NEW$ & VIEW$ (31 MAY 2013)

Sad smile  Consumer Spending Eases Amid Flat Wages

Personal spending, which measures purchases ranging from cars and clothes to health care and heating, fell 0.2% in April, the Commerce Department said Friday.

Americans adjusted to higher payroll taxes and smaller disposable incomes at the start of the year by cutting back on savings, rather than reducing spending. Figures out Thursday showed that personal consumption rose 3.4% in the first quarter of the year while the savings rate fell to 2.3% from 5.3% in the fourth quarter.

Savings as a percent of disposable income was 2.5% in April, Commerce said Friday.

Friday’s report said that the price index for personal consumption expenditures, the Fed’s preferred measure for inflation, was up only 0.7% year-over-year in April. The Fed targets a level of around 2%.

On a monthly basis, the index declined 0.3%.

The closely watched core PCE index, which excludes volatile food and energy prices, was up 1.1% from a year earlier.





Housing Market Continues Climb as Pending Home Sales Rise

The number of prospective buyers signing contracts to buy previously owned homes ticked up last month to the highest level in three years, another sign the housing market’s rebound is well under way.

The National Association of Realtors on Thursday said its seasonally adjusted index for pending sales of existing homes rose to a reading of 106 in April, up 0.3% from the previous month and a gain of 10.3% from a year earlier. (Chart from Haver Analytics)

Lightning  Tough Times Ahead for Euro Zone

A selection of data published Friday shows the road to economic recovery will be long and difficult for the euro zone, and that the six quarters of contraction are likely to extend to seven in the second quarter of this year. (…)

The unemployment rate across the euro zone rose to 12.2% in April, the highest rate since records began in 1995, in line with market expectations and up from 12.1% in March, European statistical agency Eurostat said Friday.

(…) retail sales in Germany were weaker than expected in April, falling 0.4% on the month, while consumer spending in France slid 0.3% over the same period. (…)

The Eurocoin, which tracks overall economic output, fell to -0.15 in May from April’s -0.10, its first drop since August.

Data for the euro zone released Friday showed that inflation remained well below the ECB’s medium-term target of just under 2% in April, but the fact that it rebounded to an annual rate of 1.4% from a three-year low of 1.2% in March may ease the pressure on the bank to act immediately.

Italy Jobless Rate Reaches 12%, 36-Year-High Amid Recession

Joblessness rose to 12 percent after the March reading was revised up to 11.9 percent from an initial 11.5 percent, the Rome-based national statistics office Istat said in a preliminary report today.


German Exporters Expect Bleak Future

German exporters are becoming more pessimistic as the spring progresses. On Thursday, the Association of German Chambers of Commerce and Industry (DIHK) released the results of a survey showing that companies dependent on exports are much less optimistic than a short time ago. While 30 percent still expect overseas turnover to rise, one in eight believe it will fall. (…)

The DIHK on Thursday also lowered its own expectations for German economic growth, sinking its prognoses for the entire year from 0.7 percent to a paltry 0.3 percent. “The German recovery has been postponed,” said DIHK head Martin Wansleben in Berlin. In addition to concern about exports, Wansleben also noted the unusually cold late-winter weather in March.

Some 41 percent of German companies that took part in the survey said that weak foreign demand was the primary risk facing their businesses. “The uncertainty hasn’t been this great since 2010,” the DIHK said.

Mug  Austerity About-Face: German Government to Gamble on Stimulus  (Der Spiegel)

(…) Wolfgang Schäuble sounded almost like a new convert extolling the wonders of heaven as he raved about his latest conclusions on the subject of saving the euro. “We need more investment, and we need more programs,” the German finance minister announced after a meeting with Vitor Gaspar, his Portuguese counterpart.

The role he was slipping into last Wednesday was new for Schäuble. The man who had persistently maintained his image as an austerity commissioner is suddenly a champion of growth. If Germany couldn’t manage to trigger an economic recovery, “our success story would not be complete,” he said. And as if to convince even the die-hard skeptics, he added: “The German government is always prepared to help.” (…)

To come to grips with the problem, Merkel and Schäuble are willing to abandon ironclad tenets of their current bailout philosophy. In the future, they intend to provide direct assistance to select crisis-ridden countries instead of waiting for other countries to join in or for the European Commission to take the lead. To do so, they are even willing to send more money from Germany to the troubled regions and incorporate new guarantees into the federal budget. “We want to show that we’re not just the world’s best savers,” says a Schäuble confidant. (…)

This is how the plan is supposed to work: First, the KfW would issue a so-called global loan to its Spanish sister bank, the ICO. These funds would then enable the Spanish development bank to offer lower-interest loans to domestic companies. As a result, Spanish companies would be able to benefit from low interest rates available in Germany.

