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PMI For Smaller Companies in China Continues to Fall Further into Recessionary Territory

“Chinese manufacturing indexes showed small businesses struggling, sapping momentum in the economy and underscoring the need for the government to shift support away from larger, state-backed companies.

The official Purchasing Managers’ Index for smaller companies fell to 47.3 in May from 47.6 the previous month, even as the broader gauge rose to 50.8 from 50.6, the government said June 1. A private manufacturing index today that includes small enterprises fell more than forecast to 49.2, an eight-month low, from 50.4. Levels below 50 signal contraction.

The reports illustrate Premier Li Keqiang’s challenges in achieving sustainable growth across the world’s second-biggest economy while increasing consumption and reducing reliance on exports and investment. Declines in manufacturing gauges today in India, South Korea, Vietnam and Taiwan add to risks that Asian and global expansion will slow.

“It is too early to conclude that an economic rebound has begun” in China, Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, said in a report today. “There is still a strong bias towards larger enterprises and coastal areas in terms of fiscal and credit policy implementation,” and small and mid-sized companies appear to “operate with minimal policy support,” Shen wrote.

Divergences in the manufacturing indexes are common given their different focus and coverage, said Wang Tao, chief China economist at UBS AG in Hong Kong. The decline in the official PMI’s gauge for smaller companies is consistent with the HSBC index, Wang said before today’s release.

Stock Indexes…”

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Q1 GDP Revised Lower

“WASHINGTON (Reuters) – A drop in government spending dragged more on the U.S. economy than initially thought in the first three months of the year, although consumer spending looked relatively resilient to Washington’s austerity drive.

Other reports on Thursday showed the number of new jobless claims rose modestly last week while contracts on previously owned homes climbed to a three-year high in April.

Together, the reports pointed to an economy that has held up reasonably well despite government constraints, but nevertheless faced headwinds severe enough to dissuade the U.S. Federal Reservefrom trimming its monetary stimulus in the immediate future.

“(The reports) paint the picture of an economy with strengthening fundamentals that is facing significant fiscal drag,” said Ellen Zentner, an economist at Nomura in New York.

Gross domestic product, a measure of the country’s total economic output, expanded at a 2.4 percent annual rate during the first quarter, down a tenth of a point from an initial estimate, the Commerce Department said.

Analysts had forecast a 2.5 percent gain.

Government spending tumbled at a 4.9 percent annual rate, which was faster than the 4.1 percent rate initially estimated. Also holding back growth during the quarter, businesses outside the farm sector stocked their shelves at a slower pace.

Washington has been tightening its belt for several years but ramped up austerity measures in 2013, hiking taxes in January and slashing the federal budget in March.

“We are dramatically under-spending in Washington,” said Michael Strauss, a market strategist at Commonfund in Wilton, Connecticut.

U.S. stocks rose and the dollar weakened as some investors bet the data could dissuade the Fed from rushing to taper a bond buying program that has acted as a bulwark against government belt tightening. Prices for U.S. government debt pared losses.

Despite the signs of a substantial fiscal drag, the GDP report also highlighted a resilience that has surprised many economists.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity. rose at a 3.4 percent annual rate, up two tenths of a point from the government’s previous estimate.

Excluding the volatile inventories component, GDP rose at an upwardly revised 1.8 percent rate, slightly higher than analysts had forecast. This suggests that an improvement in hiring and incomes over the last year has helped keep economic momentum intact.

“(It’s) steady as she goes,” said Stephen Stanley, an economist at Pierpont Securities in Stamford, Connecticut


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U.K. Retail Sales Crater the Most in Over a Year

U.K. retail sales fell the most in 16 months in May as demand for food and drink declined, according to an index by the Confederation of British Industry.

A gauge of annual sales growth dropped to minus 11, the lowest since January 2012, from minus 1 in April, the London-based lobby group said today. Economists had forecast an increase to 3, according to the median of 12 estimates in a Bloomberg News survey. Retailers expect the volume of sales to return to growth in June, the report showed.

Higher energy prices and weak wage growth have helped to curb consumer spending. Data earlier this month showed that expenditure by households rose just 0.1 percent in the first quarter, the least since the third quarter of 2011.

“Most sub-sectors reported flat or falling sales over the year, with only furniture and carpets and recreational goods seeing strong growth,” the CBI said. Still, “a narrow balance of retailers again expect the overall business situation to improve over the next three months, with three quarters expecting conditions to remain stable.”

