-- Federal Reserve Chair Janet Yellen said she is ready to raise interest rates this year and intends to let the labor market run hot for a time to heal the lingering scars of the worst recession since the Great Depression. Yellen placed herself squarely in the camp of those Federal Open Market Committee officials who favor raising rates in 2015. “Most of my colleagues and I anticipate that it will likely be appropriate to raise the target range for the federal funds rate sometime later this year,” she said Thursday in a speech in Amherst, Massachusetts.
In her speech, Yellen laid out the rationale for gradual Fed tightening aimed at assuring that more Americans can find the jobs they want. “She’s conceding liftoff, but defending gradualism,” said Michael Feroli, chief U.S. economist at JP Morgan Securities LLC in New York, who expects a December rate rise. “This idea of trying to nurse the supply side of the economy back to health -- that’s a very dovish theme.” See full story.
Treasury yields tumble on flight to safety
-- Treasury yields fell Thursday to their lowest level in a month as mixed U.S. economic data along with falling commodity prices and concerns over a global growth slowdown fueled demand for safe assets, including U.S. government bonds. Treasury yields rise when prices fall and vice versa. Meanwhile, in Europe government bonds also rallied as European stocks piled on losses and investors sold equity in favor of safer assets. The yield on the benchmark 10-year German bund fell to its lowest level in a month.
The U.S. Commerce Department said orders for durable goods fell in August for the first time in three months, while the Labor Department said new applications for unemployment benefits inched higher during the week but declined on a monthly-average basis. The data indicated a slow but steady recovery in business activity and less slack in the labor market, “but that’s not what the Federal Reserve is concerned about right now,” said Ninh Chung, head of investment strategy at SVB Asset Management. Last week the Fed left interest rates unchanged citing concerns over a global growth slowdown and China’s economic woes. See full story.
Third-quarter GDP tracking below 2%
-- The U.S. economy has sped up and slowed down repeatedly since a recovery began six years ago and 2015 is shaping up to be another bumpy ride. In the third quarter, the economy is on track to grow less than 2% and fall well short of the robust 3.7% clip in the spring. The U.S. grew a dismal 0.6% in the first quarter. The apparently softer pace of growth in the late summer and fall stems from lackluster exports, tougher times for U.S. manufacturers and mediocre business investment. GDPNow, a widely respected forecasting tool of the Atlanta Federal Reserve, pegs third-quarter growth at just 1.5%. The Atlanta Fed will update its forecast several more times, but the only part of the economy that’s showing more gusto is the housing market.
Economists surveyed by MarketWatch, on the other hand, predict gross domestic product will rise by 2.5% in the third quarter. A separate Blue Chip survey also sees GDP growth ending up at 2.5%. The big question is, are they too optimistic as has often been the case over the past six years. “The U.S. economy is running cooler than many market participants realize or want to accept,” asserted Nicolas Colas, chief market strategist at New York-based Convergex. If third-quarter growth falters, it might even help explain why the Federal Reserve ultimately rejected raising its benchmark interest rate in mid-September, a decision that just a month earlier seemed like a foregone conclusion. The Fed cited a weaker economy in China, whose slowdown roil stock markets all over the world. See full story.
Stocks sink on global-growth fears
-- U.S. stocks slumped on Tuesday as a slump in commodity prices reignited festering worries about slowing global growth. The focus on global growth, and China in particular, has intensified after the Federal Reserve last week chose to stay pat on interest rates, citing concerns about China. The S&P 500 index was down 1.6% mid-session with all 10 main sectors trading lower. Materials and technology stocks were leading losses. Meanwhile, only about 20 out of 502 issues on the S&P 500 were trading in positive territory.
The Dow Jones Industrial Average was down 1.4% as most of the 30 components in the blue-chip index trading lower. Investors turned away from risky assets such as stocks in other markets, after the Asian Development Bank on Tuesday lowered its forecast for China’s annual economic growth to 6.8% for this year as pressures on the economy increased, from a previous forecast of 7.2%. See full story.
U.S. home sales fall more than expected
-- U.S. home resales fell more than expected in August, a cautionary sign for the U.S. housing market which has recently looked on stronger footing. The National Association of Realtors said on Monday existing home sales dropped 4.8 percent to an annual rate of 5.31 million units. Economists polled by Reuters had forecast a 5.51 million-unit pace of home sales last month. Sales were up 6.2 percent from a year ago.
