NEW$ & VIEW$ (14 AUGUST 2013)

Wealth Effect Drives U.S. Consumers to Keep Spending Consumers spent more freely at restaurants and department stores in July, despite holding the line on big-ticket purchases, a sign the economy could gain steam in the second half of the year.

imageRetail sales climbed a seasonally adjusted 0.2%, the fourth consecutive month of increases, the Commerce Department said Tuesday. The previous month’s gain was revised up to 0.6% from 0.4%, amid brisk demand for cars and furniture. (…)

Sales of cars and parts, which rose a revised 2.9% in June, retreated 1% last month. A 0.9% increase in spending at service stations reflected July’s flare-up in gas prices—to an average of $3.68 for a gallon of regular from $3.49. (Gas prices since have edged down to $3.56 a gallon.) Core retail sales—a measure that leaves out cars, gas and building materials—increased 0.5% in July, after rising 0.1% in June.

The details from Haver Analytics:



Weekly chain store sales are not bouncing back much, even though many states had tax-holiday periods in the last 2 weeks. Back-to-school sales seem on the weak side, never a good omen for Thanksgiving and Christmas.



Euro-Zone Economy Returns to Growth

The euro-zone economy emerged more strongly than expected from its longest postwar contraction in the three months to June, but a resolution to its twin banking and fiscal crises remains a distant prospect.

Eurozone GDPThe European Union’s official statistics agency Wednesday said the combined gross domestic product of the currency area’s 17 members was 0.3% higher than in the first three months of the year, but 0.7% lower than in the second quarter of 2012. It was the fastest quarterly expansion since the first three months of 2011. (…)

Germany’s GDP, the broadest measure of goods and services produced across the economy, swelled 0.7% in the second quarter from the preceding period, in line with economists’ forecasts. That equals annualized growth of 2.9%, the statistics office said. By comparison, the U.S. economy expanded by an annualized 1.7% in the second quarter, while Japan’s growth rate eased to 2.6%.

The French economy also played its part, with a 0.5% expansion, according to statistics bureau Insee. But an even greater source of surprise was Portugal, where economic activity picked up by 1.1%—by far the strongest growth rate recorded in Europe. Portugal is in the third year of an international bailout, and its economy hadn’t grown since the fourth quarter of 2010. Its return to growth in such a decisive manner will encourage euro-zone policy makers to believe it can become financially self-reliant next year, as planned. It may also ease pressure on Prime Minister Pedro Passos Coelho’s government to soften austerity ahead of local elections in September.

The economies of Austria, Estonia, Belgium, Slovakia and Finland also expanded. The economies of Italy, Spain and the Netherlands contracted, but less sharply than in the first quarter. Cyprus’s economy once again experienced the sharpest decline, with GDP down 1.4% on the quarter following a 1.7% drop in the previous period. (…)

The euro zone’s return to growth is likely to be particularly welcome news for neighboring nations for which the currency area is by far the most important export market. Figures released Wednesday indicated some countries in central and Eastern Europe are already benefiting from the end of the euro zone’s contraction.

The Czech Republic emerged from six quarters of contraction—its longest since the early 1990s—to record growth of 0.7% on the quarter, while Poland’s growth rate doubled to 0.4%. However, Hungary’s economy slowed, Romania’s growth rate was unchanged at a low 0.3%, and Bulgaria’s economy contracted slightly. (Chart from FT)

U.S. Import Prices Rise 0.2%

Prices for goods imported into the U.S. rose for the first time in five months in July, though the gain was almost entirely due to fuel costs, signaling that overall inflationary pressures remain tame.

A Labor Department report Tuesday showed that U.S. import prices rose 0.2% from the prior month, far less than the 0.8% gain forecast by economists. Excluding fuel, import prices fell by 0.4%, in line with the declines of recent months.

July import prices were up just 1% from a year ago, a reflection of slow economic growth abroad.

Imports account for over 16% of U.S. GDP, so they are an important component of domestic inflation.

Bumper grain crop to weigh on prices
Cereals stocks to recover from US drought of last year

(…) World corn, rice, soyabean and wheat production will break records this year, the US Department of Agriculture estimated this week. The International Grains Council in London expects grain inventories in critical exporters such as Argentina, Australia, Europe, Russia and the US to rise 40 per cent. (…)

The US government this year predicts a record domestic corn crop of almost 350m tonnes, up 28 per cent from 2012, and the third biggest soyabean crop, of 88.6m tonnes. Corn was $4.55¼ per bushel in Chicago on Tuesday, down 3.6 per cent.

Corn stocks left over from last year’s stunted US harvest are expected to dwindle to 18.3m tonnes by the end of this month, the lowest in 17 years. By August 2014, stocks are forecast to double.

Soren Schroder, chief executive of Bunge, the New York-listed agricultural trading house, said: “We’re clearly in a transition from a very high-priced, super-tight stocks environment to one of possible sizeable surpluses”.

The US impact will be compounded by a healthy wheat crop in Europe and record corn and soyabean harvests in South America. “Brazilian farmers have had a great harvest this year,” said Marcos Rubin, analyst at Agroconsult in Florianópolis, Brazil.

US crops, planted late due to wet spring weather, could still be vulnerable to summer heat or an early frost.


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