A gauge of the volume of orders placed with suppliers dropped to minus 25 in May from minus 12 in April. A measure of sales volumes for the time of year rose to minus 17 from minus 27. A three-month moving average of sales slipped to minus 6 from minus 4….”

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Weak Construction Growth Hurts German GDP Data

“The German economy’s return to growth in the first quarter was hampered by declines in construction activity and investment as a severe winter and a recession in Europe damped demand.

Construction fell 2.1 percent from the fourth quarter and capital investment dropped 1.5 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product increased 0.1 percent, the office said, confirming a May 15 estimate. From a year earlier, the economy shrank 0.2 percent when adjusted for working days.

With the 17-nation euro area mired in recession and the coldest March in a quarter-century freezing building activity, Europe’s largest economy has relied on domestic demand to haul it back to growth. GDP fell 0.7 percent in the fourth quarter of 2012.

“The somewhat disappointing first-quarter result was due mainly to the cold weather and the sensitivity of companies to developments in the rest of Europe,” said Gerd Hassel, an economist at BHF Bank AG in Frankfurt. “While that uncertainty hasn’t quite fully dissipated yet, there should be a rebound in construction activity in the second quarter and we could see better-than-expected results.”

Household spending rose 0.8 percent in the first quarter, while public spending fell 0.1 percent, today’s report showed. Exports declined 1.8 percent and imports dropped 2.1 percent. Domestic demand didn’t add to growth as stronger consumption was offset by weaker investment, while net trade contributed 0.1 percentage point to GDP.

European Recession….”

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Euro Services and Factory Output Data Come in Better Than Expected

“A euro-area services and factory output gauge increased more than economists forecast in May, adding to signs the currency bloc is starting to emerge from its record-long recession.

composite index based on a survey of purchasing managers in both industries rose to 47.7 from 46.9 in April, London-based Markit Economics said today. That exceeded the median estimate of 47.2 in a Bloomberg News survey of 27 economists. A reading below 50 indicates contraction.

While the euro-zone manufacturing index rose to a three-month high of 47.8 in May, Chinese factory output contracted for the first time in seven months, signaling the country’s economic growth is losing steam for a second quarter.

“We see the euro zone being out of recession in the third quarter,” said Christian Schulz, senior European economist at Berenberg Bank in London. “We’ve seen improving confidence since the ECB provided a safety net, and the risk of countries having to leave the euro has decreased. Also austerity is fading.”

The euro extended gains after the data were released, trading at $1.2903 at 10:56 a.m. in Brussels, up 0.4 percent on the day. The Stoxx Europe 600 Index was down 2.1 percent to 303.97.

Rate Cut…”

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Signs of a Better Economy for Main Street Arise

“Americans are on the move again.

Thanks to the slowly brightening employment picture, along with the uptick in the housing market, more and more people are packing up and relocating. And the pace is likely to pick up this summer, the peak season for moving, according to industry professionals.

It’s a far cry from just a few years ago.

“Two years ago, it seemed like everything was falling off the face of the Earth,” said Randy Shacka, president of Two Men and a Truck, a franchise moving company.” But monthly payroll growth averaging 208,000 is turning that around—and spurring job-related moves.

Even though overall moving activity is still below where it was in 2009-2010, the number of people moving for a new job or transfer is on the rise. Moves for those reasons totaled 3.5 million in 2011-2012, up from 2.8 million the prior year and the highest since 2006-2007, according to Census Bureau data. And the number of people moving because they had lost a job or were looking for work declined.

The recovering housing market is also giving people the flexibility to move by making it easier for people to sell their homes. The National Association of Realtors’ chief economist says that with relatively few houses on the market, double-digit gains in housing prices are possible in 2013. And that, in turn, is spurring construction—making moving easier….”

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Inflation Falls More Than Expected in the U.K.

U.K. inflation slowed more than economists forecast in April to a seven-month low and producer prices rose the least since 2009 as fuel costs fell.

Consumer prices rose 2.4 percent from a year earlier, down from 2.8 percent in March, theOffice for National Statistics said in London today. The median forecast of 35 economists in a Bloomberg News survey was 2.6 percent. Core inflation also cooled, while factory-gate prices increased at the slowest annual pace in 3 1/2 years. The pound weakened….”

