Import prices down 0.1%
Export prices down 0.1%
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Bank of Canada Says Growth is Slower Than Expected and May Slip Further Into Year End
“Bank of Canada Senior Deputy Governor Tiff Macklem, who may be promoted to lead the central bank later this year, said economic growth is slower than expected and will accelerate later this year.
There are early signs of a “gradual correction” of imbalances in household finances such as record debt loads while exports continue to have the slowest recovery since World War II, Macklem said yesterday in a lecture at Queen’s University, his alma mater, in Kingston, Ontario.
“Near-term momentum now appears to be slightly softer than previously anticipated,” Macklem, 51, said in the last scheduled public remarks from a Bank of Canada policy maker before a Jan. 23 interest rate decision. “We continue to expect economic activity to pick up through 2013.”
The central bank’s key interest rate has been at 1 percent since September 2010 with a strong currency and inconsistent global demand blunting exports, and policy makers have signaled since April they may raise borrowing costs as the economy moves to full output. Macklem’s household-finance comments suggest the language about interest rates will be retained this month to limit further growth in consumer debt, said Michael Gregory, senior economist at BMO Capital Markets in Toronto.
The wording “will be retained even though the Bank’s economic projection will be downgraded,” Gregory said. “More work is obviously needed” on consumer debt, he said.
Economists surveyed by Bloomberg News predict a rate increase in the fourth quarter of 2013, a time frame that may put the decision in Macklem’s hands with Governor Mark Carney leaving in June to lead the Bank of England…..”
Comments »China’s Inflation Accelerates on Food Prices Rising
“China’s inflation accelerated more than forecast to a seven-month high as the nation’s coldest winter in 28 years pushed up vegetable prices, a pickup that may limit room for easing to support an economic recovery.
The consumer price index rose 2.5 percent in December from a year earlier, the National Bureau of Statistics said today in Beijing. That compares with the 2.3 percent median estimate in a Bloomberg News survey of 42 economists and a 2 percent gain in November. The decline in the producer-price index eased to 1.9 percent.
Chinese stocks headed for the biggest drop in eight weeks on concern that the quickening in inflation makes further policy loosening less likely, after data yesterday on exports and credit growth underscored the strength of the economic rebound. Chen Yulu, a central bank academic adviser, said Jan. 8 that price gains may become a concern in the second half.
“With growth momentum firming up and inflation picking up, the likelihood of any further easing has disappeared and the next interest-rate move will probably be an increase,” which could come as early as the fourth quarter, Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong, said in a telephone interview.
The Shanghai Composite Index, China’s benchmark stock gauge, fell 1.3 percent at 2:02 p.m. local time. The yuan strengthened beyond 6.22 against the dollar for the first time in 19 years….”
Comments »Retailers Continue to Hit the Skids
“We’ve already noted the weak holiday sales report from Tiffany & Co. (NYSE: TIF) out this morning. Now two more specialty retailers, American Eagle Outfitters Inc. (NYSE: AEO) and Aeropostale Inc. (NYSE: ARO), have posted sales numbers for the period, and the situation has not improved much.
American Eagle reported same-store sales up 5% for the quarter to date, compared with a gain of 13% in the same period a year ago. Excluding online sales, sales increased just 1%, compared with a 12% increase excluding online sales last year.
At Aeropostale same-store sales fell 8% in the nine weeks to the end of December, and that includes online sales. Last year sales fell 9% excluding online sales.
American Eagle reiterated fourth-quarter earnings per share (EPS) guidance of $0.56 and same-stores sales growth in the mid-single digits.
Aeropostale cut its quarterly EPS guidance from a previous range of $0.36 to $0.41 to a new range of $0.20 to $0.24.
A third specialty retailer, Ascena Retail Group Inc. (NASDAQ: ASNA)….”
Comments »Challenger, Gray & Christmas: Flu Outbreak Hurting Business Productivit
“The national flu outbreak is doing more than making people sick. It’s hurting worker productivity and businesses across the country are ailing from increased healthcare costs and widespread absenteeism, says John Challenger, CEO of Challenger, Gray & Christmas, an outplacement consulting firm.
Sick employees may be worried about job security or are eager to continue contributing to their workplace, but “presenteeism,” or when workers perform at reduced capacity, only makes matters worse by spreading illnesses, he advises.
“The economy is still on shaky ground and many workers continue to be worried about losing their jobs, despite the fact that annual layoffs are at the lowest level since the late 1990s,” Challenger says. “In this environment, workers are reluctant to call in sick or even use vacation days….”
Comments »China Exports Beat Expectations, Credit Use Rises 28%
“China’s exports rose more than forecast last month and a broad measure of credit surged 28 percent, helping the nation’s new leaders sustain a pickup in economic growth after a seven-quarter slowdown.
