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Fed Will Keep Rates Low for `Extended Period’

by on March 16, 2010

By Craig Torres and Scott Lanman March 16 (Bloomberg) — Federal Reserve officials repeated their pledge to keep the main interest rate near zero for an “extended period” and confirmed that emergency measures to prop up the housing market will end as planned this month. While the economy has “continued to strengthen,” policy makers noted that “ housing starts have been flat at depressed levels” and “employers remain reluctant to add to payrolls.” Treasuries and stocks extended gains as some traders trimmed bets the central bank will raise interest rates over the next 12 months. Fed Chairman Ben S. Bernanke is trying to determine how long to hold down borrowing costs to generate a self-sustaining recovery from the worst slump since the 1930s. “The recovery continues and remains on track to be subpar, at best,” said Diane Swonk , chief economist at Mesirow Financial in Chicago. “Businesses are finally stepping up to the plate and spending their cash flow, but the housing market and prospects for a broader-based recovery remain dim.” The yield on the 10-year note Treasury note fell five basis points, or 0.05 percentage point, to 3.65 percent. The Standard & Poor’s 500 Index climbed 0.8 percent to 1,159.46. An earlier report from the Commerce Department showed that housing starts fell 5.9 percent in February, hampered by snowstorms in some parts of the country, and Obama administration officials told a congressional hearing that unemployment is likely to “remain elevated for an extended period.” Growth Outlook The economy will probably grow by 2.8 percent in the first quarter of 2010, according to the median estimate of a Bloomberg News survey of economists this month, after a 5.9 percent pace of expansion in the fourth quarter of 2009 that got a boost from a slower pace of inventory reductions. Policy makers are “still a little concerned about the handoff from the swing in the inventory cycle and fiscal policy to private final demand,” said Michael Feroli , an economist at JPMorgan Chase & Co. in New York. Fed officials repeated that their program to buy $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt will be completed by the end of March. “The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability,” the FOMC statement said. Retail Sales Retail sales unexpectedly climbed in February, consumer borrowing rose in January for the first time in a year and commercial mortgage-backed bond returns are accelerating. Meanwhile, the Fed’s preferred gauge of inflation, which excludes food and energy, has stayed tame. Thomas Hoenig , president of the Kansas City Fed, dissented for the second straight meeting and said “that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability,” the statement said. The Fed has kept the federal funds rate target for overnight loans between banks in a range of zero to 0.25 percent since December 2008. Policy makers began using the “extended period” language in March 2009 and have repeated it at each meeting since then. Job Losses Economic growth is helping to stanch job losses. Payroll declines have slowed to an average 27,000 a month from November through February, compared with an average 252,000 from July through October. The U.S. may add as many as 300,000 jobs this month, the most in four years, said David Greenlaw , chief fixed- income economist at Morgan Stanley in New York. The unemployment rate was unchanged at 9.7 percent in February. “Things are definitely getting better,” Jeffrey Immelt , chief executive officer of General Electric Co., said at a conference on March 11 in Washington. “The credit markets are much improved. Most indicators are firming or heading up.” “But there’s a long road ahead,” with high unemployment and “big structural issues” in the economy, said Immelt, who is also a member of the New York Fed board. Borrowers raised a record $1.24 trillion in the U.S. corporate bond market last year, according to data compiled by Bloomberg. While down from that pace, issuance this year remains elevated, with $248.3 billion raised. Extra Yield The extra yield investors demand to own corporate bonds rather than government debt fell yesterday to 267 basis points, or 2.67 percentage points, from the peak during the credit crisis of 888 basis points in December 2008, according to Bank of America Merrill Lynch indexes. The narrower spread represents annual interest savings of about $60 million for every $1 billion of bonds sold. Inflation is showing little sign of taking off. The Fed’s preferred price index, which excludes food and energy costs, rose 1.4 percent in January from a year earlier, below the long- run range of 1.7 percent to 2 percent policy makers want for total inflation. Policy makers believe the risk of inflation is low, with some still worried about deflation. Inflation expectations have remained stable in recent months, even with the excess capacity in the economy. Readings on one year-ahead inflation expectations tracked by the Thomson Reuters University of Michigan Survey have averaged 2.7 percent for the past six months, compared with 2.8 percent for the prior six months. Labor Costs Officials may also be concerned about the falling cost of labor , said Marvin Goodfriend , a former research director at the Richmond Fed. Labor costs dropped at a 5.9 percent pace in the fourth quarter, according to a report earlier this month. “Today we cannot say we’re past the period of risk of deflation in unit labor costs,” said Goodfriend, now a professor at Carnegie Mellon University’s Tepper School of Business in Pittsburgh. In recent months, the scheduled end this month to Fed purchases of mortgage debt has prompted little change in mortgage rates. The rate for 30-year fixed mortgages fell to 4.95 percent for the week ended March 11 from 4.97 percent, compared with a record low of 4.71 percent in December. Sales of previously owned U.S. homes unexpectedly declined in January for a second month, falling 7.2 percent to an annual pace of 5.05 million, the National Association of Realtors said Feb. 26. To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net ; Scott Lanman in Washington at slanman@bloomberg.net .