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Thailand’s GDP Misses Estimates, Easing Expected

“Thailand’s government lowered its full-year growth forecast after the economy expanded less than analysts estimated last quarter, boosting the case for the central bank to cut interest rates.

Gross domestic product increased 5.3 percent in the three months through March from a year earlier, after expanding a revised 19.1 percent in the previous quarter, the National Economic and Social Development Board said in Bangkok today. The median of 13 estimates in a Bloomberg News survey was 6 percent.

The growth slowdown may give the Bank of Thailand scope to join a global wave of monetary easing, after resisting pressure from the government in recent months to lower borrowing costs and curb inflows that last month drove the baht to a 16-year high. Finance Minister Kittiratt Na-Ranong, who has led calls for lower rates, has said the central bank must cut by more than a quarter of a percentage point or implement capital controls.

“The recovery in external demand that will be positive for Thai exports is not happening,” and weaker growth justifies an interest-rate cut, said Enrico Tanuwidjaja, a Singapore-based economist at Royal Bank of Scotland Group Plc. “The baht’s strength is an additional factor to motivate a rate cut.”….”

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Old Man Buffett’s Favorite Indicator Is Still Weak

“This week’s rail traffic reading showed modest improvement over recent weeks, but the longer-term trend remains negative.  Intermodal traffic was up 3.9% this week which was an improvement over last week’s reading of 2.8%.  The data, however, continues to soften on a rolling 3 month basis with the latest reading coming in at 3%.  That’s the lowest level since January.  The good news is we’re not seeing the type of consistently negative readings that tend to precede a recession.  The bad news is that the growth is tapering.

Here’s more via AAR….”

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Initial Claims, CPI, & Housing Starts

Initial CLaims: Prior 323k, Market Expects 330k, Actual 360k ,

CPI: Prior -0.2%, Market Expects -0.2%, Actual  -0.4%, Core +1.7%

Housing Starts: Prior 1036k, Market Expects 97ok,  Actual 853k ……down 16.5%,  Building permits are up 14.3%

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Japan’s Economy Expands the Most Since the Tsunami


“Japan’s economy expanded the most in a year last quarter as consumer spending and export gains outweighed the weakest business investment since the wake of the March 2011 earthquake and tsunami.

Gross domestic product rose an annualized 3.5 percent, a Cabinet Office release showed inTokyo. Private consumption, making up 60 percent of GDP, contributed 2.3 percentage points to the jump. The BOJ may upgrade its assessment of the economy after a May 22 policy meeting, according to people familiar with the central bank’s discussions.

Today’s report shows while consumers — aided by a stock-market surge — are responding to the reflation campaign mounted by Prime Minister Shinzo Abe and Bank of Japan chief Haruhiko Kuroda, companies remain cautious. That may change as the yen’s 21 percent slide against the dollar in the past six months spurs profits and Abe embarks on reducing regulations hampering the world’s third-biggest economy.

“Japan is clearly back from stagnation last year,” said Naoki Iizuka, an economist at Citigroup Inc. in Tokyo. “The key from here is whether Abe can unveil a strong growth strategy. If he succeeds, that will boost business investment to support growth.”

Abe plans next month to unveil his so-called third arrow of structural reform, following the first two arrows of monetary and fiscal stimulus.

Exceeding Estimates…”

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PPI Drops the Most in Three Years, NY Manufacturing Falls

“WASHINGTON (Reuters) – Producer prices recorded their largest drop in three years in April as gasoline and food costs tumbled, pointing to weak inflation pressures that should give the Federal Reserve latitude to keep monetary policy very accommodative.

The Labor Department said on Wednesday its seasonally adjusted producer price index fell 0.7 percent last month, the biggest decline since February 2010. Wholesale prices had dropped 0.6 percent in March.

A Reuters survey of economists had forecast prices received by the nation’s farms, factories and refineries dropping 0.6 percent last month.

In the 12 months through April, wholesale prices were up only 0.6 percent, the smallest increase since July last year. Prices had increased 1.1 percent in March.

Underscoring the tame inflation environment, wholesale prices excluding volatile food and energy costs nudged up 0.1 percent, the smallest increase since November. The so-called core PPI had risen 0.2 percent in each of the previous four months.

In the 12 months through April, core PPI advanced 1.7 percent after rising by the same margin in March.

The report was the latest suggestion that disinflation was starting to creep in against the backdrop of lackluster domestic and global demand….”

