Tag: Economy

US consumer optimism reached its highest level since the onset of the Great Recession this month, according to a report from the Conference Board, issued Tuesday. The group’s index of consumer confidence surged from a 74.3 reading in May to 81.4 this month, mirroring the other major consumer confidence gauge from Thomson Reuters and the University of Michigan. Released earlier this month, that index came in at a five-year high, though the group’s preliminary reading for June is down a bit. Both gauges surprised analysts, who had projected only a small increase in consumer confidence this month. The 81.4 reading in Conference Board’s index was its highest since January 2008.

Consumer confidence is monitored closely by leading economists as consumer spending accounts for about three fourths of the total US gross domestic product. Consumer spending increased at its fastest pace in two years during the first quarter, driving overall economic growth up to 2.4 percent during the January to March period. Spending appears to have dropped slightly in April, according to several reports, but rebounded in May. A comprehensive report on May retail sales is due to be released Thursday by the Commerce Department.

The Conference Board’s report shows improvement in Americans’ attitudes about current economic conditions as well as their expectations for the economy and the job market over the next six months. For example, the index showed that 19.6 percent of respondents expect the job market to improve over the second half of the year, whereas only 16.3 percent had that expectation in May. US employers have added an average of 175,000 jobs per month over the past year, sufficient to lower the unemployment rate over time, according to economists. The national jobless rate ticked up to 7.6 percent last month, but is down 0.6 percentage points over the past twelve months.

Confidence among businesses around the world declined last month as the ongoing sovereign debt crisis in Europe renewed concerns about a possible double dip recession. According to a survey conducted by financial data tracker Markit, the number of businesses surveyed who expect business activity to pick up over the next twelve months outnumbered the number expecting a decline by 37 percent, down from 44 percent in February, the last time Markit conducted the survey.

To conduct the survey, Markit polls some 11,000 businesses around the globe, mostly representatives of the manufacturing and service sectors. The firm noted that even with the decline, the results are promising, indicating that most businesses still expect economic expansion, even with a series of negative indicators that have surfaced in the last few months. Also, the margin between optimists and pessimists is still ahead of the post-recession low from October, when the glass-half-full crowd exceeded the negative outlooks by just 32 percent.

Markit’s survey also showed that businesses are scaling back hiring plans, with 17 percent more companies expecting to accelerate hiring, down from a difference of 19 percent in February. Optimism has particularly tailed off in Europe, where just 16 percent more expect growth than contraction, down slightly from a 26 percent gap in February. American businesses are still much more confident, as 57 percent more expect growth than contraction, though that number is also down from February’s reading gap of 69 percent.

Consumer price inflation in China fell to a 29-month low in June, according to a report from the National Bureau of Statistics, issued Monday. Consumer prices in the world’s second-largest economy rose just 2.2 percent from June 2011, according to the report, giving officials a little more wiggle room to relax economic policies after they cut interest rates twice in the last month. The 2.2 percent inflation fell just short of the consensus estimate of 2.3 percent projected by analysts in a recent Bloomberg News survey, while the producer price index fell 2.1 percent, compared to analysts’ expectations for a 2 percent decline.

With Monday’s report, China’s inflation has now fallen short of Premier Wen Jiabao’s target of 4 percent, and likely means that the nation’s economic growth slowed for a sixth straight quarter. Economists expect the Chinese government to take further steps to stop the slide, as economic expansion in the second quarter is believed to have hit a three-year low, bringing Wen’s annual growth target of 7.5 percent very much in doubt.

With many of the world’s larger economies struggling for the last five years or so, China was one of just a handful of bright spots, at least until this year. The nation’s two recent interest rate cuts, the latest of which was announced July 5th, were its first since 2008, and came on the heels of three separate reductions in the minimum requirements for capital reserves among Chinese banks.

The US Federal Reserve released the minutes from its latest policy meeting Tuesday, in which it appeared to be leaning against taking further action to stimulate the economy, dashing investors’ hopes for “QE3,” the much-anticipated third round of quantitative easing. The subject of QE3 was discussed at the meeting, but only a “couple” Fed Presidents supported it, unlike a few months ago when the number in favor was described as “a few.”