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Fed Will Keep Rates Low for `Extended Period’

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Fed Will Keep Rate Low for `Extended Period’

by on March 16, 2010

By Craig Torres and Scott Lanman March 16 (Bloomberg) — Federal Reserve officials repeated their pledge to keep the main interest rate near zero for an “extended period” and confirmed that emergency measures to prop up the housing market will end as planned this month. While the economy has “continued to strengthen,” policy makers noted that “housing starts have been flat at depressed levels” and “employers remain reluctant to add to payrolls.” Treasuries and stocks extended gains as some traders trimmed bets the central bank will raise interest rates over the next 12 months. Fed Chairman Ben S. Bernanke is trying to determine how long to hold down borrowing costs to generate a self-sustaining recovery from the worst slump since the 1930s. “The recovery continues and remains on track to be subpar, at best,” said Diane Swonk , chief economist at Mesirow Financial in Chicago. “Businesses are finally stepping up to the plate and spending their cash flow, but the housing market and prospects for a broader-based recovery remain dim.” The yield on the 10-year note Treasury note fell five basis points, or 0.05 percentage point, to 3.65 percent at 3:44 p.m. in New York. The Standard & Poor’s 500 Index climbed 0.7 percent to 1,158.51. The June 2011 eurodollar contract rose three basis points to 98.475. An earlier report from the Commerce Department showed that housing starts fell 5.9 percent in February, hampered by snowstorms in some parts of the country, and Obama administration officials told a congressional hearing that unemployment is likely to “remain elevated for an extended period.” Growth Outlook The economy will probably grow by 2.8 percent in the first quarter of 2010, according to the median estimate of a Bloomberg News survey of economists this month, after a 5.9 percent pace of expansion in the fourth quarter of 2009 that got a boost from a slower pace of inventory reductions. Policy makers are “still a little concerned about the handoff from the swing in the inventory cycle and fiscal policy to private final demand,” said Michael Feroli , an economist at JPMorgan Chase & Co. in New York. Fed officials repeated that their program to buy $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt will be completed by the end of March. “The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability,” the FOMC statement said. Retail Sales Retail sales unexpectedly climbed in February, consumer borrowing rose in January for the first time in a year and commercial mortgage-backed bond returns are accelerating. Meanwhile, the Fed’s preferred gauge of inflation, which excludes food and energy, has stayed tame. Thomas Hoenig , president of the Kansas City Fed, dissented for the second straight meeting and said “that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability,” the statement said. The Fed has kept the federal funds rate target for overnight loans between banks in a range of zero to 0.25 percent since December 2008. Policy makers began using the “extended period” language in March 2009 and have repeated it at each meeting since then. Job Losses Economic growth is helping to stanch job losses. Payroll declines have slowed to an average 27,000 a month from November through February, compared with an average 252,000 from July through October. The U.S. may add as many as 300,000 jobs this month, the most in four years, said David Greenlaw , chief fixed- income economist at Morgan Stanley in New York. The unemployment rate was unchanged at 9.7 percent in February. “Things are definitely getting better,” Jeffrey Immelt , chief executive officer of General Electric Co., said at a conference on March 11 in Washington. “The credit markets are much improved. Most indicators are firming or heading up.” “But there’s a long road ahead,” with high unemployment and “big structural issues” in the economy, said Immelt, who is also a member of the New York Fed board. Borrowers raised a record $1.24 trillion in the U.S. corporate bond market last year, according to data compiled by Bloomberg. While down from that pace, issuance this year remains elevated, with $248.3 billion raised. Extra Yield The extra yield investors demand to own corporate bonds rather than government debt fell yesterday to 267 basis points, or 2.67 percentage points, from the peak during the credit crisis of 888 basis points in December 2008, according to Bank of America Merrill Lynch indexes. The narrower spread represents annual interest savings of about $60 million for every $1 billion of bonds sold. Inflation is showing little sign of taking off. The Fed’s preferred price index, which excludes food and energy costs, rose 1.4 percent in January from a year earlier, below the long- run range of 1.7 percent to 2 percent policy makers want for total inflation. Policy makers believe the risk of inflation is low, with some still worried about deflation. Inflation expectations have remained stable in recent months, even with the excess capacity in the economy. Readings on one year-ahead inflation expectations tracked by the Thomson Reuters University of Michigan Survey have averaged 2.7 percent for the past six months, compared with 2.8 percent for the prior six months. Labor Costs Officials may also be concerned about the falling cost of labor , said Marvin Goodfriend , a former research director at the Richmond Fed. Labor costs dropped at a 5.9 percent pace in the fourth quarter, according to a report earlier this month. “Today we cannot say we’re past the period of risk of deflation in unit labor costs,” said Goodfriend, now a professor at Carnegie Mellon University’s Tepper School of Business in Pittsburgh. In recent months, the scheduled end this month to Fed purchases of mortgage debt has prompted little change in mortgage rates. The rate for 30-year fixed mortgages fell to 4.95 percent for the week ended March 11 from 4.97 percent, compared with a record low of 4.71 percent in December. Sales of previously owned U.S. homes unexpectedly declined in January for a second month, falling 7.2 percent to an annual pace of 5.05 million, the National Association of Realtors said Feb. 26. To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net ; Scott Lanman in Washington at slanman@bloomberg.net .

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Household Wealth in U.S. Increases at a Slower Pace as Home Values Decline