Overseas shipments increased 14.1 percent from a year earlier, the most since May, customs administration data showed today, compared with the 5 percent median forecast in a Bloomberg News survey of 40 economists. Aggregatefinancing of 1.63 trillion yuan ($262 billion), which includes bank and non- bank lending, was up from 1.27 trillion yuan a year earlier, according to the central bank.
Asian stocks extended gains, commodities rose and the Australian dollar strengthened after the reports spurred confidence that the recovery in the world’s second-largest economy is gaining traction and global demand is stabilizing. A subdued U.S. recovery and European austerity measures may restrain China’s trade this year, while growth in non-bank financing threatens to increase debt risks.
“This improves the sequential momentum after weakness earlier in 2012,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong, who previously worked for the World Bank in Beijing. Strength in imports last quarter is also “indicative of a further recovery” in gross domestic product from the previous period, Kuijs said…”
Comments »High Unemployment May Ensure Low Rates For Years
“The most important part of the Federal Reserve-watching game is now this: figuring out how long it will take for the unemployment rate to drop to 6.5 percent. That’s the benchmark that the Fed’s rate-setting Open Market Committee pegged in December as the one that will prompt it to begin raising the Fed funds rate, now set between 0 and a quarter of a percentage point.
Two new pieces of research — one from Morgan Stanley, one from CNBC — suggest it could be years, in fact, at least a half a decade, before the economy hits that mark. Both projections require a series of assumptions that are unlikely to be accurate: principally that there is no recession over an extended period and that job growth or economic growth remains steady. But they are still useful as a way to think about how long the Fed could keep rates on hold and, by extension, how long before the Fed stops buying assets through quantitative easing. The Fed has said that it would do so “if the outlook for the labor market does not improve substantially,” a phrase that has been taken to mean some unemployment rate below the current level of 7.8 percent but above the 6.5-percent trigger for raising rates.
Here are two different ways of projecting how long it could take until that 6.5-percent unemployment rate is reached….”
Comments »As Consumer Consumption Slows, So Does the Need to Build Strip Malls Everywhere
“Retailer demand for space at U.S. shopping centers slowed in the fourth quarter amid sluggish economic and employment growth, Reis Inc. (REIS) said.
Occupied space at neighborhood and community shopping centers rose by a net 2.25 million square feet (209,000 square meters), down from 4.12 million square feet a year earlier, the New York-based real estate research firm said today. While it was the sixth consecutive quarter of positive net absorption, “demand remains incredibly weak,” Reis said in its report.
Slow growth in the U.S. economy and an unemployment rate stuck at almost 8 percent are leading to smaller declines in retail-center vacancies. Gross domestic product growth of about 2 percent last year was “a clear disappointment,” Reis said. Until economic growth and labor-market gains shift into a “higher gear,” consumer spending will be muted, said Ryan Severino, a Reis senior economist.
“There’s a dearth of demand out there,” he said in a telephone interview. “It’s difficult to be more optimistic.”
Shopping-center (BBRESHOP) vacancies dropped to 10.7 percent in the fourth quarter from 10.8 percent in the previous three months and 11 percent a year earlier, Reis said. The fourth-quarter figure was the lowest in three years. Effective rents, or what’s paid after any landlord discounts, averaged $16.59 a square foot, up from $16.51 a year earlier….”
Comments »Economists and Analysts Warn Merkel Not to Ignore an Ailing Economy as it is the Growth Engine of Europe
“German Chancellor Angela Merkel’s economic machine is beginning to show signs of neglect.
As the continent’s growth engine and self-appointed fiscal paragon orders budget cuts for its peers, investors, economists and policy makers are starting to warn Germany is turning a blind eye to its own weaknesses. Joerg Asmussen, a European Central Bank board member nominated by Merkel, has gone as far as to predict a return to the status of “Sick Man of Europe” should they go unfixed….”
Comments »Loan Funding as a Share of The Economy Has Fallen to Record Lows in China, Credit Risks Loom
“China’s bank loans as a share of funding in the economy may have fallen to a record low, highlighting the growth of alternative financing channels that have prompted warnings of rising credit risks.
New yuan loans probably dropped 14 percent last month from a year earlier, according to the median projection in a Bloomberg News survey of 37 analysts ahead of data due by Jan. 15. That would give bank lending a 55 percent share of aggregatefinancing for 2012, based on UBS AG estimates, the least in figures dating to 2002.
The decline underscores the waning ability of official loan data to capture the scale of debt in the world’s second-largest economy as borrowers and investors turn to less-regulated, higher-return shadow-banking products. The People’s Bank ofChina is putting greater emphasis on aggregate financing and the International Monetary Fund says the growth of nonbank credit poses “new challenges to financial stability.”