The decline in August might be due to rising prices shutting out potential buyers, said Lawrence Yun, the NAR's chief economist. Home sales fell most in America's South and West, areas which had recently seen the fastest price gains, he said. Nationwide, the median home price fell slightly in August to $228,700. That was still up 4.7 percent from a year earlier, but left the year-over-year rate at its lowest since August 2014. Prices in the West were up 7.1 percent from a year earlier. A string of strong reports on the U.S. housing market have supported the view that the U.S. economy is building up steam and closing in on the point when the Federal Reserve will hike interest rates to keep it from overheating. See full story.
Fed's dovish tone surprises many
Source: New York Times
-- The Federal Reserve appeared surprisingly hesitant to raise interest rates, experts said on Thursday, following months of anticipation on Wall Street, in Washington and in corporate boardrooms around the country that a move was imminent. A majority of economists on Wall Street and market indicators of investor sentiment had predicted the Fed would hold off on any move to tighten monetary policy at the two-day meeting that concluded Thursday afternoon. But several analysts said the language in the rate-setting committee’s statement suggested that officials were even more cautious than they had thought.
“It felt like a dovish result with a dovish statement,” said Carl R. Tannenbaum, chief economist at Northern Trust in Chicago. “Before this meeting, there was a supposition that they’d set the table for a future move. I didn’t see any silverware in this announcement, and I think October is off the table.” “I don’t think they are in much of a hurry,” he added. “The international situation must have generated a real re-evaluation.” Several analysts said they were struck by the second paragraph in the Fed’s statement, in particular the conclusion that global volatility and economic events “are likely to put further downward pressure on inflation in the near term.” See full story.
Fed leaves rates unchanged
-- The U.S. Federal Reserve kept interest rates unchanged on Thursday in a nod to concerns about a weak world economy, but left open the possibility of a modest policy tightening later this year. In what amounted to a tactical retreat, the U.S. central bank said an array of global risks and other factors had convinced it to delay what would have been the first rate hike in nearly a decade.
"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term," the Fed said in its policy statement following the end of a two-day meeting. It added the risks to the U.S. economy remained nearly balanced but that it was "monitoring developments abroad."
For the full story: http://www.reuters.com/article/2015/09/17/us-usa-fed-idUSKCN0RH0GH20150917
CPI posts first decline in 7 months
-- U.S. consumer prices unexpectedly fell in August as gasoline prices resumed their decline and a strong dollar curbed the cost of other goods, pointing to tame inflation that complicates the Federal Reserve's decision whether to hike interest rates. The Labor Department said on Wednesday its Consumer Price Index slipped 0.1 percent last month, the first decline since January, after edging up 0.1 percent in July. In the 12 months through August, the CPI rose 0.2 percent after a similar gain in July. Signs of a disinflationary trend reasserting itself are in stark contrast with a rapidly tightening labor market and highlight the dilemma Fed officials face as they contemplate raising interest rates for the first time in nearly a decade.
The U.S. central bank's policy-setting committee was due to start a two-day meeting later on Wednesday. While solid data on consumer spending, housing and employment have been supportive of a rate hike, the case for higher borrowing costs has been undermined by recent global financial markets turmoil. "You can make a strong case either way for the Fed to begin raising interest rates or waiting," said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. "The prudent risk management approach would argue for them to hold off, but if the Fed was really data dependent there is a very a strong case to raise rates on Thursday," he said. See full story.
Spending rises, manufacturing stays weak
-- U.S. consumer spending grew at a fairly healthy pace over the past two months, but factory production slipped in August, providing the Federal Reserve a mixed picture of the economy ahead of a rate-setting meeting later this week. The Commerce Department said on Tuesday that retail sales excluding automobiles, gasoline, building materials and food services increased 0.4 percent in August after an upwardly revised 0.6 percent increase in July. These so-called core retail sales, which correspond closely to the consumer spending component of gross domestic product, provided the latest sign of sturdy economic momentum and suggested the recent stock market sell-off had little immediate impact on U.S. household spending.
A separate report from the Federal Reserve, however, showed manufacturing output fell a sharper-than-expected 0.5 percent as auto production slid, after a rise of 0.9 percent in July. Excluding autos, factory output was unchanged. Investors pinned their response on the general firm spending figures. U.S. stocks opened higher, the dollar strengthened against a basket of currencies, and prices for U.S. government bonds fell, sending their yields higher. See full story.