March 11, 2010

By Timothy R. Homan March 11 (Bloomberg) — Household wealth in the U.S. grew in the fourth quarter at a slower pace, limited by a drop in home values that indicates the recovery in consumer spending will take time to gain speed. Net worth for households and non-profit groups rose by $700 billion to $54.2 trillion, marking a third consecutive gain, according to the Federal Reserve’s Flow of Funds report issued today in Washington. Wealth increased by $2.78 trillion in the third quarter. American consumers cut borrowing at a record pace last year, the figures showed, in a bid to repair the damage from overextended balance sheets and the loss of wealth during the recession. The need to replenish savings combined with the loss of 8.4 million jobs means spending, the biggest part of the economy, will be restrained. “We’re probably feeling a little bit of a hangover from the decline in real-estate markets,” Guy LeBas , chief fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report. “It’s hard to justify higher spending if you don’t have income coming in the door.” The Standard & Poor’s 500 Index increased 5.5 percent in the last three months of 2009, compared with a 15 percent gain the previous quarter. Household real-estate holdings fell in value by $109.8 billion in the last three months of 2009, the first decrease in three quarters, according to the Fed’s report. Stocks Fall The S&P 500 decreased 0.3 percent to 1,142.52 at 12:18 p.m. in New York, depressed by concern that faster inflation in China will lead to higher interest rates that will slow the global recovery. Since the recession began in December 2007, Americans have been constrained by periods of falling home and stock prices, tight credit and rising unemployment. While stocks have gained and home prices began stabilizing last year, borrowing standards have tightened and unemployment remains near a 26- year high. The jobless rate , which has not increased since October, held at 9.7 percent last month, according to a March 5 report from the Labor Department. The rate reached 10.1 percent in October, the highest level since 1982. Owners’ equity as a share of their total real-estate holdings increased to 38.1 percent last quarter from 37.6 percent in the third quarter, today’s Fed report showed. Less Borrowing Consumer debt dropped at a 1.2 percent annual pace in the fourth quarter, a seventh consecutive decline. For all of 2009, borrowing decreased 1.7 percent, the first decline since records began in 1952. Mortgage borrowing declined at a 0.8 percent pace from October through December, while other forms of consumer credit fell at a 5.8 percent rate, the Fed’s report showed. Total borrowing by consumers, businesses and government agencies increased at an annual rate of 1.6 percent last quarter, led by a 13 percent advance by the federal government. Borrowing by businesses decreased at a 3.2 percent rate. Borrowing by the federal government reflected, in part, spending linked to President Barack Obama ’s stimulus plan. State and local government borrowing climbed at a 4.7 percent pace. The economy grew at a 5.9 percent rate in the last three months of 2009, the fastest pace in six years. Economists surveyed by Bloomberg News this month forecast the expansion will slow to a 2.8 percent pace in the first quarter of 2010. To contact the report on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Payrolls in U.S. Decline Less-Than-Expected 36,000; Jobless Rate at 9.7%