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“……New York Manufacturing Down

Activity in New York state’s manufacturing sector unexpectedly contracted in May, falling to the lowest level in four months as new orders and employment pulled back, data from the New York Federal Reserve showed on Wednesday.

The New York Fed’s “Empire State” general business conditions index fell to minus 1.43 in May from 3.05 in April, thwarting economists’ expectations for an increase to 4.

It was the first reading below zero since January, which indicates contraction for the sector….”

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France Falls Into a Third Recession In the Last Four Years

“The French economy fell into its third recession in four years, increasing pressure on PresidentFrancois Hollande to adopt policies to revive growth.

Gross domestic product shrank 0.2 percent in the three months through March, following a revised 0.2 percent contraction in the previous quarter, national statistics office Insee said today. Economists expected a 0.1 percent drop, according to the median of 25 forecasts gathered byBloomberg News.

Celebrating his first anniversary in office today, Hollande is struggling to reduce the number of jobseekers from a record 3.22 million and lift his popularity rating from a record low. With the wider euro-area economy set to shrink for a second year in 2013, Hollande has been pushing to slow the pace of deficit reduction in the 17-nation bloc in favor of more pro-growth policies.

“The most important thing now is to create growth and employment,” Finance Minister Pierre Moscovici said this week in Brussels. “We must absolutely fight to have stronger growth in 2014 and to have the start of that growth in 2013.”

Euro-area GDP will drop 0.4 percent this year after a 0.6 percent decline in 2012, according to European Commission forecasts released earlier this month. First-quarter figures for the region will be published later today.

The commission said May 3 that it would give France another two years to reduce its deficit to less than 3 percent of GDP, though it said the nation’s lack of competitiveness is as much a part of the problem as the lack of growth in the region.

Hollande needs to press ahead with promises to revamp the nation’s labor law and pension system, the Commission said….”

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This Week Will Be Packed With Economic Data, Here is What to Look For

“Last week was unusually quiet for the economy, even as the stock market rallied to an all-time high.

This week’s schedule, however, is loaded with April and May economic data. By Friday, we should have a pretty good sense of whether or not the economy decelerated going into the second quarter.

For the most part, economists are expecting a month-over-month slowdown.

Top Stories…”

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U.S. Retail Sales Rise More Than Expectations


“This story is developing. Please check back for further updates.

Economists in a Reuters survey expect a 0.3 percent decrease compared with a 0.4 percent decrease in March. Excluding automobiles, sales are expected to fall 0.1 percent versus a 0.4 percent drop in March.”

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Old Man Buffett’s Favorite Indicators Stabilizes in the Low Single Digit Range

“Rail traffic trends have been undoubtedly weak in recent weeks as we’ve seen double digit year over year growth slide into negative territory.  This brought our 12 week moving average from a high of 6.75% in March to the low single digits.

The latest intermodal traffic data from AAR showed 2.8% growth which is an improvement from last week’s 1.6% reading, but still trending lower on a monthly basis.  We’re now at a 3 month low in the moving average at 3.13%.  So there are some small signs of stability, but the overall trend is still down….”

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Australia Forecasts Below Trend Growth, RBA Cuts Inflation Outlook

“The Reserve Bank of Australia cut its inflation outlook and reiterated its forecast for “below trend” growth this year, driven by an elevated currency, a crest in resource investment and fiscal tightening.

“The outlook for non-mining business investment remains relatively weak over the next few months,” the RBA said in its monetary policy statement in Sydney today. “The approaching peak in resource investment, the high level of the Australian dollar and ongoing fiscal consolidation are all likely to weigh on growth over the next year or so, while at the same time the low level of interest rates is helping to support demand.” …”

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Rate Cuts Help India’s Factory Output to Increase

“India’s industrial output in March expanded at the fastest pace in five months after the central bank eased interest rates to revive economic growth.

Production (INPIINDY) at factories, utilities and mines climbed 2.5 percent from a year earlier after a revised 0.5 percent gain in February, the Central Statistical Office said in a statement in New Delhi today. The median of 26 estimates in a Bloomberg News survey was for a 2.4 percent gain.

The Reserve Bank of India has cut interest rates three times in 2013 to help revive an economy that expanded at the weakest pace in a decade last year, extending the only reduction in borrowing costs this year in the major emerging nations of the BRIC group that include China, Russia and Brazil. Moderating investment, an extended fight against inflation and a drop in exports have hurt growth in Asia’s No. 3 economy….”

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