The central bank purchased $2.3 trillion worth of Treasury notes and mortgage backed securities through QE1 and QE2, in a so far successful program designed to keep interest rates low. The idea behind quantitative easing is that low interest rates by encouraging investment through easier access to cheaper credit. The Fed members that do not support QE3 argued that the economy is growing on its own, citing promising job gains over the last few months.

As for long term plans of the Fed, nine of the 10 votes on the Federal Open Market Committee supported the bank’s previously revealed plan of keeping interest rates low until 2014. The lone objector to the plan was Richmond Fed President Jeffrey Lacker, who said he believes the economy will recover enough before then so that low interest rates will not be necessary to drive growth. The release of the Fed’s minutes sent US stocks plunging, with the Dow sliding 74 points in less than 15 minutes around 2PM ET, though it recovered that loss and then some.

Chinese manufacturing activity crept to a four-month high this month, according to a preliminary report from the HSBC, issued Wednesday. Despite the growth, however, manufacturing in the world’s second-largest economy is sill in a state of contraction, as the Purchasing Managers Index showed a reading of 49.7, and readings above 50 are indicative of growth. It was still an improvement though as the prior month’s reading was just 48.8.

Also contained in the HSBC report, China’s manufacturing output rose to 50.1 this month from January’s reading of 47.6. This reading was also the highest in four months. But the bottom line of the report is that Chinese manufacturing is still slowing, contrary to statements made by Chinese officials last month. Analysts said the data released on Wednesday that conditions in China’s manufacturing have stabilized, but are still relatively subdued, mostly due to a decline in foreign demand.

The US Labor Department reported Thursday that wholesale prices rose only 0.1 percent in January as cheaper energy and food costs kept inflation in check. The agency’s producer price index, which tracks the prices of goods before they reach consumers, rose a tenth of a percent last month after declining the same amount in December. On a year-to-year basis, meanwhile, wholesale prices are up 4.1 percent, the smallest such increase in twelve months.

Excluding food and energy categories, which can fluctuate drastically from month to month, so-called core prices were up 0.4 percent, the biggest increase in core prices in six months. Economists view most of the increases as temporary and a sustained drastic upward trend in core prices is unlikely. The report showed that wholesale gas prices edged higher, but were offset by steep drops in prices for heating oil, natural gas and electricity, which experienced its biggest drop in price in over seven years.

A large portion of the increase in core prices was sparked by the pharmaceutical industry, though household appliance prices rose by the most in three decades, a fact economists attributed to the end of massive holiday discounts in December.

Greece’s economic slowdown accelerated in 2011, according to figures released Tuesday by the Athens-based Hellenic Statistical Authority. The report showed that the Greek economy contracted by 7 percent in the fourth quarter as compared with 2010’s final three months. The agency also revised its estimate for third-quarter economic contraction down to 5 percent. Based on Bloomberg calculations, the Greek economy declined by 6.8 percent during the fourth quarter and will contract by 6 percent according to the government’s 2012 budget.

Greece is currently in the midst of a fifth consecutive year of recession, struggling to emerge amid steep austerity measures imposed by agencies such as the European Union and International Monetary Fund as conditions for further assistance. Greek leaders just this week passed a new round of austerity reforms designed to placate the EU and IMF, who have demanded the reforms as a precondition for a second bailout package of 130 billion euros. Without this second bailout, Greece will be unable to come up with the cash for a bond redemption scheduled for next month, essentially resulting in a default.

The has noted that its initial estimate for fourth-quarter growth was based on available, non seasonally adjusted data, and will likely change. The agency also revised previously announced figures for the first and second quarters, showing contraction of 8 percent and 7.3 percent, respectively.

Moody’s Ratings Service on Monday downgraded its ratings for the sovereign debt of six European nations over concerns about their exposure to the continent’s ongoing debt crisis. Moody’s also adjusted their outlook on three other euro area nations, indicating they could be in line for a downgrade in the next few months. The six countries already downgraded were Italy, Malta, Slovakia, Portugal, Slovenia, and Spain, while Austria, France and the UK had the outlook of their AAA ratings changed to negative.

