It's that time of the week. Don't think about anything related to the economy or the markets until Monday. Until then ...
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The German economy's transformation from spluttering Trabant to purring Mercedes is complete.Although third-quarter gross domestic product growth of 0.7% was slightly below consensus, that was made up for by revisions higher for the first half of the year; the country is on track to grow 3.5% or more in 2010, its best performance since reunification and far above the 1.5% average in the precrisis decade. Crucially, domestic demand, both private and public, is now making an equal contribution to growth with investment and exports, suggesting the economy is rebalancing naturally, despite misplaced criticism from some trading partners.
Germany's GDP has now recovered more than 70% of the 6.6% fall in output as a result of the recession, J.P. Morgan Chase & Co. notes. Both companies and individuals are upbeat. With German bond yields so low and no fiscal concerns, the cost of borrowing is cheap. The latest survey by the German Chambers of Industry and Commerce showed a positive balance of 14% of companies planning to increase investment, far above the long-run average of minus 8% and close to a record; a similar picture emerges for hiring intentions. Unemployment has fallen below three million, its lowest level since 1992.
Global controversy mounted over the Federal Reserve's decision to pump billions of dollars into the U.S. economy, with President Barack Obama defending the move as China, Russia and the euro zone added to a chorus of criticism.
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The G-20 summit that begins Wednesday night in Seoul is shaping up as a showdown between exporting powers, such as Germany and China, and nations such as the U.S. that are struggling to emerge from recession and high unemployment.
The G-20 summit that begins Wednesday night in Seoul is shaping up as a showdown between exporting powers, such as Germany and China, and nations such as the U.S. that are struggling to emerge from recession and high unemployment.
Copper prices hit a record, as the seemingly relentless pace of Chinese demand and a potential supply shock from Chile bring the industrial metal's near-term scarcity into stark relief.China, the world's No. 1 consumer of the red metal, released data showing that industrial output and capital spending were holding steady even though Beijing has recently taken steps to cool investment in real-estate and other sectors.
There is an increasing amount of information coming from China that may thwart this upward move in commodities purchased by the Chinese industrial base. The big one is inflation:
China's consumer price index rose 4.4% from a year earlier in October, as food prices drove the fastest increase in two years. Price rises accelerated sharply from the 3.6% increase in September and beat market expectations of a 4% gain. Average inflation for the year has now reached 3% and is likely to march higher unless the readings slow sharply in the next two months.
This has a lot of people concerned that we'll see the Chinese central bank raise rates soon.
Crude-oil futures settled at their highest in more than two years Wednesday, defying a rising dollar as a U.S. government report showed a larger-than-expected drop in inventories.Crude for December delivery added $1.09, or 1.3%, to $87.81 a barrel on the New York Mercantile Exchange. That’s oil’s best settlement since early October 2008.
The contract had traded lower just moments before the Energy Information Administration released its update on U.S. petroleum inventories as the dollar continued to rise.
A surprise decline in crude stockpiles for last week brought prices back into positive territory.
The government reported a decline of 3.3 million barrels in the nation’s crude-oil supplies in the week ended Nov. 5. Gasoline stockpiles fell 1.9 million barrels and distillates dropped by 5 million barrels, the Energy Information Administration said.
The update ran counter to analyst expectations of an increase for crude inventories and smaller declines for petroleum products supplies.
Analysts polled by Platts had expected an increase of 2.1 million barrels in stockpiles of crude, while gasoline was seen dropping 1.3 million barrels and distillates were forecast to decline 2 million barrels.
The government’s drawdown of 3.3 million barrels for crude came in smaller than the 7.4 million barrels estimated by the American Petroleum Institute late Tuesday.
Consider this chart:
The lower 80s provided strong resistance for oil prices for the last three months. But over the last week, prices have moved through this important area of resistance. In addition, the EMAs indicate the short and intermediate trends are bullish which is confirmed by the MACD.
Because of oil's central nature to the economy, this is a very important development that needs to be watched closely.
YOU can’t watch the circus that America calls its budget process without suspecting it plays some role in the country's fiscal mess. Congress for the first time has failed to send a budget resolution to the floor, its continuing resolution is about to expire, as are a bunch of tax cuts, and there’s a battle looming over raising the debt ceiling. This does not look like rational fiscal policy.
the Democrats can't lead at all -- they want everybody to get along -- and don't want to hear basic economic information when it runs counter to their narrative, the Republicans have walked away from logic and fact and the Tea Party could care less about mere competence.