March 5, 2010

By Timothy R. Homan March 5 (Bloomberg) — The U.S. unemployment rate held at 9.7 percent and payrolls fell less than forecast, indicating the labor market strengthened even as East Coast snowstorms forced some employers to temporarily close. Payrolls dropped 36,000 last month after a revised 26,000 decrease in January, figures from the Labor Department in Washington showed today. Manufacturers added workers for a second straight month, the first back-to-back gain since 2006, while construction companies fired workers. Stocks and the dollar jumped while Treasuries slid as investors reckoned the economy would have added jobs were it not for seasonal snowfall records in cities including Washington and Philadelphia. The U.S. needs employment growth to sustain a recovery from a recession that has cost 8.4 million jobs since December 2007. “This is strong evidence that the labor market is moving firmly in a positive direction,” said Richard DeKaser , chief economist at Woodley Park Research in Washington, who had forecast the unemployment rate would stay at 9.7 percent. “It’s clear that except for the weather effect we would be seeing a very positive payrolls report.” The Standard & Poor’s 500 Index rose 0.7 percent to 1,131.1 at 10 a.m. in New York. The dollar strengthened 1.4 percent to 90.27 yen from 89.02 yesterday. The yield on the 10-year Treasury note rose seven basis points to 3.67 percent. Economists’ Forecasts Payrolls were forecast to decrease by 68,000, according to the median estimate of 82 economists surveyed by Bloomberg News. Estimates ranged from a decline of 150,000 to a gain of 30,000. The jobless rate was projected to increase to 9.8 percent. Forecasts ranged from 9.5 percent to 10.1 percent. The unemployment rate was unchanged even as more people entered the workforce. One clue about the effect of the weather on employment may come from the survey of households, which the Labor Department uses to calculate the unemployment rate. Today’s report showed 1 million Americans said bad weather prevented them from getting to work during the survey week. About 290,000 people on average say bad weather has prevented them from getting to work, according to February figures going back three decades. Federal Reserve Companies have been reluctant to hire even after the world’s largest economy grew at a 5.9 percent annual rate in the last three months of 2009, the most in six years. The labor market may be slow to recover the jobs lost since the recession began, giving the Federal Reserve scope to keep interest rates low and putting pressure on President Barack Obama and lawmakers to foster job growth. The so-called underemployment rate — which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking — rose to 16.8 percent from 16.5 percent. AMR Corp. is among companies continuing to trim employment, while Caterpillar Inc. and General Motors Co. have announced they will recall some workers dismissed during the depths of the economic slump. Two storms blanketed parts of the country in early February, the second coming during the week that included the 12th of the month, the government’s survey week. Economists at Macroeconomic Advisers LLC in St. Louis projected the weather would reduce the payroll count by anywhere from 150,000 to 220,000 workers. The drop will probably be reversed this month, they said. January 1996 The most recent storm of similar intensity that occurred during a survey week was in January 1996. The current data for payrolls that month, which have gone through several revisions since the initial estimate, show a 19,000 drop in employment followed by a gain of 434,000 in February. Monthly employment gauges that are less influenced by weather point to job-market stability. The Institute