Under the plans, Germany could also invest in a €1.2 billion ($1.6 billion) venture capital fund that could be used to support new business activities. Madrid hopes that the program will generate a total of €3.2 billion in new investment.

The agreements with Spain are intended to serve as a blueprint for similar aid to Portugal and possibly even Greece. How high the payments to these countries will be has yet to be determined. “It will be nothing to sneeze at,” say Finance Ministry officials. The German government envisions spending a total in the single-digit billions on the program. Schäuble plans to fill in the budget committee in the German parliament, the Bundestag, next week.

This is necessary because the KfW is supposed to serve as an agent of the federal government rather than act on its own account. For this reason, the federal government will back up the KfW program with guarantees, which require parliamentary approval. (…)

Princess  Merkel Tells Hollande Reform Is Price of Deficit Waiver

German Chancellor Angela Merkel pressed France to pursue an economic overhaul in return for getting more time to cut its budget deficit, a task French President Francois Hollande said nobody will dictate to him.

The leaders of Europe’s two biggest economies, speaking after talks in Paris yesterday, said they agreed that France has to make further efforts to match Germany’s higher competitiveness. They differed on how much leeway France had to go about it. (…)

Hollande said that while the commission was “doing its job” in making recommendations, “the measures we take, the modalities of how we do it, are the responsibility of the French government.”

Storm cloud  India records slowest growth in a decade
Asia’s third-largest economy expands 5%

The latest quarterly data show that what growth there is in the Indian economy is coming largely from services. The contribution of a category that includes financing, insurance, real estate and business services rose 9.1 per cent, while trade, hotels, transport and communication was up 6.2 per cent.

But manufacturing rose only 2.6 per cent, and electricity, gas and water supply increased 2.8 per cent, while mining and quarrying declined 3.1 per cent. Agriculture, forestry and fishing were up 1.4 per cent

IMF warns over yen weakness
Fund remains broadly supportive of Abe easing policy

(…) The IMF nonetheless gave its blessing to the ultra-loose monetary policy being pursued by the Bank of Japan, saying exchange rates would eventually adjust “in an appropriate fashion” and that the benefits of a revived Japanese economy would outweigh any loss of competitiveness that Japan’s trade partners experienced as a result of a weaker yen.

“We fully endorse the BoJ’s objective to raise inflation to 2 per cent and the sweeping enhancements to its monetary policy framework,” the IMF said after its annual review of Japan’s economic conditions and policies.

Meanwhile, emerging market currencies are being pounded:

The selloff in emerging-market currencies intensified Friday, with the South African rand slumping heavily against the dollar and the Turkish lira falling to its weakest level against the U.S. currency since January 2012 amid expectations that the Federal Reserve might tighten monetary policy sooner than previously thought.

OPEC Keeps Oil Pace

The Organization of the Petroleum Exporting Countries decided as expected to maintain its current oil-production ceiling of 30 million barrels a day, Venezuelan Oil Minister Rafael Ramirez said.

(…) OPEC’s largest member, Saudi Arabia, said ahead of the meeting that the oil market was in excellent shape. “The demand and supply are good, the inventories are good. So the market is in one of its best conditions,” said Saudi Oil Minister Ali al-Naimi.

OPEC has had a collective oil production ceiling of 30 million barrels a day since December 2011, but actual output has consistently exceeded this level. The surplus has narrowed considerably over the past year. In April 2012, OPEC production exceeded its target by 1.6 million barrels a day, but the surplus was just 460,000 barrels a day last month, according to the group’s monthly oil market report. (…)

Pointing up  Rising U.S. shale-oil production Thursday pushed U.S. crude inventories to their highest level in more than 80 years. Commercial crude-oil stockpiles rose by three million barrels to 397.6 million barrels last week, the highest level since 1931, the U.S. Department of Energy said in its weekly Petroleum Status Report. Oil stockpiles have risen 10% since the start of the year and 30% since May 2008. (…)

OPEC Secretary-General Abdalla Salem el-Badri said shale oil would prove to be a limited phenomenon. “The cost to produce shale oil is very high and I don’t think [the U.S. boom] can be replicated in Europe or anywhere else,” he said.


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