Italy’s credit rating was lowered to A2, Spain’s was lowered to A1, and Portugal’s was dropped to Ba2, with Moody’s taking a negative outlook on all three. Moody’s is the last of the three major ratings firms to downgrade most major European economies, after similar moves were made by Standard & Poor’s and Fitch last year. The entire global financial community, meanwhile, is keeping a close eye on the developing situation in Greece, which needs further bailout assistance to prevent a default next month.

Greece’s Parliament on Monday approved a package of austerity measures required by European officials and the IMF as stipulations for further bailout assistance. On the line is a 130 billion euro bailout package, without which Greece will be unable to pay a 14.5 billion bond redemption scheduled for next month, constituting a default by the debt-riddled nation. Of course, EU officials were not satisfied with the reforms approved Monday, and stipulated that Greece would have to identify another 325 million euros in spending cuts to get more aid.

The Chinese National Bureau of Statistics reported Wednesday that inflation rose in the world’s second-largest economy in January. Consumer prices were up 4.5 percent as compared with a year earlier, up from a 4.1 percent inflation rate in December. At the beginning of last year, China considered it a top priority to keep inflation in check through higher lending requirements for banks. These requirements made it more difficult for investors to buy multiple homes, which drove up home values in the nation’s largest cities.

Those policies appear to have worked, as inflation was a staggering 6.5 percent in July, and has been gradually decreasing ever since. Of course, the slower inflation has been accompanied by a slowdown in overall economic growth, as declining European demand for Chinese products drags on the economy. With the current climate, some economists are predicting that the People’s Bank of China will take some action to stimulate the economy, either by lowering interest rates or reducing reserve requirements for bank, which would free up financing and likely push investors to begin buying homes again.

Wednesday’s report also showed that food prices, which make up roughly a third of the overall inflation measure, rose 10.5 percent in January in year-to-year terms. While that sounds like a massive one-year increase, July’s report showed a 14.8 percent rise in food prices as commodities soared during the summer months.

A panel of financial experts assembled by Standard & Poor’s to examine the ongoing Greek debt talks said Tuesday that the nation will likely default even if it reaches a deal with private creditors to restructure or even write down its outstanding debt. John Chambers, head of sovereign debt ratings at S&P, added that the deal currently being negotiated would “in all likelihood” constitute a default.

The proposed restructuring of Greek debt aims to reduce Greece’s debt load to 120 percent of its economic output by 2020. As it stands, Greek debt exceeds 160 percent of its annual economic output. Even at the target level of 120 percent, however, the nation’s debt burden would still be very high, and ratings firms would keep its credit rating very low, according to Chambers, who is in charge of assigning ratings at S&P.

Chambers added that there is a strong likelihood that S&P will assign a “selective default” rating to Greek debt by this fall. Chambers’ comments were made during a panel discussion on the eurozone debt crisis hosted by Bloomberg Link in New York City on Tuesday. All three panelists invited to the discussion said they expect Greece to eventually default on its debts, but believe that a default by Greece will not necessarily lead to a default by other struggling eurozone nations, namely Italy and Spain. In addition, Chambers expressed belief that Greece will eventually be able to return to the private sector for financing, provided its government initiates reforms.

Officials from the European Central Bank, meanwhile, are downplaying the inevitability of a Greek default, saying that talks with lenders are nearing an end. According to a source familiar with the negotiations, the talks have hit a snag over the interest rate creditors are to be paid on new securities they will be given in lieu of Greek government bonds. Eurozone finance ministers said earlier this week the rate should be about 4 percent, under the terms of an agreement reached in October.

Standard & Poor’s revealed the details of fresh downgrades for a handful of debt ratings on Friday, just hours after revealing plans to reduce a handful of eurozone debt ratings over the ongoing debt crisis in the region. Europe’s largest economy, Germany, was spared in S&P’s latest action, but No. 2 France and No. 3 Italy were both affected. France, along with Austria, had their AAA ratings, the highest rating given out by the agency. The ratings for Italy, Spain, Portugal and Cypress, meanwhile, had their ratings cut by two notches to BBB+, just two notches away from junk status.