for Supply Management’s employment gauge in non-manufacturing businesses, which covers almost 90 percent of the economy, rose to an almost two-year high. The group’s corresponding manufacturing index climbed to the highest level since 2005. Companies in February cut the fewest jobs in two years, according to data from ADP Employer Services. Similarly, employers last month announced the fewest job cuts in more than three years, according to a report by the job-placement firm Challenger, Gray & Christmas Inc. Government Jobs Today’s report from the Labor Department showed that government payrolls decreased by 18,000 in February. State and local governments reduced employment by 25,000 during the month, while the federal government added 7,000. The increase at the federal level reflected in part the hiring of 15,000 temporary workers to conduct the 2010 census. The Census Bureau said it will hire 1.15 million temporary workers in the first half of the year to conduct the population count that takes place every 10 years. The program may have the biggest impact on payroll figures in April through June, when the bulk of the hiring will take place, and will then subtract from the job count the following months after the work is done. Payroll figures for manufacturers, construction firms and retailers are most likely to gauge the extent to which weather affected overall job numbers since those industries are more likely to be influenced by severe storms, economists said. The average work week and weekly earnings were probably affected by the snow, they said before the report. Hours Worked Fall The average work week for all workers fell to 33.8 hours in February from 33.9 hours the prior month. The number of part- time workers for economic reasons climbed to 8.8 million in February from 8.3 million the previous month. Factory payrolls increased 1,000 in February after rising 20,000 in the prior month. The median forecast by economists called for a drop of 15,000. Payrolls at builders fell 64,000 last month after decreasing 77,000. Financial firms reduced payrolls by 10,000, after a 13,000 decline the prior month. Service industries, which include banks, insurance companies, restaurants and retailers, added 24,000 workers after an increase of 27,000 in January. Some companies continue to trim payrolls. American Airlines, the world’s second-largest carrier, said yesterday that it would eliminate jobs of 230 baggage handlers, ramp workers and cargo employees nationwide. The reductions at American, a unit of AMR, will begin March 13, spokeswoman Missy Latham said in an interview. Accenture Hiring Other firms are adding workers. Accenture Plc, the world’s second-largest technology-services company, is boosting payrolls by about 50,000 workers, with as many as 9,000 jobs being added in the U.S. by the end of August. “We are seeing a very broad uplift globally” in demand, John Campagnino , director of worldwide recruiting, said in a March 3 interview. He said the trend “brings us right back to the pre-recession” levels. The number of temporary workers increased 48,000 in February. Payrolls at temporary-help agencies often turn up before total employment because companies prefer to see a steady increase in demand before taking on permanent staff. Retail payrolls were little changed after a 42,000 gain. The economy grew at a 5.9 percent annual rate in the fourth quarter, the biggest gain in six years, according to data from the Commerce Department released last week. Economists surveyed by Bloomberg last month projected the jobless rate will average 9.8 percent in 2010 and end the year at 9.5 percent. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Productivity in U.S. Climbed 6.9% in Fourth Quarter; Labor Costs Fell 5.9%