“China’s economic performance in 2013 will be significantly affected by how seriously Chinese regulators are going to treat non-bank financing,” said Shi Lei, a Beijing- based analyst with broker Founder Securities Co., who has provided research advice to China’s securities regulator. While a hands-off approach will help the economy, a crackdown “would be really bad for growth.”
The PBOC lending figures are among December data in the coming days that will show whether an economic rebound that began in September picked up or slowed last month after a seven- quarter growth slowdown. Trade figures due tomorrow may show exports rose at a faster pace and a Jan. 11 report may indicate inflation accelerated….”
Comments »Consumer Credit Smashes Expectations
Small Business Confidence Improves, Labor Market a Different Story
“WASHINGTON (Reuters) – Small business sentiment clawed back from a 2-1/2 year-low in December, but owners’ assessment of the labor market remained downbeat, a survey showed on Tuesday.
The National Federation of Independent Business said its optimism index edged up half a percentage point to 88 last month, the second lowest reading since March 2010. The index hit a 2-1/2 year-low of 87.5 in November.
The December survey does not capture the 11th hour deal reached in the U.S. Congress to prevent a raft of sharp cuts in government spending and higher taxes, or the fiscal cliff, that could have drained about $600 billion from the economy at the start of the year.
“Having some certainty about tax rates and some ‘tax extenders’ will provide some relief to owners, but doesn’t guarantee a more positive forecast for the economy,” the NFIB said in a statement.
“The January survey will sort this out – will higher taxes and spending cuts be viewed as a ‘positive’?”
Labor market gauges worsened last month, with only a net 1 percent of small business owners saying they planned to create new jobs. There was a slight drop in the share of owners reporting that job vacancies were hard to fill.
“More owners expect their real sales volumes to be lower in the first quarter than predict higher sales and more owners plan to reduce inventories than plan to add to them,” said the NFIB.
It said capital spending remained in ‘maintenance’ mode, while plans to make capital outlays remained at recession levels.
(Reporting By Lucia Mutikani; Editing by Neil Stempleman)”
Comments »Conference Board Employment & CEO Outlook Reports Better Than Labor Department Report
“The Conference Board has released two more bits of data which may seem confusing compared to last week’s employment report from the Labor Department. The U.S. added only 155,000 payrolls in December and the official unemployment rate ticked back up 0.1% to 7.8% for the month. While the FOMC has set some triggers for policy being closer to 6.5% unemployment, the Conference Board’s two releases today look better than the report from the Labor Department.
The quarterly report called the Measure of CEO Confidence, improved in the fourth quarter of 2012 after dipping in the third quarter. It rose to 46, up four points from a reading of 42 in the third quarter. Our note of caution here is that it takes a reading above 50 to reflect more positive than negative responses.
We also saw some improvement in the employment picture in December. The Conference Board Employment Trends Index rose to 109.02 in December versus 108.19 in November, and that is actually 3.1% higher than a year ago….”
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Family Dollar Shoppers Couldn’t Afford Toys This Holiday Season, Execs Say
“For the poorest Americans, this year’s holiday season offered little respite from the lingering Great Recession. Despite signs that the American economy has been strengthening in recent months, households grappling with limited means have seen little to no improvement in their fortunes, some economists say.
The latest sign came Thursday as one of the nation’s largest dollar store chains — which caters heavily to customers with low incomes — said that December sales had been meager, an indication that many families bought fewer toys for children, and likely scrimped to finance necessities, such as groceries, instead.
“On the low end of the spectrum people are still hurting quite a bit,” said Chris Christopher, an economist at IHS Global Insight. “The median household income adjusted for inflation has dropped steadily over the past 3 or 4 years. Living paycheck to paycheck is more than a perception, it’s a reality.”
On a conference call Thursday, Family Dollar CEO Howard Levine told analysts that his company’s customers passed on toys in favor of “basic need” items. “Clearly [our customers] don’t have as much for discretionary purchases as they once did,” he said, citing economic pressures like gas prices and rising payroll taxes.
Other retail sales data released Thursday also indicated that many Americans abstained from lavish holiday celebrations this year. Target announced today that sales at its stores open at least a year were flat in December. At Family Dollar, sales at stores open at least a year rose 6.6 percent over the last three months of 2012. But in December, traditionally a busy shopping month, they rose only 2.5 percent. On Thursday, the company’s stock dropped 13 percent….”
Comments »Factory Orders and ISM Index
Factory Orders: Prior 0.5%, Market Expect 0.8%, Actual 0.4%
ISM Index: Prior 54.7, Market Expects 53.5, Actual 56.1
Comments »comScore: U.S. Holiday Shoppers Spent $42.3B Online, Up 14% From Last Year
“After announcing some early post-Christmas numbers, comScore just released its final analysis of U.S. online holiday spending for 2012: shoppers bought a total of $42.3 billion worth of goods online from November 1 to December 31. That’s up 14 percent from the $37.2 billion comScore reported last year, but a bit lower than expected as shoppers slowed down around mid-December.