Malta, Slovenia and Slovakia were also downgraded, by one notch. The good news is that Germany, Finland, the Netherlands and Luxembourg were all allowed to hang on to their AAA ratings, allowing at least a few eurozone nations, including its largest individual economy, to keep borrowing costs down. The immediate effect on markets was minimal on Friday, as investors have been expecting the downgrades for weeks, but the downgrades could make investors nervous, making it harder for the countries to sell bonds, and inflating their borrowing costs.

S&P cited several factors for its decision to downgrade European nations, including weakening economies, tightening credit conditions, and rising interest rates for many eurozone members. The agency also warned that many of the EU’s members are still in jeopardy of further downgrades if a solution to the sovereign debt crisis is not found soon.

The California Employment Development Department reported Friday that the state’s unemployment rate fell to 11.3 percent in November, reaching its lowest level since June 2009. The decline from October’s 11.7 percent jobless rate marks four consecutive months of falling joblessness in the state, and came as a result of 6,600 new jobs added to the California economy last month.

The EDD also said it had revised October’s job gains upwardly to 37,600, and noted that the state’s businesses have created 211,400 jobs so far this year. Since peaking at 12.5 percent in December 2010, California’s unemployment rate has fallen by more than a full percentage point, though it is still well above the national jobless rate, currently at 8.6 percent.

Economists cautioned that the falling jobless rate should be tempered with a realization that some of it was caused by Californians who have simply given up searching for work, but also note that first time filers for unemployment benefits has declined in recent weeks, indicating that a sustained recovery may be well under way. On a national basis, initial claims fell to their lowest level in three and a half years last week, according to data released Thursday by the US Department of Labor.

The US Federal Reserve announced on Tuesday it will soon begin a third round of stress tests on the nation’s largest banks to ensure they will be able to withstand a possible economic downturn which could result from the escalation of the ongoing sovereign debt crisis in Europe. European leaders recently agreed on a plan to save Greece from defaulting, only to see the crisis escalate in Italy, Spain, and France, the region’s fourth-largest economy. Should one or more of these nations wind up defaulting, the European Commission will likely be ill-equipped to prop it up, given the enormous amount of money pumped into the Greek economy.

The Fed first performed stress tests on major US banks in the spring of 2009, with the nation’s largest 19 financial institutions participating. That first round of tests reassured investors that the banks had sufficient resources to get through the recession and recover from the 2008 financial collapse. For the third round of stress tests, 31 banks will be evaluated thanks to a regulatory reform law passed last year that requires banks with assets of $50 billion or more to take part.

The 31 banks now have until January 9th to submit required information to the Fed, who will then determine if the banks have enough reserves to withstand potential loan losses that could result from a double-dip recession. Fed officials have not indicated when the results of the stress tests will be made public.

James W. Giddens, the trustee assigned the task of liquidating failed broker MF Global Holdings Ltd on Monday said that the amount of money missing from customer accounts may be as much as $1.2 trillion, double the amount initially reported missing. “At present, the Trustee believes that even if he recovers everything that is at U.S. depositories, the apparent shortfall in what MF Global management should have segregated at U.S. depositories may be as much as $1.2 billion or more,” from a statement Giddens issued to the media Monday afternoon. The statement also noted that the estimate provided is preliminary, and the actual amount of money missing could be even higher.

MF Global filed for bankruptcy protection on October 31st after failing due to a series of bad bets on European debt investments. Just a few days later, authorities including the FBI and SEC announced they were investigating the brokerage, which was once run by former New jersey Governor Jon Corzine, after it was discovered that more than $600 million was missing from its customer accounts. If the company dipped into customer accounts to pare its own losses, it’s likely that it violated a number of securities regulations.

So far, MF Global, Corzine, nor any of the firm’s employees have been charged with any wrongdoing. The investigation is ongoing, however, and comments from investigators have included calling the firm’s activities prior to the bankruptcy filing suspicious. Spokesmen for the FBI, the SEC, and the Justice Department declined to comment on Giddens’ statement.