None of the proposals would take effect next year to avoid disrupting the economic recovery. Bowles said income-tax rates would be reduced to three levels: 8 percent, 14 percent and 23 percent.First, I'm a tax lawyer by profession, so I deal with the code every day. I'm also one of the few people who has actually read pretty much most of the code.Wiping out all tax breaks, including the home mortgage deduction, while lowering rates would save $100 billion a year, Bowles said. Members of the panel could decide to keep some tax breaks by offering offsetting cuts, he said.
Here's what I think they are thinking, which is purely conjecture on my part. If we eliminate all the deductions, then the IRS' compliance burden is greatly reduced. Hence, they lower the cost of tax administration. In addition, I'm thinking the rates they come up with would be the rates the average person in the tax bracket winds up paying anyway. (Again, this is pure conjecture).
While this is a nice idea in theory, there is no way it's going to be implemented. Here's the basic problem: off the top of my head, I'd say at least 35% of all the tax code sections are special interest giveaways. In addition, every year, Congress tinkers with all sorts of aspects of the code, as a sop to some special interest. The only way for this to work is if all the special interest deductions go away -- as in every single one. If you leave in one, then someone else will say, "what about mine? In addition -- none of them can ever come back, because as soon as one comes back, you open the doors to all of them. In other words, the basic premise underlying implementation is politically unworkable.
My initial thought is this is a document full of wonderfully magical thinking -- meaning, it's full of a lot of proposals that will never see the light of day. Basically, it says we can cut taxes and spending and balance the budget.
The credit crunch is easing in the U.S. but it's far from over.
Banks loosened their lending standards in the third quarter, but loans remained hard to get by recent historical standards, a trend expected to continue for the foreseeable future, according to the Federal Reserve's senior loan officer survey, released Monday.
The survey—based on responses from 57 domestic banks and 22 U.S. branches of foreign banks—showed banks for the second quarter in a row eased standards on business loans to firms of all sizes.
But the picture for households is more mixed. Banks have tightened standards on prime mortgage and home-equity loans but have become more willing to make consumer installment loans, such as car loans.
Some lenders are also easing standards for approving credit cards. However, other banks cut the size of credit lines on existing credit card accounts.
"We sort of had to figure out where the new normal was," said Robin Paterson, executive vice president and chief credit officer at American Business Bank in Los Angeles. "Once you know what that is, credit loosens up for certain types of [borrowers], but tightens up for others."
Most respondents cited the improving economy and increased competition from other lenders as reasons for relaxing loan standards to businesses. The previous survey, covering the second quarter, found that big U.S. banks had started to ease terms on loans to small businesses for the first time since late 2006.
Q: How does the committee weight employment in determining the dates of peaks and troughs?
A. In the 2007-2009 recession, the central indicators–real GDP and real GDI–gave mixed signals about the peak date and a clear signal about the trough date. The peak date at the end of 2007 coincided with the peak in employment. We designated June 2009 as the trough, six months before the trough in employment, which is consistent with earlier trough dates in the NBER business-cycle chronology. In the 2001 recession, we found a clear signal in employment and a mixed one in the various measures of output. Consequently, we picked the peak month based on the clear signal in employment, as well as our consideration of output and other measures. In that cycle, as well, the dating of the trough relied primarily on output measures.Q: Isn't a recession a period of diminished economic activity?
A: It's more accurate to say that a recession–the way we use the word–is a period of diminishing activity rather than diminished activity. We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough. The time in between is a recession, a period when economic activity is contracting. The following period is an expansion. As of September 2010, when we decided that a trough had occurred in June 2009, the economy was still weak, with lingering high unemployment, but had expanded considerably from its trough 15 months earlier.
Q: How do the movements of unemployment claims inform the Bureau's thinking?
A: A bulge in jobless claims usually forecasts declining employment and rising unemployment, but we do not use the initial claims numbers in determining our chronology, partly because of noise in that data series.
Q: What about the unemployment rate?
A: The unemployment rate lags behind the NBER cycle dates as a general matter–it reaches a low point somewhat later than the peak in activity and usually remains at high levels after activity reaches its trough. For example, in the recovery beginning in March 1991, the unemployment rate continued to rise for 15 months after the trough. The lag was 19 months in 2001 to 2003. In the current recovery, the lag was only 4 months, from the trough in activity in June 2009 to the highest point of the unemployment rate in October 2009. But even in September 2010, the unemployment rate remained at high levels, even though these levels were below the maximum reached in October 2009.