While the numbers were up across the board, comScore registered especially strong increases in online shopping on Thanksgiving Day (up 32 percent to $622 million) and “Free Shipping Day” on December 17 (up 76 percent to just over $1 billion). While Christmas Day itself was rather slow with $288 million spent on online shopping, even that number was up 36 percent, though it couldn’t make up for a generally soft end of December.
Online Shopping Hits The Fiscal Cliff…”
Comments »CPI Rises More Than Expected in the Euro Zone
“Euro-area consumer prices increased more than economists estimated in December as higher prices for food and services offset slower growth in energy costs.
The inflation rate remained at 2.2 percent, the European Union’s statistics office in Luxembourg said today. The median forecast of 34 economists in a Bloomberg News survey was for a decline to 2.1 percent.
The European Central Bank last month lowered its 2013 inflation forecast to 1.6 percent from 1.9 percent and projected prices will increase 1.4 percent next year. The ECB will maintain its benchmark interest rate at 0.75 percent next week, economists forecast in a separate Bloomberg survey.
The euro-area economy has shrunk for two successive quarters and economists foresee a further decline in gross domestic product in the final three months of last year. The ECB estimates contractions of 0.5 percent and 0.3 percent in 2012 and 2013. The ECB yesterday said November lending to households and companies slowed for a seventh month.
The euro was little changed after the data were released, trading at $1.3011 at 11:03 a.m. in Brussels, down 0.3 percent.
Energy prices increased 5.2 percent in December after a 5.7 percent gain a month earlier, today’s report showed. Prices of food, alcohol and tobacco rose 3.1 percent, compared with 3 percent growth in November, while the cost of services rose 1.8 percent after a 1.6 percent increase a month earlier…”
Comments »China Services Growth Slows Even as New Business Picks Up
“China’s services industries’ growth slowed in December, a private survey showed, even as a pickup in new business added to the likelihood that the economy accelerated for the first time in eight quarters.
The services Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics today was at 51.7 after 52.1 in November. Companies added workers at the fastest pace in more than two years and were “optimistic” business would improve, HSBC said in a statement.
“Despite the moderation of December’s headline services PMI, the underlying strength of services sectors improved in terms of stronger new business flows and employment growth,”Qu Hongbin, chief China economist at HSBC in Hong Kong, said in the statement. “This, plus the further pickup of manufacturing growth, suggests that China is on track” to report fourth- quarter economic growth of about 8 percent, he said.
China’s new leadership, headed by Xi Jinping, is targeting “sustained and healthy development” of an economy that may have expanded last year at the weakest rate since 1999. The government cut taxes for smaller companies and low-income households, accelerated investment approvals and boosted infrastructure spending to support growth amid a slump in exports.
The benchmark Shanghai Composite Index (SHCOMP) rose 0.6 percent as of 2:11 p.m. local time after advancing as much as 1.2 percent. The gauge had gained 16 percent through Dec. 31 since falling to a 2012 low on Dec. 3. Chinese stock markets were closed Jan. 1-3 for the New Year holiday.”
Comments »The Start of 2013 Sees a Downtick in Rail Traffic
“The first reading on rail traffic showed a modest decline to -0.1%. The beginning of the year is usually a volatile period for rail traffic trends so it’s better to take a bit longer view here. The 12 moving moving average remains modestly positive at 2.23%. That’s consistent with an economy that is expanding, but still muddling through. Here’s a bit more detail via the AAR: ”
Comments »Most FOMC Participants Saw QE3 Ending in 2013
“Federal Reserve policy makers said they will probably end their $85 billion monthly bond purchases sometime in 2013, with members divided between a mid- or end-of- year finish.
“A few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013” while a few others specified no time frame, according to the record of the Federal Open Market Committee’s Dec. 11-12 gathering released today in Washington. “Several others thought that it would probably be appropriate to slow or stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet.”
Four years after cutting the main interest rate to near zero, policy makers are expanding their third round of so-called quantitative easing to boost economic growth and cut thejobless rate, now at 7.7 percent. In prior rounds of bond purchases, the central bank bought $2.3 trillion in securities.
The minutes show a divide among FOMC participants on how long the purchases should last. Participants who provided estimates were “approximately evenly divided” between those who said it would be appropriate to end the purchases around mid-2013 and those who said they should continue beyond that date.
“They’re willing to do more QE on the premise that the net benefits outweigh the costs,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank AG in New York. “But they’re more willing to entertain the thought that these actions are going to lose a bit of their efficacy.”