Stocks fall amid weak Chinese data
-- U.S. stocks were lower on Monday as investors awaited Federal Reserve's interest rate meeting this week even as fears of slowing growth in China continue to rattle global markets. Stocks are expected to remain volatile in the run-up to the policy meeting on Wednesday and Thursday, when the Fed is expected to decide on its first interest rate increase since 2006. "The uncertainty is so high in regard to the announcement ... it leaves investors a little bit paralyzed relative to what to do in anticipation thereof," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia. A Reuters poll showed that a small majority of forecasters still expect a Fed hike on Thursday, though markets-based models suggest policy tightening will be delayed.
Data on Monday showed that growth in China's investment and factory output in August missed forecasts, raising the chances that China's third-quarter economic growth may dip below 7 percent for the first time since the global crisis. "China continues to be a concern as investors look for a bottom in regard to the country even though the government has a lot of room to stimulate growth," said Chris Bertelsen, chief investment officer of Global Financial Private Capital in Sarasota, Florida. The Fed has said it will raise rates when it sees a sustained economic recovery with special emphasis on the job market and inflation. U.S. data released last week painted a mixed picture, further clouding the outlook for what the Fed will decide to do this week. See full story.
U.S. producer prices flat in August
-- Falling gasoline costs kept already low inflation in the U.S. economy in check in August, with little sign that upward pressure on prices is building. The producer price index, which includes wholesale costs, was flat last month, the Labor Department said Friday. Economists polled by MarketWatch had forecast a seasonally adjusted 0.2% decline. The wholesale cost of goods sank 0.6% last month, with two-thirds of the decline tied to cheaper gas.
Over the past year wholesale prices have fallen 0.8%. Tumbling gas prices and strong dollar that has cut the cost of imported goods has sent inflation sharply lower. So-called core producer prices that exclude food, energy and trade rose 0.1% in August, and they are up 0.7% in the past year. Still, there was little inflationary pressure in the pipeline. An index that tracks partly finished materials used in the production of finished goods fell sharply in August and is down 7% over the past 12 months. See full story.
Import prices tumble in August
-- The prices the U.S. paid for imported goods fell by 1.8% in August, marking the biggest decline since the start of the year. Oil prices fell sharply again and strong dollar has also made foreign products cheaper for Americans to buy. Meanwhile, the price of U.S.-made goods exported to other nations dropped 1.4%. From August 2014 to August 2015, import prices tumbled 11.4%, the biggest year-over-year drop since the last year of the Great Recession in 2009.
The plunge in oil prices and a soaring dollar are the main culprits. Import prices minus fuel are down a smaller but still sharp 3% year over year. That's also the largest 12-month decline since 2009. Falling import prices are a significant factor in keeping U.S. inflation low at a time when the Federal Reserve wants to see prices increase. Lower prices for American exports have also hurt sales and profits of companies such as large manufacturers that do a lot of business overseas. See full story.
Stocks rally as investors scent fresh stimulus
-- Global equity markets rose on Wednesday, led by an 8-percent surge in Japanese stocks, helping lift the dollar as the prospect of more economic stimulus out of Asia soothed investors rattled by recent market turmoil. An early rally on Wall Street faded, leaving major U.S. averages in negative territory in the afternoon. As the equity market declined, U.S. debt prices rebounded after an auction of $21 billion in 10-year notes.
The biggest equity move was in Japan, where signals from Prime Minister Shinzo Abe that Japan will cut corporate taxes pushed the Nikkei stock index up 7.7 percent, its biggest one-day rise since October 2008. China's Finance Ministry said on Wednesday it would strengthen fiscal policy, boost infrastructure spending and speed up tax reform, helping lift Chinese shares for a second day. See full story.
China exports fall for second month
-- Chinese exports fell in August for the second consecutive month as the world's second-largest economy continued its struggle to regain momentum. China's exports fell 5.5% in August from a year earlier in dollar terms, after a drop of 8.3% in July, data from the General Administration of Customs showed Tuesday. Customs said in a statement that China's exports will continue to face "relatively big pressure" in the fourth quarter. Imports in August fell 13.8% in dollar terms from a year earlier, compared with a 8.1% decrease in July, fueling another significant trade gap, Customs said. China's trade surplus widened in August to $60.2 billion from $43.03 billion in July.
The weak trade data mark the latest soft readout from the Chinese economy. Indicators of industrial production, factory activity and others point to slowing growth in the second half of the year, raising questions about China's ability to meet its annual growth target of about 7% and denting investor confidence world-wide. Beijing last month devalued its currency in a surprise move that experts said was aimed at helping its struggling exporters. Lower currency values can help exports by reducing the price that buyers pay in foreign markets. So far, the devaluation has done little to help increase the nation's outbound trade, economists say, though they add it could take two to three months to have an impact. See full story.