"The manufacturing sector grew during October, with both new orders and production making significant gains. Since hitting a peak in April, the trend for manufacturing has been toward slower growth. However, this month's report signals a continuation of the recovery that began 15 months ago, and its strength raises expectations for growth in the balance of the quarter. Survey respondents note the recovery in autos, computers and exports as key drivers of this growth. Concerns about inventory growth are lessened by the improvement in new orders during October. With 14 of 18 industries reporting growth in October, manufacturing continues to outperform the other sectors of the economy."
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Of the 18 manufacturing industries, 14 are reporting growth in October, in the following order: Apparel, Leather & Allied Products; Primary Metals; Petroleum & Coal Products; Machinery; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Fabricated Metal Products; Paper Products; Printing & Related Support Activities; Transportation Equipment; Computer & Electronic Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; and Chemical Products. The two industries reporting contraction in October are: Nonmetallic Mineral Products; and Furniture & Related Products.
Manufacturing continued to grow in October, and at an accelerated rate as the PMI registered 56.9 percent, an increase of 2.5 percentage points when compared to September's reading of 54.4 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
ISM's New Orders Index registered 58.9 percent in October, which is an increase of 7.8 percentage points when compared to the 51.1 percent reported in September. This is the 16th consecutive month of growth in the New Orders Index and the largest month-over-month improvement since January 2009. A New Orders Index above 50.2 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).The 11 industries reporting growth in new orders in October — listed in order — are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Primary Metals; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Machinery; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Transportation Equipment. The five industries reporting contraction in October are: Nonmetallic Mineral Products; Printing & Related Support Activities; Wood Products; Chemical Products; and Furniture & Related Products.
Here's a chart of the data:ISM's Production Index registered 62.7 percent in October, which is an increase of 6.2 percentage points from the September reading of 56.5 percent. This is the largest month-over-month improvement since January 2010. An index above 51 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. This is the 17th consecutive month the Production Index has registered above 50 percent.
The 11 industries reporting growth in production during the month of October — listed in order — are: Apparel, Leather & Allied Products; Primary Metals; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Machinery; Transportation Equipment; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Chemical Products. The two industries reporting contraction in October are: Nonmetallic Mineral Products; and Furniture & Related Products.
"The NMI (Non-Manufacturing Index) registered 54.3 percent in October, 1.1 percentage points higher than the 53.2 percent registered in September, and indicating continued growth in the non-manufacturing sector at a slightly faster rate. The Non-Manufacturing Business Activity Index increased 5.6 percentage points to 58.4 percent, reflecting growth for the 11th consecutive month at a substantially faster rate than in September. The New Orders Index increased 1.8 percentage points to 56.7 percent, and the Employment Index increased 0.7 percentage point to 50.9 percent, indicating growth in employment for the second consecutive month and the fourth time in the last six months. The Prices Index increased 8.2 percentage points to 68.3 percent, indicating that prices increased significantly faster in October. According to the NMI, 11 non-manufacturing industries reported growth in October. Respondents' comments remain mixed about business conditions and vary by industry and company. The trend of the overall comments indicates that there are signs of economic stabilization."
In October, the NMI registered 54.3 percent, indicating continued growth in the non-manufacturing sector for the 10th consecutive month. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.
ISM's Non-Manufacturing Business Activity Index in October registered 58.4 percent, an increase of 5.6 percentage points when compared to the 52.8 percent registered in September. Ten industries reported increased business activity, and three industries reported decreased activity for the month of October. Five industries reported no change from September. Comments from respondents include: "Continued strength in core businesses and capital expenditures for balance of 2010" and "Increase in service calls/requests for service."
ISM's Non-Manufacturing New Orders Index grew in October for the 14th consecutive month. The index registered 56.7 percent, which is an increase of 1.8 percentage points from the 54.9 percent reported in September. Comments from respondents include: "Orders awarded that have been on customer hold" and "New projects approved."The 10 industries reporting growth of new orders in October — listed in order — are: Professional, Scientific & Technical Services; Mining; Educational Services; Finance & Insurance; Transportation & Warehousing; Accommodation & Food Services; Retail Trade; Information; Wholesale Trade; and Public Administration. The three industries reporting contraction of new orders in October are: Other Services; Construction; and Health Care & Social Assistance.