March 4, 2010

By Bob Willis March 4 (Bloomberg) — The productivity of U.S. workers kept surging in the fourth quarter as companies squeezed more out of remaining employees to boost earnings. A measure of employee output per hour rose at a 6.9 percent annual rate, capping the biggest one-year gain since 2002, revised figures from the Labor Department showed today in Washington. Labor costs dropped at a 5.9 percent pace, more than anticipated, and fell 1.7 percent for all of 2009, the biggest drop since records began six decades ago. Productivity grew as companies lifted profits by slashing payrolls even as demand stabilized, a performance that will be difficult to repeat as the economy recovers. Lower labor costs will help contain inflation, giving the Federal Reserve margin to keep lending rates near zero in coming months. Such gains in efficiency are “inherently unsustainable,” Dean Maki , chief U.S. economist at Barclays Capital Inc. in New York, said before the report. “ We think hiring has to kick in. Rising productivity in general is a positive event for living standards.” Economists had forecast productivity would rise at a 6.3 percent annual pace, according to the median of 61 forecasts in a Bloomberg News survey. Estimates ranged from gains of 5.7 percent to 7.1 percent. Unit labor costs, which are adjusted for efficiency gains, were projected to drop 4.5 percent. Claims for U.S. jobless benefits dropped last week from a three-month high, pointing to an improvement in the labor market that is slow to develop, another report from the Labor Department showed. Fewer Claims Initial jobless applications fell by 29,000 to 469,000 in the week ended Feb. 27, in line with the median forecast of economists surveyed by Bloomberg News. The number of people receiving unemployment insurance decreased to the lowest level in a year, while those receiving extended benefits climbed. Today’s revisions to labor costs reflected in part the updated income figures the Commerce Department issued in its latest estimate of fourth-quarter gross domestic product released last week. Third-quarter labor expenses were updated to show a 7.6 decrease at an annual rate compared with the 1.5 percent decrease previously estimated. For all of 2009, productivity increased 3.8 percent. The economy grew 5.9 percent in the fourth quarter, even as employers cut 310,000 workers, indicating those Americans that still had jobs were more efficient. The fourth quarter’s growth rate was the strongest in more than six years. More Hours Hours worked rose at a 0.6 percent pace in the fourth quarter, indicating companies were already having difficulty meeting demand with existing staff. Output climbed at a 7.6 percent rate. Compensation for each hour worked increased at 0.6 percent annual pace after decreasing at a 0.4 percent pace in the prior quarter. Among manufacturers, productivity surged at a 6.6 percent pace. Payrolls may have decreased by 65,000 workers last month, more than the prior decline of 20,000, according to the median forecast of economists surveyed before tomorrow’s monthly employment report. The economy has lost 8.4 million jobs since the recession began in December 2007. The robust productivity growth will wane in coming months as job creation kicks in, said Robert Dye , a senior economist at PNC Financial Services Group in Pittsburgh. Unsustainable Gains “The productivity gains will not be sustained because companies are operating at a bare minimum in terms of employment and they will need to start increasing employment to increase output and capture additional revenue,” said Dye. Carmakers are beginning to call back laid off workers. General Motors Co . may fill most of the 5,500 jobs created by its $1.4 billion retooling of 18 U.S. factories with laid-off workers, the automaker’s manufacturing and labor chief said on Feb. 23. The company has 5,000 to 6,000 workers on indefinite layoff, Diana Tremblay, the GM executive, said in an interview. Those employees have first rights to any openings from the factory upgrades, including a third shift with 1,200 positions in Lordstown, Ohio, announced today, she said. “People that we have that are laid off will have the first opportunity for the jobs so it really depends on how many people decide they want to take the jobs,” Tremblay said. “Then we would fill up the rest of the workforce with new hires.” A record nine-quarter profit slump for Standard & Poor’s 500 Index companies ended in the final three months of 2009 with a 181 percent increase in earnings, according to data compiled by Bloomberg. Almost 73 percent of S&P 500 companies have topped the average analyst estimate, the second-highest quarterly proportion in Bloomberg data going back to 1993. To contact the report on this story: Bob Willis in Washington at bwillis@bloomberg.net

