Europe Malaise Hits German Economy The German economy finally succumbed to the weakness gripping the rest of the euro zone, shrinking in the fourth quarter of 2012.
Germany’s federal statistics office Destatis Tuesday said Europe’s largest economy expanded 0.7% in 2012, but its gross domestic product probably fell by 0.5% in the fourth quarter. That equates to a contraction of 2.0% in annualized terms.
(…) the government is cutting its 2013 economic growth forecast to 0.4% from 1.0% previously, a German economics ministry official told The Wall Street Journal on Tuesday.
Manufacturing in the state of New York started off the year on a slow note as the January Empire Manufacturing report came in weaker than expected (-7.8 vs. 0.0) this morning. This is now the sixth month in a row where this indicator has been below zero. (…)
The top chart below shows the General Business Index of the Empire Manufacturing index for current conditions and six months out. Interestingly, even as the current conditions component has been declining, the outlook six months out has been improving. The current spread between the two indices is the widest it has been since April 2012. Let’s hope that manufacturers are not getting overly optimistic and actually have reason to be more optimistic.
The second chart below shows the outlook for capital expenditures and technology spending over the next six months. As shown, both indices have been in multi-month downtrends. In fact, the outlook for capital expenditures (4.3) is the lowest since July 2009.
Wholesale prices dropped 0.2% in December, a sign that inflation remains subdued.
The decrease was driven by a 0.9% decline in food prices and a 0.3% drop in energy costs. Gasoline costs slid 1.7%, the third consecutive monthly decline. Excluding volatile food and energy costs, producer prices increased 0.1%.
U.S. RETAIL SALES HANG ON
Retail and food-service sales increased 0.5% in the final month of 2012 to a seasonally adjusted $415.70 billion. (…) excluding autos, retail sales were up 0.3%. Excluding autos, building materials and gasoline—a figure closely watched by economists, who use it as a better gauge of spending—retail sales rose 0.6% during December.
December’s gain in overall retail sales followed a revised 0.4% gain for November. (WSJ, chart and table from Haver Analytics)
Credit Suisse economists noted (via FT Alphaville)
We look at average weekly earnings of all employees on private nonfarm payrolls: $818.69 in December. The 2% payroll tax increase clips $16.37 a week from take-home pay. And if weekly earnings held steady in January, at the December level, workers would feel like they earned $802.32 instead. That’s the equivalent of losing all the 2012 gain in weekly earnings in one month.
As a percentage of income it hits the middle class hardest because it applies only to the first roughly $114,000 in wages, effectively a regressive measure that takes money from the people most likely to spend it. The cuts themselves had been well-designed to be consumed, as noted by the NY Fed, and that effect will now be reversed.*
Wal-Mart Stores Inc will buy an additional $50 billion in U.S.-made goods over the next decade in areas like sporting goods and high-end appliances in what the world’s largest retailer called a bid to help boost the U.S. economy.
Wal-Mart, the largest private employer in the United States, also said on Tuesday it plans to hire 100,000 newly discharged veterans over the next five years, at a time when the U.S. unemployment rate is at 7.8 percent.
China Defends Export Data After Economists’ Skepticism China’s customs administration said every dollar of trade is documented, defending the quality of export data that analysts at UBS AG and Australia & New Zealand Banking Group Ltd. said may fail to capture the true picture.
Here’s a dependable stat:
Electricity consumption rose sharply in December – the fourth straight month. For all of 2012, the 5.5% rise was modest (for China), versus 11.7% in 2011. But just in the last four months, electricity use has risen over 8%. The 2013 China economy – a strong start. (ISI)
“There are some positives, but I want to be clear that while we’ve made some progress there is still quite a ways to go,” Mr. Bernanke said, speaking about the economy at the University of Michigan’s Gerald R. Ford School of Public Policy here. The Fed has said that continuing these programs—such as an $85 billion-a-month bond-buying effort—hinges on progress in the U.S. job market. (…)
The Fed chairman cited bright spots for the economy, including the energy boom that is lifting output in some states, an improving housing market and resilient consumer confidence. He defended the effect of Fed policies on the economy. The programs helped drive down long-term interest rates to support growth, he said, as evident from “incredibly low” mortgage rates. That, he added, was a factor making housing more affordable and helping the sector recover.
Eventually, that will stop and the old normal will reappear…