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Australia’s Economic Growth Accelerates, Supporting Case for Higher Rates

March 2, 2010

By Jacob Greber March 3 (Bloomberg) — Australia’s economy grew in the fourth quarter at the fastest pace in almost two years, underscoring the central bank’s decision yesterday to boost borrowing costs for the fourth time in five meetings. Gross domestic product climbed 0.9 percent from the third quarter, when it gained a revised 0.3 percent, the Bureau of Statistics said in Sydney today. That matched the median estimate in a Bloomberg News survey of 18 economists. Governor Glenn Stevens , who yesterday became the first Group of 20 central banker to increase interest rates this year, says Australia’s economy is running at or near “trend” after skirting last year’s global recession. Growth may strengthen this year as China’s demand for resources stokes investment by companies including BHP Billiton Ltd. and Chevron Corp. “The Australian economy is running hot,” Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney, said ahead of today’s report. Domestic demand remains “very healthy, and ultimately this is what matters for monetary policy,” he said. Machinery and equipment spending surged 10.9 percent in the quarter, adding 0.8 percentage points to GDP, today’s report said. Household spending rose 0.7 percent and government spending jumped 1.8 percent. The economy grew 2.7 percent from a year earlier, the report showed. Economists forecast a 2.4 percent expansion. Best Performer Signs that Australia’s economy outperformed other nations made its dollar the best performer among the most traded currencies in the past year. The currency has climbed 42 percent versus its U.S. counterpart since March 2009 and this week hit a 25-year high against Britain’s pound. Faster-than-anticipated growth was a key reason policy makers increased the overnight cash rate target to 4 percent yesterday from 3.75 percent and prompted Governor Stevens to say rates should be closer to “average,” which he last week signaled may be 75 basis points higher than they are now. Today’s report adds to global evidence of an economic rebound. U.S. GDP rose at a 5.9 percent annualized rate in the fourth quarter, according to a government report on Feb. 26, marking the best performance in the world’s biggest economy in more than six years. The economy of China, Australia’s largest trade partner, grew a faster-than-anticipated 10.7 percent in the fourth quarter from a year earlier. Fiscal Stimulus Australia’s expansion is being boosted by spending by Prime Minister Kevin Rudd ’s government, which is outlaying A$22 billion ($20 billion) on roads, railways, ports and schools. Business investment is also surging as resources companies expand capacity to meet Asia’s rising demand for iron ore, coal and energy. Chevron, Exxon Mobil Corp. and Royal Dutch Shell Plc have this year begun construction on the A$43 billion Gorgon natural- gas venture, the nation’s single-biggest investment project that is forecast to generate as many as 10,000 jobs. Commodity exports may jump next fiscal year by 15 percent to A$187 billion, the second-highest level on record, the Canberra-based Australian Bureau of Agricultural and Resource Economics said this week in a report. Employers added 194,600 jobs in the five months through January, the most in more than three years, cutting the unemployment rate to an 11-month low of 5.3 percent, almost half the level in Europe and U.S. economies. ‘Very Strong’ “Labor-market data and a range of business surveys suggest growth in the economy may have already been at or close to trend for a few months,” Stevens said yesterday. Banks are becoming more willing to lend to businesses and “investment in the resources sector is very strong,” he said. GDP growth will quicken to an annual pace of 3.25 percent in the fourth quarter, the Reserve Bank forecast last month. “If anyone is going to boom, surely it’s Australia,” Gerry Harvey , chairman of Australia’s largest electronics retailer Harvey Norman Holdings Ltd. , said in a Feb. 26 interview. “We never really went into a recession at all. Our unemployment rate was projected to reach 7, 8, 9, or 10 percent, but it never even got to 6 percent.” House prices jumped 11.8 percent in the year through January, according to a Feb. 26 report by real-estate monitoring company RP Data-Rismark. The chain price index, a measure of retail prices, climbed 0.9 percent in the fourth quarter from a year earlier, today’s report showed. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Consumer Spending in U.S. Rises for Fourth Straight Month in Recovery Sign

March 1, 2010

By Timothy R. Homan March 1 (Bloomberg) — Spending by U.S. consumers increased in January for a fourth consecutive month, a sign that the biggest part of the economy may contribute more to growth in coming months. The 0.5 percent increase in purchases was more than anticipated and followed a 0.3 percent gain in December that was larger than previously estimated, Commerce Department figures showed today in Washington. Incomes climbed 0.1 percent, short of expectations and reflecting declines in dividends and interest. Retailers such as Home Depot Inc. and Macy’s Inc. are forecasting rising sales this year, even as they don’t foresee a robust economic recovery. An unemployment rate that’s projected to average 9.8 percent this year may restrain household purchases, which account for about 70 percent of the economy. “It’s a good start” for the year, said Brian Bethune , chief financial economist at IHS Global Insight in Lexington, Massachusetts, who correctly forecast the increase in purchases. Still, he said, “consumption is not going to be the driver” of economic growth. Stock-index futures maintained earlier gains following the report. The contract on the Standard & Poor’s 500 Index rose 0.4 percent to 1,107.7 at 9:05 a.m. in New York. Treasury securities were little changed. Exceeds Forecast The median estimate of 61 economists surveyed called for a 0.4 percent increase in spending, after an originally reported gain of 0.2 percent the prior month. Projections ranged from gains of 0.2 percent to 0.6 percent. The increase in incomes followed a 0.3 percent advance in December. The median forecast of economists surveyed anticipated a 0.4 percent gain. Wages and salaries climbed 0.4 percent in January, the most since April, after increasing 0.1 percent the prior month. Interest payments fell 0.3 percent while dividends declined 3 percent. Disposable income , or the money left over after taxes, dropped 0.4 percent, the largest decrease since July, reflecting an increase in federal non-withheld income taxes. Today’s report showed stable prices. The inflation gauge tied to spending patterns rose 2.1 percent from January 2009, less than the 2.2 percent survey median forecast. The Federal Reserve’s preferred price measure, which excludes food and fuel, was unchanged in January from the previous month and was up 1.4 percent from a year earlier. Adjusted for inflation, spending climbed 0.3 percent following a 0.1 percent rise the prior month. Because the increase in spending was larger than the gain in incomes, the savings rate fell to 3.3 percent, the lowest level since October 2008, from 4.2 percent the prior month. Broad-Based Gains Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, climbed 0.7 percent in January after rising 0.6 percent the prior month. Purchases of non-durable goods increased 0.8 percent, and spending on services, which account for almost 60 percent of all outlays, increased 0.1 percent. The economy grew at a 5.9 percent annual rate in the fourth quarter, the fastest pace in six years, figures from the Commerce Department showed last week. Consumer spending slowed to a 1.7 percent pace, from 2.8 percent the previous three months. Home Depot is among companies projecting stronger sales. “We recognize that we have more work to do as a company and that the economy is not out of the woods yet, particularly in our market, so we’re not projecting robust growth,” Home Depot Chairman and Chief Executive Officer Frank Blake said on a Feb. 23 conference call with analysts. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Video: Lebas Says Keep a `Close Eye’ on Feb. Jobless Data: Video

February 26, 2010

Feb. 26 (Bloomberg) — Guy Lebas, fixed-income strategist and economist at Janney Montgomery Scott LLC, talks with Bloomberg’s Betty Liu about today’s announcement by the Commerce Department that fourth-quarter gross domestic product expanded at a 5.9 percent annual rate. Lebas also discusses the impact of weather on consumer sentiment, January’s existing home sales and jobless data. (Source: Bloomberg)

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